FATF praises India’s anti-money laundering and terrorism financing capabilities, calls for better enforcement

NEW DELHI, Sept 19: Global anti-money laundering and terrorism financing watchdog FATF on Thursday released its much-awaited mutual evaluation report on India, saying the country’s systems in these areas are “effective” but “significant improvements” are needed to strengthen prosecution in such cases.
The 368-page report, with a cover showing India’s new Parliament draped in tricolour lights, was released after the Paris-based body adopted its assessment during a plenary session held in June.
The last such review of India’s anti-money laundering and terrorism financing regime was published in 2010. India will submit a “report” to the plenary after three years.
The report, which followed a visit by FATF experts to India in November last year, placed the country in the “regular follow-up” category, a distinction awarded to only four other G20 countries.
The next assessment in India will take place in 2031.
The finance ministry posted a series of posts on its X account saying that India had achieved a “significant milestone by getting regular monitoring assessment from FATF” and that it was a “proud moment”.
“This is proof of our country’s commitment to combating money laundering and terrorism financing,” the statement said.
The report found that India has achieved a high level of technical compliance with the FATF Recommendations and has taken significant steps to implement measures to combat illicit financing.
“Nevertheless, it is critical that the country continues to improve its system as its economy and financial system continue to develop, in particular by ensuring that money laundering and terrorism financing cases are terminated and offenders are subject to appropriate sanctions; and by taking a risk-based and educational approach to nonprofit organizations,” the executive summary reads.
The report concluded that India has an anti-money laundering and combating the financing of terrorism (AML/CFT) framework in place that is producing “good” results, including in terms of understanding risk, accessing beneficial ownership information and depriving criminals of their assets.
The report found that India’s anti-money laundering (AML) and combating the financing of terrorism (CFT) regime is “effective in many respects”.
“Significant improvements” are needed to strengthen money laundering and terrorism financing enforcement and protect the non-profit sector from “terrorist abuses,” according to the Financial Action Task Force (FATF).
“The primary sources of money laundering in India are from within the country and are a result of illegal activities undertaken within its borders,” it said, adding that the country faces a “diverse” range of terrorist threats, primarily from ISIL (Islamic State or ISIS) or al-Qaeda-linked groups operating in and around Jammu and Kashmir.
“The biggest money laundering threats in India are related to fraud, including cyber fraud, corruption and drug trafficking,” the report said.
It stressed that the understanding of money laundering risks arising from human trafficking and migrant smuggling, as well as from the smuggling and trade of precious metals and stones “could be further developed”.
The FATF remains concerned about the prosecution of sophisticated financial crimes, stating that “while the number of prosecutions and convictions has started to increase, the backlog of pending cases remains significant and a large number of accused individuals are awaiting the conclusion of their trials.”
The global body, of which India became a member in 2010, said that while the number of money laundering investigations increased during the period under review, the number of prosecutorial complaints did not keep pace (it noted, however, that the duration of investigations and prosecutions can vary significantly because of the lag between the start of an investigation and the filing of a prosecutorial complaint, which can take several years).
“On average, 20 per cent of all money laundering investigations were initiated and 3 per cent resulted in acquittal. The ED (Enforcement Directorate) faced only one acquittal during the period under review, although the number of convicted money laundering cases is relatively low and only 28 ML (money laundering) cases were convicted during the period under review,” he said.
The report said that although the conviction rate was almost 97 per cent, there were a number of factors that could explain the low number of prosecutions during the period under review.
The report added that “one compelling reason” was related to the constitutional challenge through 121 petitions challenging the PMLA (Prevention of Money Laundering Act) provisions since 2018, which had stayed a number of lawsuits and was decided by the Supreme Court (Vijay Madanlal Chowdhary vs Union of India) only in July 2022.
Some sub-sectors of financial institutions reported few suspicious transactions. These include non-financial banking firms, postal and rural banking departments, and non-financial designated businesses and professions. They have not detected and reported suspicious transactions in a “significant manner” to date.
The FATF also confirmed that India has made “significant” strides in financial inclusion by more than doubling the percentage of the population that has bank accounts, encouraging greater reliance on digital payment systems and using simplified due diligence for small accounts.
“These actions support financial transparency, which in turn contributes to AML/CFT efforts,” it said. (PTI)