Aug 17 2007 Marcus Simpson
India's finance ministry has asked banks to install software to track all banking transactions so that they can detect any suspicious activity and report it to the country's financial intelligence unit, according to media reports. Banks in India have reportedly been consulting software companies about developing in-house alerting systems, which will give an early warning of potential cases of money laundering and terrorist financing.
The Government, according to media sources, has clearly stated its support for the use of software to detect suspicious transactions as an improvement over manual checking and a way of streamlining the process. The more time that enforcement and security agencies have to react to real threats, the more they can prevent terrorist acts and serious crimes, officials said.
Experts have argued that software might be particularly helpful with respect to the detection of suspicious transactions by existing account holders. When new accounts are set up, banks are highly likely to classify their holders according to a perception of their risk. Existing account holders may not have been initially classified in this way, however, so their transaction patterns and transaction histories become particularly important.
Software, the argument runs, is better suited to monitor large volumes of transactions. Whether it is ultimately better at giving out alerts in the correct situations, however, depends on how good the underlying algorithms are.
Banks in India are obliged to send a report to the FIU each time they undertake a cash transaction above Rs1m ($24,300). This obligation stands whether the transaction is in rupees or foreign currency to the equivalent level and when a series of linked transactions is worth more than Rs1m ($24,300). According to one estimate, banks in India have tracked around 1.3m of these transactions in the last year.
In April, India's central bank ordered all commercial banks to improve their procedures and systems to track wire transfers, both domestically and cross-border. India's FIU recently became a member of the "premier league" Egmont Group. The country currently holds "observer status" with the Financial Action Task Force but aspires to become a full member as soon as it can.
