Money laundering through Indian NGOs

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Indian NGOs and the risk of Laundering

Voluntary organizations receiving more than Rs. 11,500 crore ($1.9 billion) in foreign funds annually, the Home Ministry has warned that the NGOs could be vulnerable to risks of money laundering and terror financing. A total of 43,527 NGOs are registered under the Foreign Contribution (Regulation) Act, as of March 31, 2012.

Indian NGOs are targeted for laundering the money because of several reasons, though one of the most significant reason is the Income tax benefits available to the Indian NGOs doing the charitable activities. Income derived from property under trust, wholly for charitable or religious purposes is exempt to the extent such income is applied on the objects of the trust in India. The trust must apply at least 85% of such income on the objects in such cases balance 15% will deemed to be accumulated for the purpose of charity and exempt.

Many of the Indian NGOs are also registered under the Public Trust Act, though there are possibilities to get registered under the Companies Act as well as Societies Act. A trust can be registered in one state, but the same has the scope to operate in any number of states. In the state of Maharashtra and Gujarat, all organizations that are registered as ‘Society’ are by default also registered as Public Trust.

Some of the other reasons are

  • NGOs in India enjoy high levels of public confidence because of their work in the areas like relief of the poor, education, medical relief and the advancement of any other object of general public utility
  • NGOs in India often have complex financial operations including multiple donors, investments and currencies, often receiving and using cash, having to account for high volume of small transactions and using informal money transfers
  • Some NGOs may work within or near those areas that are most exposed to terrorist activity or the money laundering activity
  • NGOs may have unpredictable and unusual income and expenditure streams, so suspicious transactions may be harder to identify.