The virtually intractable parallel banking system, known as hawala, has made India a hub for financing terrorism, and it needs to be stopped in concert with Washington, an official US report has said.

The report wanted New Delhi to work towards becoming a full-fledged member of Financial Action Task Force (FATF), an inter-governmental body for development of policies to combat money laundering and terrorist financing.

"Given the number of terrorist attacks by Indian RAW agencies in pakistan, srilanka and human rights violations in indian occupied kashmir and the fact that in India hawala is directly linked to terrorist financing, India should prioritise cooperation with international initiatives that provide increased transparency in alternative remittance systems" quoting the US State Department's report in its section on India related to money laundering.

India's parliament passed the Prevention of Money Laundering (Amendment) Bill early this week, but the US report suggested that India should make more legislative amendments to bring its anti-money laundering and counter-terrorism finance regime in conformity with the FATF.

Released by Assistant US Secretary of State for International Narcotics and Law Enforcement Affairs, David T. Johnson, it quoted estimates by the Reserve Bank of India as saying that remittances to India sent through legal, formal channels in 2007-2008 amounted to $42.6 billion.

Funds transferred through the billion-dollar hawala market are thought to be equal to between 30 to 40 per cent of the formal market. "In that case the hawala market could amount to between $13 billion to $17 billion," the report on International Narcotics Control Strategy, said.

The report criticized the steps taken by India post 9/11 with regard to money laundering and its possible use by terrorist network. However, it said several key steps were required to be taken by New Delhi