Since September 11, combating money laundering has assumed a new sense of urgency, egged on both by the implementation of the Patriot Act in the US and the Prevention of Money Laundering Act in India.
The PMLA makes it illegal to enter into a transaction related to funds derived from criminal activities as also to possess or transfer such funds.
Financial institutions and intermediaries registered with Sebi are required to furnish to the income tax authorities, details of all transactions that exceed Rs 2.5 million a month. Information on the clients involved in these transactions is also to be furnished.
Co-operative banks, NBFCs, chit funds and housing financial institutions come under the Act's ambit. The Act also makes it mandatory for banking companies to maintain a record of all transactions of a prescribed value and to furnish information whenever sought.
Infrasoft Technologies Ltd recently launched OMNI Enterprise, an anti-money laundering software that offers reporting and query capabilities. OMNI would help banks and financial institutions tackle the money laundering menace.
OMNI is aimed at banks handling large amount of remittances. It captures customer details, stores compliance rules, monitors transactions and flags violation of transactions against customer profile and compliance rules.
Infrasoft developed the software largely in the UK.
"We developed it in UK because we had better market feedback from banks, users, consultants and most importantly, lawyers. In India, there is no such urgency regarding the need for anti-money laundering measures," says Hanuman Tripathi, managing director, Infrasoft Technologies.
British banks, in turn, have also become the biggest clients for the software. Since its release in January, Infrasoft has signed three British regional banks as clients.
Infrasoft hopes to close deals with 15 more banks in UK, two in US and one in Canada soon.
The cost of OMNI Enterprise can range between $75,000 to half a million, depending on the size and the complexity of deployment.
In 2000, black money was estimated to account for more than 40 per cent of India's GDP (approximately $ 150 billion).
In Pakistan the figures are worse. The Pakistan Institute of Development Economics said assets stashed away as black money in the country was worth about $28 billion or over 51 per cent of the country's GDP.
The IMF estimates the global volume of money laundering to be anywhere between $600 billion and $1.8 trillion a year.
In US, the collective spending by banking, insurance and fund management companies on anti-money laundering measures is estimated to be $10.9 billion between 2003 and 2005.
In India, there are absolutely no estimates regarding spending on anti-money laundering measures by banks and financial institutions.
But with the PMLA in force, it would not be long before Indian banks get their acts together to find AML software solutions.
International pressure combined with a move towards greater regulation will force financial organizations in India to check, identify and report suspicious transactions regularly.
Failure to do so would mean the risk of losing face in the market place and fighting costly legal battles.
Implementation of an efficient anti-money laundering software would help banks against possible money laundering attempts.
However, among Indian banks, Infrasoft's OMNI anti-money laundering software has found no takers, though Tripathi says he has had encouraging responses.
Indian banks are not ready to decide quickly if they want to have such a product installed. Maybe, there has to be greater pressure from the RBI for implementation of such a product faster, says Tripathi.
But banks are not missing the presence of specialized anti-money laundering software in their systems. Analyst say for most banks, the first priority is to get their systems computerised and, having anti-money laundering software is not a major concern.
"Many of the banks' branches in India are still to be completely computerised. So banks are right now concentrating on that. Much of the loopholes that are there in our economic system that allow money laundering come partly from lack of computerisation," says a banking analyst.
Anti-money laundering software helps generate compliance reports in tune with the legal requirements as set by various laws, rather than actually detect suspicious transactions. Most banking softwares have anti-fraud measures that do exception reporting and help track down transaction patterns that are suspicious.
The current anti-money laundering laws require banks to capture and report as per the laws. This is being done manually and as a result much of these reports are delayed by months, says Tripathi.
The absence of specialized product that would generate compliance reports has caused trouble for Indian banks. Recently, State Bank of India had to pay penalties for non-compliance with certain statutory measures.
Still, Tripathi is keeping his fingers crossed. "I hope the RBI will convince Indian banks of the need and urgency of such a software," he says.
More from rediff