RBI ISSUES WARNING ON BANKING TRANSACTIONS WITH IRAN

Perceiving a threat of money laundering and terror-financing in banking transactions with Iran, the Reserve Bank of India (RBI) has asked banks and other financial entities to be cautious in their dealings with entities and funds from the Middle East country.

The RBI circular issued to banks and other entities operating payment systems in India contained a global market caution notice issued by the Financial Action Task Force (FATF) on Iran.

The FATF is an inter-governmental body responsible for making policies at national and international levels to combat money laundering and terror-financing.

As per the FATF warning, all financial institutions have been advised "to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions."

The FATF has also warned against efforts to bypass or evade counter-measures and risk mitigation practices and urged financial institutions to take into account the risk of money laundering and terror-financing when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction.

A similar circular has been issued by market regulator Sebi to the stock exchanges, with the objective of ensuring that Indian markets are not used by Iran-based firms for money laundering or terror-financing activities.

In turn, the stock exchanges have asked brokers to ensure compliance with the Sebi circular.

India became a member of FATF last year. Following the nation's accession into the global body, it is required to follow the global standards prescribed by the FATF to check money laundering and terror-financing activities.

Paris-based FATF informs the central government of its member countries about all its cautionary notices and policies, which in turn are forwarded to the concerned enforcement and regulatory agencies.

The latest caution notice on Iran was issued by the FATF to the Indian government late last year. The notice was later forwarded to Sebi, based on which the regulator issued a circular to market intermediaries.

Iran has been subjected to various sanctions by the US and some European countries to thwart the flow of funds allegedly used to finance the country's nuclear weapon ambitions and sponsor terror-related activities. There have been demands in the US for all listed companies to mandatorily disclose their links with Iran.

In its latest notice, FATF has named Iran as a 'jurisdiction' for which the countries need to apply counter- measures to protect the international financial system from substantial money laundering and terror financing risks.

FATF said it will consider asking its members to strengthen counter-measures in February, 2011, if Iran fails to take any concrete steps in this regard.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-issues-warning-on-banking-transactions-with-iran/articleshow/7314084.cms