India achieves an ‘outstanding outcome’ in FATF mutual evaluation 2023-24

India achieves an ‘outstanding outcome’ in FATF mutual evaluation 2023-24

Sub: IR

Sec: Int Conventions

Context:

• India achieved an outstanding outcome in the Mutual Evaluation by the Financial Action Task Force (FATF) for 2023-24, placing it in the “regular follow-up” category, shared by only four other G-20 countries. This marks a significant milestone in combating money laundering (ML) and terrorist financing (TF).

High Level of Compliance:

• The FATF plenary concluded that India had reached a high level of technical compliance with its requirements, achieving good results in AML (anti-money laundering), CFT (countering the financing of terrorism), and CPF (counter-proliferation financing) regimes, including international cooperation and financial intelligence.
• However, improvements are needed in non-financial sectors, delays in ML and TF prosecutions, and implementation of CFT measures in the non-profit sector.
• The government highlighted that the FATF recognition is a testament to India’s rigorous and effective measures over the last decade to safeguard its financial system.

Efforts made by India to safeguard its financial system:

• The FATF recognised India’s efforts in mitigating risks from ML and TF, including corruption, fraud, and organized crime.
• Measures such as the implementation of the JAM (Jan Dhan, Aadhaar, Mobile) Trinity and stringent regulations on cash transactions have increased financial inclusion and digital transactions, making them more traceable.
• Since 2014, India has enacted legislative changes and bolstered enforcement efforts to tackle ML, TF, and black money, bringing measures in line with international standards. These efforts have effectively dismantled terror funding networks and stemmed the flow of black money and narcotics.
• The Department of Revenue led India’s engagement with the FATF during the mutual evaluation process, supported by a multi-disciplinary team from various ministries, the NSCS, state authorities, 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 strengthening its AML/CFT framework and collaborating with international partners to combat financial crimes.

Benefits of FATF Ratings

• The high rating sets a benchmark for the region and enhances India’s capacity to lead the global effort against ML and TF.
• India’s good performance in the FATF Mutual Evaluation enhances the stability and integrity of its financial system, leading to better access to global financial markets, increased investor confidence, and support for the global expansion of the Unified Payments Interface (UPI).

About the Financial Action Task Force (FATF):

• FATF is an intergovernmental organisation founded in 1989.
• It is an initiative of the G7 countries to develop policies to combat money laundering.
• In 2001, its mandate was expanded to include terrorism financing.
• It has also started dealing with virtual currencies.
• It sets international standards that aim to prevent these illegal activities and the harm they cause to society.
• It is a “policy-making body” which works to generate the political will to bring about national legislative and regulatory reforms in money laundering.
• It monitors progress in implementing its recommendations through “peer reviews” (“mutual evaluations”) of member countries.
• The FATF Secretariat is located in Paris.

Objectives of FATF:

• FATF sets standards and promotes effective implementation of:
• legal, regulatory and operational measures for combating money laundering.
• The FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

Members of FATF:

• The FATF currently comprises 38 member jurisdictions and two regional organisations, representing most major financial centres in all parts of the globe.
• India became an Observer at FATF in 2006. In 2010, India was taken in as the 34th country member of FATF.

FATF’s Mutual Evaluation Process:

• The Mutual Evaluation Process is a comprehensive and rigorous assessment conducted to evaluate a country’s compliance with international standards for combating money laundering (ML) and terrorist financing (TF).
• This process includes:
  • Evaluation Team: A team of experts from FATF member countries conducts the evaluation, analysing the country’s measures and their effectiveness in preventing ML and TF.
  • Assessment Criteria: The evaluation is based on FATF’s 40 Recommendations, which cover a wide range of preventive measures, criminal justice, law enforcement, and international cooperation.
  • Technical Compliance: This aspect assesses whether the country’s legal and institutional frameworks are in line with FATF standards. It examines the laws, regulations, and other measures in place to combat ML and TF.
  • Effectiveness: The evaluation also measures the effectiveness of these frameworks. This involves assessing how well the country implements and enforces its laws and regulations, and how effectively it achieves the desired outcomes in combating ML and TF.
  • Country Reports: The findings are compiled into a Mutual Evaluation Report, which provides a detailed analysis of the country’s compliance and effectiveness. The report includes ratings and recommendations for improvement.
  • Follow-Up: After the evaluation, the country may be placed in follow-up processes to address any deficiencies. This involves periodic reporting to FATF on the progress made in implementing the recommended improvements.
  • Public Disclosure: The Mutual Evaluation Report is published, providing transparency and encouraging countries to enhance their AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) regimes.

Source: TH