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FATF REPORT
Financial Action Task Force (FATF), has released its mutual
evaluation report of India
• It observed that country has achieved high level of technical
compliance across FATF recommendations
• Significant steps have been adopted to implement measures
to tackle illicit finance
REPORT OBSERVATIONS
• India is the only major economy with a federal structure to
have been placed in ‘regular follow-up’ category of FATF
• Requirements for above category –
1. Member country has to be compliant/largely compliant
in over 32 of 40 recommendations
▪ India got 37 compliant/largely compliant ranking
2. Compliant/largely compliant in three or more of ‘Big-Five’
recommendations
▪ India is complaint/largely compliant in all of them
3. Compliant/largely compliant in Five or more ‘substantially
effective/highly effective’ ratings in Immediate Outcomes
▪ India got six
4. No requirement on ‘low level of effectiveness’
▪ India did not receive any
• ‘Regular follow-up’ rating is currently shared by only four
other G20 countries –
o UK, France, Italy and Russia (suspended from FATF in
February 2023)
• Mostly developing countries are in ‘enhanced follow-up’
category
o It requires submission of reports on an annual basis
o While report is to be submitted once in three years in
“regular follow-up” category
• FATF appreciated-
1. India’s Jan Dhan-Aadhaar-Mobile initiative
▪ It is a major boost to cashless digital fund transfer
systems for a greater financial inclusion and shrinkage
of cash-based economy
2. Introduction of Goods and Services Tax
▪ Requires e-invoices and e-bills which allows greater
transparency in supply chain
3. Indian Cybercrime Coordination Centre scheme
▪ It is Ministry of Corporate Affairs’ publicly available
registry of beneficial ownerships
4. Central KYC Records Registry (CKYCR)
▪ Repository of KYC papers and customer records
REFORM MEASURES ADOPTED BY INDIA
• Report highlighted:
1. Setting up of task forces and high-level committees for
action against offences ranging from-
▪ Corruption, black money, drug trafficking, and fake
currency
2. Close coordination among Financial Intelligence Unit, law
enforcement agencies, regulators, etc.
3. Relevant update of legal framework against-
▪ Money laundering, terror funding, and proliferation
financing
• On investigation front, FATF acknowledged –
1. Achievements of Enforcement Directorate (ED) in
attaining tangible results
▪ Agency confiscated assets worth ₹16,500 crore during
review period (2018-October 2023)
▪ Facilitated restitution of funds to tune of ₹140 billion
to consortium of banks in Vijay Mallya case
▪ Attached even the proceeds of crime located overseas
2. ED was able to pursue different types of money
laundering cases, including –
▪ Complex/large-scale/cross-border transactions
involving:
Multi-layered modus operandi and “hawala”
operations
• Agency appreciated measures taken to pursue assets of
launderers under –
o Benami Transactions (Prohibition) Act and Income Tax Act
o Fugitive Economic Offenders Act
▪ Provides for confiscation of assets belonging to
designated persons
• Team reviewed several case studies involving terror
financing cases which proved that -
o National Investigation Agency (NIA) and ED were able to
effectively conduct such probes
(NIA has access to a broad range of operational
intelligence for both terrorism and terror financing)
(authorities were able to track movements of virtual
assets)
• Task force was constituted on shell companies -
o It removed about 3,83,000 entities (30% of registered
companies) from register between 2017 and 2021
o 3,09,000 directors who did not file financial
statements/annual returns — were disqualified
• Agency admired supervision mechanisms and methodical
risk-based assessment procedure adopted by Indian
authorities
• India achieved positive results in-
o International cooperation
o Asset recovery
o Implementing targeted financial sanctions for
proliferation financing
THREATS
• Report observed that main sources of money laundering in
India originate from within
• Country faces “disparate range” of terrorism threats from-
o Regional insurgencies in the Northeast and North, and
Left-Wing Extremist groups
• Most serious terrorism and terror financing threats, seem to
be related to –
o Islamic State or al-Qaeda linked groups active in and
around Jammu and Kashmir
• Largest money laundering risks are related to fraud
including-
o Cyber-enabled fraud, corruption and drug trafficking
SUGGESTED AREAS FOR IMPROVEMENT
• Limited number of prosecutions and convictions
• Risk-profiling of customers of financial institutions
• Monitoring of Ministry of Corporate Affairs (MCA) registry
for-
o Availability of accurate owner information
o Link between money laundering and human trafficking
• For non-profit organisations (NPO) sector and other sectors-
o Adopt measures to prevent sector from being abused for
terror financing should be implemented
• Address delays in prosecution of terror financing cases
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