US Laws Crushing Indian Banks
By ST Team   |   Wednesday, 13 September 2006, 19:30 IST
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Indian banks present in US are being burdened by the tough regimes of the US Patriot Act and the Financial Action Task Force (FATF), even though five years have passed since 9/11. The provisions of these laws, aimed at curbing money laundering and terrorist financing are increasing the cost of operations for the banks. A clause in the US Patriot Act, empowers federal government to cut off an entire country’s access to the US financial system if it fails to co-operate with the United States in investigations of terrorist financial flows. Banks that fail to act as per the Patriot Act norms are subjected to stricter regulations and heavy fines. The banks are required to file Suspicious Activity Reports (SARS) and maintain records of new customer identification, record-keeping standards and verification of identity of foreign customers. The FATF of which US is a member, is a comprehensive framework that sets minimum standards for action for countries to implement according to their own particular circumstances and constitutions. “Compliance in the US is on the verge of paranoia. We have been operating there for many years, but the costs of compliance post 9/11 have been increasing. There is a possibility there could be a flight of capital to less stringent regulatory regimes,” a senior official with a public sector bank informed. Analysts have confirmed the fact that civil and criminal enforcement actions against violators have risen in the past months. Even the scope of training and programmes designed to determine whether businesses are secure, safe and in compliance has risen by many folds. The talk heard around financial services sector is other countries would follow suite and take measures similar to US policies. They felt that banks needed to be scrutinized and subjected to greater regulations to prevent any future mishaps. “The Indian banking system will require large investments in technology, which is primarily manpower intensive,” said Ashvin Parekh, partner, financial services Ernst and Young. The case holds true even for the US financial institutions, whose costs of doing business have gone up in adhering to the regulations.

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