FATF Mutual Evaluation Report on India | Why it marks the successful culmination of a long journey

This is a distinction that, as the PIB press release points out, is only shared by four other G20 countries.

Established in 1989, the FATF is a 40-member body that sets global standards for national authorities to follow in combating illicit funds generated by drug trafficking, arms trafficking, cyber fraud and other serious crimes. The body has drawn up 40 recommendations in this regard.

Read also: FATF to release India assessment report on September 19; likely to ask India to improve delays in money laundering prosecutions

The recommendations cover broadly aspects related to the legal system, the measures expected of financial institutions and non-financial businesses and professions to prevent money laundering, the institutional measures expected of a country and the steps to be taken to ensure international cooperation, a recognition of the global reach of terrorism.

In addition, the FATF has also launched IX Recommendations, covering topics such as the need to ratify UN instruments, the criminalisation of terrorist financing and money laundering, the need to freeze such assets, bank transfers and cash courier services. More than 200 countries and jurisdictions have implemented national laws as part of a coordinated global action to prevent crime, corruption and the fight against terrorism.

Mutual evaluations are an analysis of a country’s readiness to effectively implement measures to combat money laundering, terrorist financing and proliferation. (Proliferation financing refers to the act of financing, in whole or in part, in any manner, nuclear, chemical or biological weapons in contravention of national and international laws.)

Mutual evaluations are peer reviews in which members from different countries assess another country against the FATF Recommendations. Mutual evaluations basically have two main components: the effectiveness of laws and technical compliance. A FATF team conducts an on-site visit to determine whether the measures put in place are working effectively; in effect, it is an assessment of the seriousness of a country in combating the scourge of money laundering.

The Prevention of Money Laundering Act (PMLA), which came into force in 2005 and was subsequently amended in 2009, was a direct consequence of India’s commitment to the FATF recommendations. Illicit activities The 1967 (Prevention) Act was also amended in 2004 and again in 2008 to criminalise terrorist financing and bring it into line with the United Nations Convention for the Suppression of the Financing of Terrorism.

India’s first Mutual Evaluation was conducted in 2010. It acknowledged that the country’s anti-money laundering and countering the financing of terrorism regime, though recent, still reflects the country’s serious commitment to combating terrorism in all its forms. However, the Mutual Evaluation found that India still has work to do and recommended addressing technical deficiencies.

The FATF Plenary acknowledged the progress made and subsequently admitted India as the 34th FATF member country in 2010. In particular, since the adoption of its MER in 2010, India has focused its attention on addressing almost all the technical deficiencies identified with respect to criminalizing money laundering and terrorist financing, as well as implementing effective provisional and confiscation measures.

At its June 2013 plenary session, the FATF decided that India had achieved a satisfactory level of compliance with all core and key recommendations. The last FATF plenary session, held in Singapore in June 2014, placed India in the “regular monitoring” category, a distinction that, as mentioned above, is shared by only four other G20 countries.

As noted, India’s performance in the FATF Mutual Evaluation presents significant benefits for the country’s growing economy as it demonstrates the overall stability and integrity of the financial system. Good ratings will lead to better access to global financial markets and institutions and boost investor confidence. They will also help in the global expansion of the Unified Payments Interface (UPI), India’s fast payments system.

However, the FATF has also noted that improvements are needed to strengthen supervision and enforcement of preventive measures in some non-financial sectors. It has also noted that India needs to address delays related to the completion of money laundering and terrorist financing prosecutions.

The FATF has expressed concern about the failure of virtual assets and their providers to adhere to its rules; while this is a general observation, it has relevance for India as well. Since then, 28 virtual digital asset platforms have registered with India’s Financial Intelligence Unit, the nodal agency that deals with all information related to suspicious financial transactions.

This rule has been dubbed the Travel Rule and aims to compel financial institutions and cryptocurrency businesses involved in virtual asset transfers to acquire and exchange accurate and reliable details of the originator and beneficiary of the transaction with their counterparties before or during the transfer, with the aim of subjecting them to the AML and CTF regime. As noted by CNBC-TV18’s Timsy Jaipuria in an article Recent reportIndustry players have expressed concern that they would like more consultation with the industry before implementation.

Given India’s security concerns, it is essential that we have a robust anti-money laundering regime in place. The best way to counter terrorist activities is to cut off financing; adherence to the FATF recommendations will ensure this. The FIU and the Enforcement Directorate have a difficult task.

— The author, Najib Shah, is a former chairman of the Central Board of Indirect Taxes and Customs. The views expressed are his own.

Read his previous articles here