The FATF praised India’s efforts against illicit finance but highlighted concerns about terrorism financing and trial completions. India must enhance measures, especially for non-profits, domestic PEPs, and cash restrictions.
The Financial Action Task Force (FATF) recently recognized India’s significant strides in combating illicit finance. In a statement posted on X, FATF commended India for its high level of technical compliance with the FATF Recommendations. The country has implemented substantial measures to address illicit finance, leading to positive outcomes. These include enhanced risk understanding, improved access to beneficial ownership information, and successful asset deprivation from criminals.
Ongoing Challenges and Recommendations of FATF
Despite these achievements, FATF has pointed out several areas where India needs improvement. The FATF report underscored that India continues to face serious threats related to terrorism and terrorist financing. Groups such as ISIL and Al Qaeda remain a concern. The report noted that while India excels in preventing and disrupting terrorist financing, it must refine its systems. Specifically, it needs to focus on concluding prosecutions and ensuring appropriate sanctions for those involved in terrorism financing.
The FATF also emphasized the need for a risk-based approach with non-profit organizations. There is a requirement to prevent the misuse of these organizations for terrorist financing. India is advised to continue its efforts in refining its anti-money laundering (AML) and counter-terrorist financing (CFT) framework, particularly in managing money laundering and terrorist financing trials effectively.
Progress and Future Directions
India has made remarkable progress in financial inclusion. The country has significantly increased the number of people with bank accounts, promoted digital payments, and simplified due diligence for small accounts. These measures have enhanced financial transparency and supported broader AML/CFT efforts.
The report praised India’s effective coordination on illicit financial flows and its international cooperation. The country has achieved commendable results in asset recovery and implementing targeted financial sanctions against proliferation financing. However, the FATF report highlighted that better information sharing among stakeholders is necessary.
Financial institutions, particularly commercial banks, have demonstrated a good understanding of risk management and preventive measures. Nonetheless, smaller institutions need to catch up. There is also a gap in coverage for domestic politically exposed persons (PEPs), and compliance with reporting requirements must improve. Additionally, the non-financial sector and virtual asset service providers are still in the early stages of implementing preventive measures.
The FATF also pointed out the need for better enforcement of cash restrictions, particularly among dealers in precious metals and stones. This sector’s significance underscores the urgency of improved enforcement.
India has been placed under “regular follow-up” and is expected to report back to the Plenary in three years.
