FATF draws India’s attention to cash dealings in precious metals and stones sector, calls for stricter checks

Global terror watchdog, Financial Action Task Force (FATF), called on India to further strengthen checks on transactions involving precious metals and stones as several of these deals are conducted in cash and fall outside the purview of typical monitoring procedures. 

India is one of the world’s biggest importers of gold and an important processor and exporter of diamond jewellery. The country has about 175,000 businesses in the sector but just 9,500 are registered with the Gem and Jewellery Export Promotion Council, which verifies proof of identity, FATF said in the India’s mutual evaluation report released on September 19. 

“As a result of tax law provisions relating to cash threshold prohibition, the dealers in precious metals and stones (DPMS) sector falls outside the scope of preventive measures,” the FATF said. “There are doubts on the dissuasiveness of the penalty provisions.” 

There are some shortcomings in risk understanding, particularly relating to money laundering threats arising from trafficking in human beings and migrant smuggling, and money laundering or terror financing risks from smuggling and dealing in precious metals and stones, where understanding can be further developed. A more detailed action plan that provides more granular mitigation measures, which lays out clear priorities and benchmarks implementation, would strengthen responses. 

The ease with which precious metals and stones can be used to move large amounts of funds without leaving an ownership trail combined with the size of the market in India means there are vulnerabilities associated with their use as a tool for money laundering or terror financing.

The terror watchdog hailed steps taken by India to combat terror financing and money laundering activities and said that India is not a destination for money laundering proceeds to crime. 

India has achieved a high-level of technical compliance across the FATF recommendations and has taken significant steps to implement measures to tackle illicit finance, according to the latest report. 

A joint FATF-APG-EAG assessment of the country’s measures to tackle illicit finance concluded that India has implemented an anti-money laundering and counter-terrorist financing (AML/CFT) framework that is achieving good results, including on risk understanding, access to beneficial ownership information and depriving criminals of their assets.  

Authorities make good use of financial intelligence and co-operate effectively, both domestically and internationally. However, major improvements are needed to strengthen prosecution in money-laundering, terror financing cases, FATF added. 

Digital inclusion

India has made significant steps in financial inclusion, more than doubling the proportion of the population with bank accounts, encouraging greater reliance on digital payment systems, and making use of simplified due diligence for small accounts. These efforts have supported financial transparency, FATF said.

Despite the size and institutional complexity of the Indian system, Indian authorities cooperate and coordinate effectively on matters dealing with illicit financial flows, including the use of financial intelligence. India also achieved positive results in international co-operation, asset recovery and implementing targeted financial sanctions for proliferation financing.

Indian authorities also have a comprehensive understanding of the money laundering, terrorism and proliferation financing risks but need to do more to share insights on these risk across all relevant stakeholders.

There is a good understanding of risk and application of preventative measures in the financial sector, especially by commercial banks, although less so by some other smaller financial institutions, the FATF report added.