The report said India has achieved a high level of technical compliance with FATF recommendations and has taken significant steps to implement measures to combat illicit finance.
An evaluation of the country’s measures to combat illicit finance concludes that India has implemented an anti-money laundering and countering the financing of terrorism (AML/CFT) framework that is “achieving good results, including risk understanding, access to beneficial ownership information, and depriving offenders of their assets.”
However, it also added that “it is important for India to continue to improve its systems as its economy and financial system continue to grow, particularly by ensuring that money laundering and terrorist financing prosecutions are completed and offenders are sanctioned appropriately; and by taking a risk-based and educative approach to dealing with non-profit organisations.”
why it matters
FATF is an inter-governmental organisation established to combat money laundering, terrorist financing and other threats to the integrity of the international financial system. It sets international standards and promotes measures to ensure the effective implementation of these standards by member countries.
India has been placed in the “regular follow-up” category by FATF, which means it will report every three years on its progress in addressing identified deficiencies. Continuous improvement in the counter-terrorism financing and anti-money laundering framework is essential as India’s economy grows.
This status is shared with only a few other G20 countries, making India a leader in regional AML/CFT efforts.
Achieving a high level of compliance with FATF standards enhances India’s credibility in global financial markets. This can lead to better access to international financial institutions and increased investor confidence, which is vital to support India’s rapidly growing economy.
- Investor Confidence: A positive assessment from FATF enhances India’s reputation as a stable and safe financial environment, which is important for attracting foreign investment. A good rating signals to investors that India has a strong framework to combat money laundering (ML) and terrorist financing (TF), thereby increasing confidence in the financial system.
- Lower Borrowing Cost: With improved credibility, India is likely to experience lower borrowing costs in the international markets. This could lead to better financing options for both the public and private sectors, thereby boosting economic growth.
- Unified Payments Interface (UPI): FATF recognition is expected to boost the global expansion of India’s fast payment system UPI. This could lead to increased digital transactions and financial inclusion, making financial systems more accessible to a wider population.
‘The biggest threat is from within the country’
The FATF report said the main money laundering risks in India arise from illicit activities within the country, “these risks primarily relate to fraud, including cyber-enabled fraud, corruption, and drug trafficking”.
“India treats money laundering related to fraud and forgery in a manner that is highly commensurate with the crime risks, but less so for some other crimes such as human trafficking and drug trafficking. The country needs to resolve pending money laundering cases pending completion of court processes,” it said.
The report further said that India faces serious threats of terrorism and terrorist financing, including those related to ISIS or Al-Qaeda.
“India has placed a strong emphasis on disruption and prevention and has demonstrated its ability to conduct complex financial investigations. However, India needs to focus on prosecuting and convicting terrorist financiers and imposing appropriate sanctions,” the assessment report said.
It said the country needs to ensure that steps aimed at preventing the nonprofit sector from being misused for terrorist financing are implemented in line with a risk-based approach, including by reaching out to nonprofit organizations about terrorist financing risks.
FATF praised India
The FATF report said India has taken significant steps towards financial inclusion, more than doubling the proportion of the population with bank accounts, encouraging greater reliance on digital payment systems, and using simplified due diligence for small accounts.
These efforts have promoted financial transparency, which in turn contributes to AML/CFT efforts.
Despite the size and institutional complexity of the Indian system, Indian authorities cooperate and coordinate effectively in matters of combating illicit financial flows, including the use of financial intelligence. India has also achieved positive results in international cooperation, asset recovery and the implementation of targeted financial sanctions to combat proliferation financing, the report said.
It said Indian authorities have a comprehensive understanding of money laundering, terrorism and proliferation financing risks, but more efforts are needed to share information on these risks among all relevant stakeholders.
