India passes anti-money laundering review, but FATF calls for improved oversight in non-financial sectors

The Financial Action Task Force (FATF), a global anti-money laundering watchdog, has largely commended India for complying with its regulations. However, the organization has emphasized the need for India to strengthen its oversight of preventative measures in certain non-financial sectors.

On Friday, the FATF adopted a mutual evaluation report on India. This report evaluates the "effectiveness of India’s measures to combat money laundering, terrorist financing, and proliferation financing," according to the agency’s statement.

The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system. India became a member of FATF in 2010.

The Paris-based FATF noted that India has achieved a "high level of technical compliance" with its standards. The country has shown good results in understanding risks related to money laundering and terrorism financing, engaging in international cooperation, depriving criminals of their assets, and implementing counter-proliferation financing measures.

This assessment comes amidst criticism from non-governmental organizations, which argue that Prime Minister Narendra Modi’s administration has misused counter-terrorism laws to target NGOs and policy think tanks, including Amnesty International and Greenpeace.

The FATF has highlighted the need for India to apply a "risk-based approach" in implementing counter-terrorism financing measures in the non-profit sector. A team from the FATF visited India in November to discuss concerns with representatives from several non-profit organizations. The FATF plans to release a detailed report on India following a quality and consistency review.

Countries with inadequate terrorist financing and money laundering controls may be placed on the FATF’s ‘gray’ or ‘black’ list, impacting their international borrowing capabilities. As a member of the FATF, India joins major economies such as the US, Japan, France, the European Union, and China.

The FATF plenary held in Singapore from June 26-28, 2024, recognized India’s efforts to combat money laundering and terrorist financing. India has been placed in the ‘regular follow-up’ category, a status shared by only four other G20 nations, marking a significant achievement in India's ongoing battle against financial crimes.

FATF acknowledged India’s efforts to mitigate risks from money laundering and terrorist financing, including measures to transition from a cash-based to a digital economy. The implementation of the JAM (Jan Dhan, Aadhaar, Mobile) Trinity and stringent regulations on cash transactions have increased financial inclusion and digital transactions, making them more traceable and reducing ML/TF risks.

India’s strong performance in the FATF evaluation is expected to enhance investor confidence and provide better access to global financial markets. The recognition also supports the global expansion of the Unified Payments Interface (UPI), India’s fast payment system.

Since 2014, the Indian government has enacted legislative changes and bolstered enforcement to tackle money laundering, terrorist financing, and black money. These efforts have brought India in line with international standards, yielding positive results, including dismantling terror funding networks and reducing the flow of black money and narcotics.

The Department of Revenue led India’s engagement with the FATF during the mutual evaluation process, supported by a diverse team from various ministries, the National Security Council Secretariat, state authorities, the judiciary, financial sector regulators, and businesses. This collaborative effort demonstrated India’s effective anti-money laundering and counter-financing of terrorism (AML/CFT) framework.

India, already a member of the FATF Steering Group, aims to further strengthen its AML/CFT framework and continue collaborating with international partners to combat financial crimes, ensuring a secure and transparent financial environment for all.