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India has achieved a significant milestone by being placed in the ‘regular follow-up category’ by the Financial Action Task Force (FATF), following an evaluation for the year 2023-24.
This achievement, described as an “outstanding outcome” by the finance ministry, is a distinction shared by only four G20 countries.
FATF’s Recognition of India’s Efforts
The FATF, an international body that sets standards to combat money laundering and terrorist financing, conducted a mutual evaluation of India at its plenary held in Singapore from June 26 to June 28, 2023.
The finance ministry highlighted that this evaluation marks a pivotal moment in India’s efforts to mitigate risks associated with financial crimes, including corruption, fraud, and organized crime.
Regular Follow-Up Category
Being placed in the ‘regular follow-up’ category means that India is required to submit a progress report on recommended actions only by October 2027. In contrast, countries in the ‘enhanced follow-up’ category must submit annual reports.
The FATF categorizes countries into four groups: ‘regular follow-up’, ‘enhanced follow-up’, ‘grey list’, and ‘black list’.
Collaborative Effort Behind the Success
The Department of Revenue spearheaded India’s engagement with FATF, collaborating with a diverse team of experts from various ministries, the National Security Council Secretariat, state authorities, the judiciary, financial regulators, and businesses.
This collective effort showcased India’s effective framework in combating money laundering and terrorist financing.
Transition to a Digital Economy
The FATF report acknowledged India’s progress in transitioning from a cash-based economy to a digital one. Initiatives like the JAM trinity (Jan Dhan, Aadhaar, Mobile) and stringent regulations on cash transactions have enhanced financial inclusion, increased transparency, and reduced financial crime risks.
Benefits of a Strong FATF Rating
India’s commendable performance in the FATF review strengthens its growing economy, demonstrating the stability and integrity of its financial system.
The finance ministry stated that “Good ratings will lead to better access to global financial markets and institutions and increase investor confidence. It will also help in the global expansion of the Unified Payments Interface (UPI), India’s fast payment system.”
India’s Commitment to Global Standards
The FATF’s recognition underscores India’s effectiveness in protecting its financial system over the past decade. The finance ministry emphasized that “India’s top rating will help it lead global efforts against financial crimes.”
Legislative and Enforcement Measures
Since 2014, the Indian government has introduced new laws and increased enforcement against money laundering, terrorist financing, and black money.
These measures align with international standards and have yielded positive results, including the successful disruption of terror funding networks and a significant reduction in the flow of illicit funds.
Pandemic-Delayed Evaluation and Continuous Progress
Although India’s FATF evaluation was originally scheduled for September 2020, it was delayed due to the pandemic. Nonetheless, Indian officials kept FATF and other countries informed about ongoing anti-money laundering efforts.
This included amendments to the Prevention of Money Laundering Act (PMLA), the registration of over 5,000 money laundering cases, the arrest of 755 individuals, and the attachment of properties worth over ₹1.21 lakh crore.
Broader Scope of PMLA
Key changes since the last review include defining “politically exposed persons” and bringing non-government organizations and cryptocurrencies under PMLA’s ambit to monitor illicit transactions through virtual digital assets.
Global and Domestic Coordination
The Reserve Bank of India (RBI) has intensified scrutiny of fintech firms to ensure compliance with anti-money laundering laws, monitoring suspicious transactions closely. Additionally, the 2018 Fugitive Economic Offenders Act empowers authorities to attach and confiscate assets abroad in cases involving amounts over ₹100 crore.
Ongoing Efforts and Future Goals
India’s dedication to FATF standards is further illustrated by the establishment of a joint working group in 2019, comprising 22 central investigation, intelligence, and regulatory agencies, to engage with FATF experts.
The Enforcement Directorate (ED) has been proactive in pursuing cases of money laundering and regulatory violations, with the courts upholding most arrests and prosecution complaints.
In conclusion, India’s remarkable performance in the FATF evaluation highlights its commitment to combating financial crimes and sets a positive example for other nations. The FATF’s recognition affirms India’s dedication to maintaining a robust and transparent financial system.
