India’s Progress On FATF Standards
- India has improved in combating illicit finance, but further progress is needed as the economy grows.
- MER on AML and CFT placed India in the “regular follow-up” category, recognizing good compliance.
FATF Plenary (June 2024):
- India recognized for “high level of technical compliance” with anti-money laundering standards.
- Placed in “regular follow-up” category, joining G-20 countries like UK, France, and Italy.
Key Findings of FATF Evaluation Report
- NPOs: Risk of misuse for terror financing; stronger controls needed.
- PEPs: Lack of clarity on wealth/fund sources of domestic PEPs.
- DNFBPs: Insufficient regulation in sectors like precious metals, stones, and real estate.
- Money Laundering Risks: Fraud, corruption, cybercrime, and drug trafficking are major sources.
- PMS Market: Precious metals and stones (PMS) highly vulnerable to laundering and terror financing.
- Terrorist Financing: Risks from ISIL, Al-Qaeda-linked groups, regional insurgencies (Northeast, Left-Wing Extremism).
- Financial Inclusion: Significant progress with more bank accounts, digital payments, and transparency measures (GST, e-invoices).
- Action Against Terror Financing: Effective work by NIA and Enforcement Directorate in disrupting terror funding.
Key FATF Recommendations:
- Speed up trials related to money laundering (e.g., human trafficking, drug crimes).
- Implement targeted sanctions to freeze assets quickly.
- Define domestic PEPs under PMLA and enforce stronger risk measures.
- Strengthen measures to prevent NPO abuse for terrorist funding.
About FATF
Overview:
- Global body that sets standards to combat money laundering and terrorist financing.
- Established in 1989 during the G7 Summit, mandate expanded in 2001 to include terrorism financing.
- HQ: Paris, France. 39 members, including the US, India, EU countries. India joined in 2010.
Mutual Evaluation Report (MER):
Assesses countries’ measures to combat money laundering, terrorist financing, and proliferation of WMDs. Peer-reviewed process where countries evaluate each other’s systems. FATF continuously reviews countries’ implementation of recommendations.
Components of MER:
- Effectiveness: How well the country’s measures work in practice.
- Compliance: Legal frameworks and regulations in place to prevent financial crimes.
FATF Lists:
- Black List: Countries that support terror funding/money laundering. Currently: North Korea, Iran, Myanmar.
- Grey List: Countries warned of their risk to be blacklisted.
Consequences of Blacklisting:
- No financial assistance from IMF, World Bank, ADB, EU.
- Economic restrictions and sanctions, along with damage to international reputation.