The Financial Action Task Force (FATF) released its Mutual Evaluation Report on India, highlighting the country’s significant progress in combating illicit finance. The FATF Plenary held in Singapore in June 2024 adopted the Mutual Evaluation Report for India, stating that it has achieved a “high level of technical compliance” with the global money laundering watchdog’s requirements.The FATF has placed India in the “regular compliance” category, the highest rating category given by the FATF, making India the only major economy with a federal structure to receive this status.Apart from India, the UK, France and Italy are the only G-20 countries to be placed in this category.
Key Highlights of the Report
Areas for Improvement
Non-Profit Sector Risks
- Implementation of measures to prevent the non-profit sector from being abused for terrorist financing must align with a risk-based approach.
- Outreach to non-profit organizations regarding their risks is essential.
Politically Exposed Persons (PEPs)
- Enhanced measures are being applied to PEPs, but there is a lack of coverage for domestic PEPs from a compliance perspective.
- Full implementation of requirements by reporting entities is necessary.
Non-Financial Sector and Virtual Assets
- Early stages of implementing preventive measures and supervision in these areas.
- Urgent need to improve cash restrictions in the precious metals and stones sector due to its significant role in the economy.
Money Laundering Risks
- Primary sources include fraud, cyber fraud, corruption, and drug trafficking.
- Precious metals and stones (PMS) sector vulnerable to money laundering due to large transaction volumes without ownership trails.
- Only 9,500 out of 175,000 PMS dealers are registered with the Gems and Jewellery Export Promotion Council (GJEPC).
- Criminal networks in the PMS sector are under-investigated; ongoing monitoring of fraud and smuggling techniques is essential.
Terrorist Financing Threats
- Significant threats from groups like ISIL and Al-Qaeda, particularly in Jammu and Kashmir.
- Regional insurgencies and Left-Wing Extremist groups pose additional risks.
- More efforts required to conclude prosecutions against terrorist financiers.
Financial Inclusion
- Increased bank account holders and digital payment usage, supported by the Jan Dhan-Aadhaar-Mobile (JAM) initiative.
- Implementation of Goods and Services Tax (GST) has enhanced supply chain transparency.
Action Against Terror Financing
- Acknowledgment of effective actions by the National Investigation Agency (NIA) and the Enforcement Directorate.
FATF’s Recommendations
- Expedite pending money laundering trials; improve handling of human trafficking and drug-related offences.
- Enhance frameworks for targeted financial sanctions to ensure timely freezing of funds and assets.
- Define domestic PEPs under anti-money laundering laws and implement risk-based measures.
Implications of FATF’s Mutual Evaluation for India
- International Collaboration and Asset Recovery: Enhanced ability to cooperate in tracking illicit assets, benefiting cases involving fugitives like Vijay Mallya and Nirav Modi.
- Improved Access to Global Financial Systems: Better access to global financial markets, facilitating investments and borrowing from international institutions.
- Strengthening Investor Confidence: Positive evaluation boosts India’s credibility, enhancing foreign direct investment (FDI) attractiveness.
Financial Action Task Force
- The Financial Action Task Force (FATF) is an intergovernmental organization dedicated to combating money laundering and terrorist financing. FATF sets international standards and policies to prevent the abuse of virtual assets and virtual asset service providers (VASPs).
Origin
- The Financial Action Task Force (FATF) was established in 1989 during the G7 Summit in Paris with the objective of developing policies to combat money laundering
- In 2001, its mandate was broadened to include terrorism financing as well.
- Headquartered in Paris, France
- Members: India became a member of the FATF in 2010.
Members
- Argentina
- Australia
- Austria
- Belgium
- Brazil
- Canada
- China
- Denmark
- European Commission
- Finland
- France
- Germany
- Greece
- Gulf Cooperation Council
- Hong Kong, China
- Iceland
- India
- Indonesia
- Ireland
- Israel
- Italy
- Japan
- Korea
- Luxembourg
- Malaysia
- Mexico
- Netherlands
- New Zealand
- Norway
- Portugal
- Russian Federation *
- Saudi Arabia
- Singapore
- South Africa
- Spain
- Sweden
- Switzerland
- Türkiye
- United Kingdom
- United States
* FATF suspended membership of the Russian Federation on 24 February 2023