India's efforts to combat illicit finance have been acknowledged by the Financial Action Task Force (FATF), but the global watchdog has also issued a stern warning regarding serious threats related to terrorism and terrorist financing. In its latest assessment, FATF praised India's progress but emphasised that the country must continue improving its systems to address these threats effectively.
The FATF report, released on Thursday, highlighted India's significant achievements in tackling illicit finance. The country has implemented a robust anti-money laundering and counter-terrorist financing (AML/CFT) framework.
This framework has yielded positive results, particularly in understanding risks, accessing beneficial ownership information, and depriving criminals of their assets.
Indian authorities have been commended for their effective use of financial intelligence and cooperation on both domestic and international fronts. Despite these accomplishments, FATF cautioned India about the ongoing risks posed by terrorism and terrorist financing, including those linked to ISIL and Al Qaeda.
The report stressed the importance of concluding prosecutions and imposing appropriate sanctions on terrorist financiers. FATF noted that while India has shown a strong emphasis on disruption and prevention, there is a need for continued improvement.
Specifically, India must enhance its focus on completing trials related to money laundering and terrorist financing and ensuring that offenders receive suitable sanctions.
India's rapidly growing economy and financial system present additional challenges. The FATF report pointed out that as India's economy expands, it is crucial for the country to address any deficiencies in its financial and legal systems.
This includes taking a risk-based approach to prevent the misuse of non-profit organisations for terrorist financing. FATF recommended conducting outreach to these organisations to educate them about potential risks.
India, with its vast population and large diaspora, faces significant money laundering risks. These risks mainly stem from illegal activities within the country, including fraud, corruption, and drug trafficking.
The FATF report acknowledged India's progress in tackling fraud-related money laundering but noted that more work is needed in addressing other offences, such as human trafficking.
The report also highlighted India's efforts in financial inclusion, which have improved access to banking services and promoted digital payments. These initiatives have contributed to greater financial transparency, aiding in the fight against money laundering and terrorist financing.
Despite the complexity of India's financial system, the country has demonstrated effective cooperation and coordination in managing illicit financial flows. FATF praised India's international cooperation, asset recovery efforts, and targeted financial sanctions for proliferation financing.
However, the report indicated areas for improvement, including better sharing of risk insights across relevant stakeholders. While there is a solid understanding of risks and preventive measures in the financial sector, some smaller financial institutions and non-financial sectors are still at an early stage of implementing these measures.
The FATF also pointed out the need for India to enhance its implementation of cash restrictions for dealers in precious metals and stones, given the sector's significance.
Following the assessment, India has been placed under "regular follow-up" by FATF. The country will report back to the FATF Plenary in three years to demonstrate progress in addressing the identified issues.
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