Mumbai: Banks will soon blacklist diamond houses, jewellers, and gem stores if they fail to disclose the ultimate beneficial owners (UBOs) of their trading partners. Identifying the true owners tests the genuineness of foreign buyers and sellers. Furthermore, this move curbs sham exports and imports. It also exposes rogue firms that use cross-border trades in gold jewellery as a subterfuge for irregular fund transfers.
Impact of Disclosing Ultimate Beneficial Owners on Trade Partners
The trading fraternity remains in touch with local banks to establish a new framework. Under this system, firms that use overseas shell companies as trade counterparties will find it difficult to access export credit and working capital. Specifically, a trade body representing over 9,500 jewellers assured the Financial Action Task Force (FATF) of this commitment last week. Because a FATF team visited the country this month to evaluate India’s anti-money laundering preparedness, these discussions carry significant weight.
Industry Bodies Lead the MYKYC Initiative
The Gem & Jewellery Export Promotion Council (GJEPC) leads the initiative to trace the origins of ownership. GJEPC introduced the ‘MYKYC’ regime in 2019 following the Nirav Modi-Mehul Choksi scam. Consequently, this regime makes it mandatory for members to reveal details of companies and proprietors. However, such disclosures are not compulsory in every country. For instance, firms in the UAE may choose not to register under a strict KYC system. Therefore, the onus lies on Indian firms to insist that their foreign buyers share these vital details.
Challenges in Tracking Ultimate Beneficial Owners Internationally
The state-owned ECGC already demands ownership details before providing credit risk insurance. Because the ECGC operates under the Ministry of Commerce and Industry, its stance makes it easier to link bank credit with offshore counterparty data. Additionally, the person familiar with the proceedings noted that gold smuggling issues arose during the FATF interaction. Unlike other nations, India experiences higher smuggling rates largely due to import duties rather than terror finance.
| Entity | Role in UBO Disclosure |
| GJEPC | Leads the MYKYC regime for industry transparency. |
| ECGC | Links export credit insurance to UBO disclosure. |
| FATF | Evaluates national anti-money laundering preparedness. |
| SEBI | Regulates foreign portfolio investors and natural persons. |
FATF Assessment and Market Implications
The last FATF evaluation of India happened in 2010. Although the FATF lacks a specific statute, its findings influence how international investors allocate capital. Specifically, a country on the FATF grey list risks losing hard currency inflows. Furthermore, the ongoing assessment follows the Hindenburg report. Consequently, the Securities and Exchange Board of India (SEBI) has introduced stringent regulations to spot the natural persons who control foreign portfolio investors.
Courtesy – economictimes.indiatimes.com
