TAG: GS 2: INTERNATIONAL RELATIONS
THE CONTEXT: India has achieved an outstanding outcome in the Mutual Evaluation conducted by the Financial Action Task Force (FATF) during 2023-24.
EXPLANATION:
- The Mutual Evaluation Report, adopted in the FATF plenary held in Singapore from June 26 to June 28, places India in the “regular follow-up” category.
- This distinction is shared by only four other G-20 countries and marks a significant milestone in India’s efforts to combat money laundering (ML) and terrorist financing (TF).
Technical Compliance and Achievements
- The FATF plenary concluded that India has reached a high level of technical compliance with its requirements.
- The country’s anti-money laundering (AML), countering the financing of terrorism (CFT), and counter-proliferation financing (CPF) regimes have shown good results. Key achievements include:
- International Cooperation: Effective collaboration with international partners.
- Access to Basic and Beneficial Ownership Information: Ensuring transparency in financial transactions.
- Use of Financial Intelligence: Leveraging financial data to track and curb illicit activities.
- Depriving Criminals of Their Assets: Successful efforts in asset recovery and freezing.
Areas for Improvement
- Despite the high level of compliance, the FATF observed that improvements are needed in some sectors:
- Supervision and Implementation: Strengthening the supervision and implementation of preventive measures in certain non-financial sectors.
- Prosecution Delays: Addressing delays in concluding ML and TF prosecutions.
- Non-Profit Organisations (NPOs): Ensuring that CFT measures aimed at preventing the non-profit sector from being abused for TF are implemented in line with a risk-based approach, including outreach to NPOs on their TF risks.
Mitigating money laundering (ML) and terrorist financing (TF) Risk
- The FATF has recognized India’s efforts to mitigate risks arising from money laundering and terrorist financing.
- These efforts include:
- Laundering of Proceeds: Tackling laundering of proceeds from corruption, fraud, and organized crime.
- Digital Economy Transition: Effective measures to transition from a cash-based to a digital economy, reducing ML/TF risks through increased traceability of transactions.
- The implementation of the JAM (Jan Dhan, Aadhaar, Mobile) Trinity, along with stringent regulations on cash transactions, has significantly increased financial inclusion and digital transactions.
- These measures have made transactions more traceable, thereby mitigating ML/TF risks and enhancing financial inclusion.
- India’s performance in the FATF Mutual Evaluation has accrued significant advantages for the country’s growing economy.
- Demonstrating the overall stability and integrity of the financial system, good ratings from the FATF will lead to:
- Better Access to Global Financial Markets: Enhanced ability to engage with international financial institutions.
- Increased Investor Confidence: Boosted confidence from global investors.
- Global Expansion of UPI: Facilitated global expansion of the Unified Payments Interface (UPI), India’s fast payment system.
Government Recognition and Future Commitment
- The government views this recognition from the FATF as a testament to India’s rigorous and effective measures implemented over the last decade to safeguard its financial system from ML/TF threats.
- This success sets a benchmark for countries in the region to effectively implement international standards on terrorist financing.
- Since 2014, the Indian government has enacted a series of legislative changes and bolstered enforcement efforts to tackle ML, TF, and black money.
- This multi-pronged strategy has brought these measures in line with international standards and has proven to be effective, yielding positive results.
- Indian authorities have successfully dismantled terror funding networks using actionable intelligence, stemming the flow of terror funding, black money, and narcotics.
- Over a two-year period, the Department of Revenue spearheaded India’s engagement with the FATF during the mutual evaluation process.
- This success was driven by the exceptional efforts of a diverse, multi-disciplinary team comprising representatives from various ministries, the National Security Council Secretariat (NSCS), state authorities, the judiciary, financial sector regulators, self-regulatory organizations, financial institutions, and businesses.
- India, a member of the FATF since 2010 and part of its Steering Group, remains committed to further strengthening its AML/CFT framework.
- The country will continue its collaboration with international partners to combat financial crimes, maintaining its proactive stance in the global fight against financial crimes.
Financial Action Task Force (FATF):
- The Financial Action Task Force (FATF) was established in 1989 by the G7 to examine and develop measures to combat money laundering.
- It originally included the G7 countries, the European Commission and eight other countries.
- Initially it was mandated to examine and develop measures to combat money laundering and in 2001, the FATF expanded its mandate to also combat terrorist financing.
- FATF mutual evaluations are in-depth country reports analysing the implementation and effectiveness of measures to combat money laundering and terrorist financing.
- The Financial Action Task Force (FATF) is commonly referred to as the world’s “terrorism financing watchdog”, which means it is the author — and custodian — of an international regime that works to ensure that the flows of money in the global financial system are not misused to fund terrorist activities.
- FATF maintains a “grey list” of countries that it watches closely. In essence, these are countries that have, in the assessment of the FATF, failed to prevent international money laundering and terrorist financing, and are, therefore, on a global watchlist for bad behaviour.
- Pakistan was the most important country on the list. After it (along with Nicaragua) was taken off the list, 23 countries remain under watch.
- Among these countries are the Philippines, Syria, Yemen, the United Arab Emirates, Uganda, Morocco, Jamaica, Cambodia, Burkina Faso, and South Sudan, and the tax havens of Barbados, Cayman Islands, and Panama.
What are countries on the grey list expected to do?
- FATF calls these countries “jurisdictions under increased monitoring”. Basically, these countries have to comply with certain conditions laid down by the FATF, failing which they run the risk of being “black listed” by the watchdog. Their compliance is periodically reviewed by the FATF.
- According to the FATF, when a jurisdiction is placed under increased monitoring, “it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to extra checks”.
- Specifically, these jurisdictions are now “actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing”.