FATF praises India's efforts to combat money laundering, says country a 'victim of terror' from Al-Qaeda, ISIL

The Financial Action Task Force (FATF) on September 19 released India’s mutual evaluation report on combating terror financing and anti-money laundering regime. The terror watchdog said that India is not a destination for money laundering proceeds to crime and has committed that India’s risk assessment will happen every three years. 

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. 

As per the report, India’s main sources of money laundering originate from illegal activities committed within the country. These proceeds may be laundered within India, laundered abroad, or laundered abroad and returned to India for re-integration into the licit economy. Consistent with the outcomes of the NRA, India’s largest money laundering risks are related to fraud, including cyber-enabled fraud, corruption, and drug trafficking. 

The report says India faces serious terrorism and terrorist financing threats, including related to ISIL (Islamic State of Iraq and the Levant) or Al-Qaeda active in and around Jammu and Kashmir. Praising India's emphasis on disruption and prevention and its ability to conduct complex financial investigations, the evaluation points to a need for focusing on concluding prosecutions and convicting and sanctioning terrorist financiers. 

The country needs to ensure that measures aimed at preventing the non-profit sector from being abused for terrorist financing are implemented in line with the risk-based approach, including by conducting outreach to non-profit organisations on their terrorist financing risks, it added.

FATF on ED’s role 

The Enforcement Directorate (ED), the sole competent authority mandated to investigate money laundering activities, is able to investigate and prosecute complex money laundering activities, FATF said.  

The ED pursues cases related to fraud and forgery to a large extent but is less effective with other offences in particular trafficking in human beings and migrant smuggling and drug trafficking, it added.  

The number of money laundering convictions over the last five years has been impacted by a series of constitutional challenges (resolved in 2022) and the saturation of the court system. Although the number of prosecutions and convictions have started to increase, the backlog of pending cases remains considerable, FATF added. 

"Following the assessment, India is placed in the 'regular follow-up' category and, in line with procedures, will report back to the Plenary in three years," the report says. Italy, France, UK and India are only four countries placed in the 'regular follow-up' category.