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For Prelims: Financial Action Task Force, Gems and Jewellery Export Promotion Council, Jan Dhan-Aadhaar-Mobile (JAM) initiative, Goods and Services Tax, National Investigation Agency, Islamic State of Iraq and the Levant, Enforcement Directorate
For Mains: India’s Progress in Combating Illicit Finance, Money Laundering, and Terror Financing
Source: PIB
Why in the News?
Recently, the Financial Action Task Force (FATF) released its Mutual Evaluation Report on India, highlighting the country’s substantial advancements in combating illicit finance. Notably, during the FATF plenary held in Singapore in June 2024, India was recognized for achieving a “high level of technical compliance” with the requirements set by this global money laundering watchdog. India is now in the “regular follow-up” category, a distinction shared only with a few other G-20 nations like the UK, France, and Italy.
Main Highlights of the FATF Mutual Evaluation Report on India
- Areas Requiring Improvement: India was found partially compliant in three key areas:
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- Non-Profit Organizations (NPOs): Charitable organizations benefiting from tax exemptions may be at risk of terror funding, indicating a need for better protective measures.
- Politically Exposed Persons (PEPs): There are uncertainties regarding the source of wealth and beneficial ownership for domestic PEPs that need addressing.
- Designated Non-Financial Businesses and Professions (DNFBPs): Gaps in the regulation and supervision of DNFBPs, particularly concerning money laundering and terror financing, have been identified. DNFBPs are significant contributors to India’s GDP, with precious metals and stones making up 7% and real estate 5%, respectively.
- Money Laundering Risks: Domestic illegal activities such as fraud, cyber fraud, corruption, and drug trafficking represent major money laundering risks.
- Precious Metals and Stones Vulnerable to Money Laundering: The PMS sector can facilitate large financial transactions without a trace of ownership. Despite India’s expansive PMS market, only 9,500 of approximately 175,000 dealers are registered with the Gems and Jewellery Export Promotion Council (GJEPC). Criminal networks involved in PMS may require further investigation. Monitoring fraud and smuggling techniques is essential due to India’s role as a major player in refined diamonds and gems.
- Terrorist Financing Threats: India faces significant threats from groups like the Islamic State of Iraq and the Levant (ISIL) and Al-Qaeda, particularly in Jammu and Kashmir, as well as risks from insurgencies in the Northeast and Left-Wing Extremist groups. While efforts to prevent and disrupt terrorist financing have been made, additional measures are needed to secure convictions against terrorist financiers.
- Financial Inclusion: India has made notable strides in financial inclusion, evidenced by the increase in bank account holders and digital payment usage. The JAM initiative has been recognized for enhancing digital payments, while the implementation of the Goods and Services Tax (GST) has increased supply chain transparency.
- Action Against Terror Financing: The National Investigation Agency (NIA) and the Enforcement Directorate have effectively tackled terror financing.
- FATF’s Recommendations:
- Pending Trials: India should expedite pending money laundering trials and enhance its approach to crimes such as human trafficking and drug-related offenses.
- Targeted Financial Sanctions: Improving the framework for freezing funds and assets without delay is necessary, along with better communication regarding sanctions.
- Domestic PEPs: There is a need to clearly define domestic PEPs in anti-money laundering laws and implement risk-based measures for them.
Implications of FATF’s Mutual Evaluation for India
- International Collaboration and Asset Recovery: India’s recognition by the FATF enhances its capacity to collaborate with other nations in tracking and recovering illicit assets, including those linked to fugitive offenders like Vijay Mallya and Nirav Modi.
- Improved Access to Global Financial Systems: Positive FATF ratings improve India’s access to global financial markets, facilitating borrowing and investments from international institutions, and supporting the expansion of India’s Unified Payments Interface (UPI) for cross-border digital payments.
- Strengthening Investor Confidence: The favorable evaluation boosts India’s credibility and enhances foreign investor confidence, making it a more attractive destination for foreign direct investments (FDI).
Conclusion
The FATF Mutual Evaluation Report represents a significant milestone for India in its battle against illicit finance. Recognized as a leader in anti-money laundering and counter-terror financing, India sets a benchmark for other nations while still needing to address areas like NPOs and PEPs. This evaluation positions India favorably for future economic growth and international cooperation.
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