The Financial Action Task Force (FATF), a global authority on combating money laundering and terrorist financing, has praised India for its robust measures in addressing illicit finance. In its latest report, released on Thursday, FATF commended India’s high level of technical compliance and significant progress in tackling these issues, but also highlighted areas where improvements are necessary, especially given India’s rapidly growing economy.
FATF Highlights India’s Progress and Areas for Improvement
India has implemented a strong anti-money laundering (AML) and counter-terrorist financing (CFT) framework, showing positive results in key areas such as understanding financial risks, accessing beneficial ownership information, and depriving criminals of their assets. Despite this, FATF pointed out that as the country’s economy expands, it will need to speed up trials for money laundering and terrorist financing cases.
India, the world’s fifth-largest economy and the largest by population, has been placed in FATF’s regular follow-up category, a designation it shares with only four other G20 countries. The mutual evaluation report, conducted jointly with Asia/Pacific Group (APG) and Eurasian Group (EAG), praised India’s ability to use financial intelligence and cooperate effectively at both domestic and international levels.
Money Laundering Risks in India
FATF’s report highlighted that India’s primary money laundering risks stem from internal illegal activities, notably fraud, cyber-enabled fraud, corruption, and drug trafficking. While India has effectively pursued money laundering cases related to fraud and forgery, the report urged the country to focus more on other serious crimes like human trafficking and drug trafficking. Additionally, FATF stressed the need to address the backlog of money laundering cases stuck in court processes.
Terrorism Financing and Threats
India faces serious terrorism threats, particularly from groups like ISIL and al-Qaeda, which are active in and around Jammu and Kashmir. The report praised India’s prevention efforts and its ability to conduct complex financial investigations. However, FATF pointed out that the country needs to focus more on concluding prosecutions and convicting terrorist financiers.
FATF also called for stronger measures to prevent the non-profit sector from being exploited for terrorist financing, urging India to implement a risk-based approach and conduct outreach to organizations in this sector.
Financial Inclusion and Transparency
FATF applauded India’s progress in promoting financial inclusion, noting that the proportion of the population with bank accounts has more than doubled in recent years. Efforts such as encouraging digital payment systems and conducting due diligence for small accounts have significantly boosted financial transparency, contributing to the fight against money laundering and terrorist financing.
Indian authorities have demonstrated an in-depth understanding of the risks posed by money laundering, terrorism, and proliferation financing. The report noted that India excels in international cooperation, asset recovery, and implementing targeted financial sanctions for proliferation financing.
Moving Forward
While India has made commendable strides in addressing illicit financial activities, FATF recommended that the country share more insights on financial risks with stakeholders. The report also pointed out that while larger financial institutions, especially commercial banks, have a strong grasp of risk management, some smaller financial institutions need to improve their understanding and application of preventative measures.
Following the assessment, India has been placed in FATF’s regular follow-up process, with a report due in three years.
Key Highlights:
- India’s anti-money laundering framework is achieving significant results.
- FATF points to challenges in terrorist financing, especially from groups linked to ISIL and al-Qaeda.
- Financial inclusion efforts have doubled the number of people with bank accounts.
- India has been placed in regular follow-up, with progress to be reviewed in three years.