AML/CFT: Australia's drive for Indians increases money laundering risk

Australia has moved away from the "where the bloody hell are you" (for some markets translated as "So here's a really big hello") and skinny women in skimpy bikinis on beaches to a cast of Indians who have made a success of their move to Australia. It's all very positive stuff.

In the wake of violence against Indians that hit the international headlines and damaged Australia's reputation abroad, resulting in a drop in the numbers of Indian students (although a significant part of that is just as likely due to the strength of the Aussie dollar which has increased fees for overseas students by as much as 20% and had an equally severe impact on students from China) Australia is trying to improve its image with a multi-media, mass market advertising campaign put up by tourism Australia.

But the message is only superficially tourism: the real purpose is to show Australia as a safe place to relocate to and do business.

The campaign features prominent Indians who say things like "I am an Australian now, but I keep my Indian culture" and "Australia is a place where you can be successful if you work hard."

That, clearly, is not aimed at the package tour industry.

Government spokesmen trot out lines such as "The Indian economy is important to Australia" in support of the campaign.

Last year, 140,000 Indians visited Australia - despite the bad press, an increase of 11% on the previous year.

It's a long way to Australia from India and there are several attractive places for business people to stop off on the way, including places where Indian communities are entrenched.

So Australia has to offer something special.

The special thing appears to be a drive to the bottom in terms of immigration security: countries such as the UK and Malaysia, each with long histories of Indian migration and population growth have restricted visas for Indian visitors due to the abuse of, amongst other things, the student visa system. Malaysia says that illegal overstaying is a significant problem where Indian visitors simply disappear into the local population. The UK had a similar problem where it was found that, at London's Heathrow Airport, multiple people would use the same employment identity so sharing work and income between families. Some of those people were illegal. The technique was especially prevalent amongst Sikhs whose facial hair and turbans made passing rudimentary visual facial checks against an ID card quickly flashed a simple matter.

Australia seems to be offering an open door policy to Indians and their money.

And that causes another problem. The Indian government estimates that as much as 80% of tax due goes unpaid. But with only a fraction of the country's 1,200 million people liable to more than a few dollars in taxation each month, it follows that the tax evaded is in the hands of exactly those who Australia now woos.

That places a serious question mark over what money will flow into Australian banks and how they will decide whether the money is legally generated with all appropriate taxes paid. In short, Australian government policy is now specifically increasing the risk that Australian banks and other businesses will be used for money laundering in relation to the proceeds of Indian tax evasion and, possibly, other crimes.

It's a situation already causing concern in three popular destinations for Indians seeking a home for their money: Switzerland, Dubai and Singapore. Even during the economic downturn, flights from India to these three places remained full. And, with the best will in the world, none of these places can be seen as genuine tourism destinations for Indians although there are many with some kind of business interest there.

Many of those business interests are in the rather nebulously described "trading" or "consultancy" businesses.

Consultancy is often a disguise for being an intermediary in business deals of one kind or another - sometimes called a facilitator. And while there is little doubt that most Indian businesses overseas are operating a legal business, there are sufficient that are not to cause concern that the companies they run are nothing more than a conduit for corruption moneys.

Trading companies, and it seems particularly travel-related companies, are often a front for money transfer: this is illegal in India and there are many convictions. But it's only touching the tip of the iceberg. In the UK, illegal money transmitters are set up in the myriad corner shops and (for Bangladeshis) restaurants. Some have gone legit: for while the biggest Western Union dealer in London was an Indian run pharmacy in west London. But there have been a number of successful prosecutions of those running travel related companies - some Indian and some Pakistani. But there have also been a high proportion of Indians and Pakistanis involved in carousel VAT fraud using Dubai as a stopping-off point for money and information so as to obfuscate the money trail.

Australia is playing a dangerous game and needs to assess all of the risks before plunging into a scheme from which there is no way back.

Once people are in the country, applying additional controls and checks on those applying to do business will be regarded as racism. That has to be done at government level using the visa system. It cannot be left to individual organisations.

The pretence of tourism is that all are welcome. That cannot and must not be so for the protection of society and the financial system.

Read World Money Laundering Report on money laundering risks in India: www.wmlro.com Vol 10 No 1

Article contributed by The Anti Money Laundering Network , www.antimoneylaundering.net , ultimate parent of bankinginsurancesecurities.com