FATF report on India and the significance of the observations
- The global money laundering and terror financing watchdog Financial Action Task Force (FATF) came out with the Mutual Evaluation Report for India on Thursday.
Highlights:
- The Financial Action Task Force (FATF) released its Mutual Evaluation Report for India on Thursday, placing the country in the “regular follow-up” category.
- While India welcomed the ranking as a positive outcome, the FATF highlighted key areas requiring improvement, including strengthening prosecution in money laundering (ML) and terror financing (TF) cases, protecting non-profit organisations (NPOs) from terrorist abuse, and improving the supervision and implementation of preventive measures.
FATF and Its Mandate:
- The FATF, an international watchdog for money laundering and terror financing, was established in 1989 by the G7. Its mandate was expanded in 2001 to also address terrorist financing.
- The body, comprising 40 member nations, has developed a framework of 40 Recommendations to help countries combat illicit financial flows, divided into seven key areas such as money laundering, terrorist financing, and international cooperation.
- India became a full member of the FATF in 2020 and had previously undergone an evaluation in 2010. This latest assessment, conducted in November 2023 and discussed in the June 2024 plenary session, marks India's first review post-membership.
Key Findings and Areas for Improvement:
- The FATF report identified several areas in which India needs to improve:
- Prosecution of Money Laundering Cases: The report noted a low number of prosecutions and convictions for money laundering, despite a significant rise in investigations since 2018.
- Customer Risk-Profiling: India must improve the risk-profiling of financial institution customers to identify potential vulnerabilities to money laundering and terrorist financing.
- Beneficial Ownership Transparency: Ensuring accurate information on beneficial ownership in the Ministry of Corporate Affairs registry is critical for preventing illicit financial activities.
- Non-Profit Sector Monitoring: The FATF called for stronger measures to prevent NPOs from being abused for terror financing.
- Delays in Prosecution: The backlog of cases under the Prevention of Money Laundering Act (PMLA) was flagged, and the FATF recommended addressing delays in prosecutions of terror financing and money laundering cases.
- The FATF also pointed out that India's largest money laundering risks stem from fraud, corruption, drug trafficking, and the country faces terror threats from regional insurgencies and Islamic State or al-Qaeda-linked groups in Jammu and Kashmir.
India's Ranking and Global Context:
- India's placement in the “regular follow-up” category is seen as a significant outcome, especially as developed nations like the UK, France, and Italy are also in this group.
- Most developing nations fall under the “enhanced follow-up” category, which requires annual reporting, unlike the three-year interval for countries in the regular follow-up group.
Prelims Takeaways:
- Enforcement Directorate
- Ministry of Corporate Affairs (MCA)