15 Mar, 2011, 06.32AM IST, Deepshikha Sikarwar,ET Bureau

http://economictimes.indiatimes.com/news/economy/foreign-trade/foreign-investors-will-have-to-commit-to-money-laundering-rules/articleshow/7706767.cms

NEW DELHI: Foreign investors may have to give a commitment that they will abide by the country's stringent money laundering laws if a proposal mooted by the department of industrial policy and promotion (DIPP) is accepted.

The proposal is included in the draft of the revised foreign direct investment (FDI) policy circulated by DIPP. "A meeting of senior officials from all concerned departments and ministries has been called this week to finalise the contours of the revised FDI policy," an official said.

The DIPP reviews the FDI policy every six months and a circular on the revised policy is expected by the end of this month. The new circular seeks an undertaking from a foreign investor that it will abide by the provisions of the Prevention of Money Laundering Act and the Unlawful Activities Prevention Act.

An offence under the Money Laundering Act could invite rigorous imprisonment of up to seven years and fine of up to Rs 5 lakh. The DIPP proposal came following recommendations of a panel of secretaries that was asked to look into the FDI policy for sensitive sectors and a new law for post-investment surveillance of investors.

India has attracted $142 billion of foreign investment since 1991. More than 40% of these foreign inflows come from Mauritius, which experts say is actually a third country investment. This makes it difficult to trace the origin of these funds, raising concerns of laundering.

The proposed declaration will be on the lines of the one made by Indian companies under the Foreign Collaboration-General Permission Route (FC-GPR). A company has to make this declaration to the RBI within 30 days of receiving foreign capital raised through shares or convertible debentures.

"It will be extremely onerous on Indian companies to confirm to money laundering compliance of a foreign investor as they may not have the appropriate wherewithal and information to do the necessary due diligence," said Akash Gupt, executive director, PwC.