Terror financing watchdog Financial Action Task Force (FATF) has said India has achieved a high level of technical compliance with its recommendations and taken significant steps to implement measures to tackle illicit finance. In a report released on Thursday, the watchdog has also, however, said the country needs to improve its system as the economy continues to grow, pointing to a need for faster trials for money laundering and terrorist financing.
India has been placed in the regular follow-up category, a distinction it shares with only four other G20 countries.
The mutual evaluation report says a joint FATF-APG (Asia/Pacific Group on Money Laundering)-EAG (Eurasian group on combating money laundering and financing of terrorism) assessment of India's measures to tackle illicit finance has concluded that India has implemented an anti-money laundering and counter-terrorist financing (AML/CFT) framework which is achieving good results. The areas in which these results have been seen include risk understanding, access to beneficial ownership information and depriving criminals of their assets.
The report says authorities in India make good use of financial intelligence and cooperate effectively, both domestically and internationally.
The evaluation noted that India is the largest country in the world by population and has the largest diaspora. It is also a lower-middle-income country with one of the world's fastest-growing economies, which is currently the fifth-largest economy in the world. India's main money laundering risks, the report says, originate from illegal activities within the country – relating primarily to fraud, including cyber-enabled fraud, corruption and drug trafficking.
India pursues money laundering cases related to fraud and forgery in line with predicate crime (a criminal act that is a component of a larger crime) risks to a large extent, the report says, but needs to do more for some other offences such as human trafficking and drug trafficking. The country, it said, needs to address the backlog of money laundering cases pending conclusion of court processes.
Terror Threats
The report says India faces serious terrorism and terrorist financing threats, including related to ISIL (Islamic State of Iraq and the Levant) or al-Qaeda active in and around Jammu and Kashmir. Praising India's emphasis on disruption and prevention and its ability to conduct complex financial investigations, the evaluation points to a need for focusing on concluding prosecutions and convicting and sanctioning terrorist financiers.
Another area pointed out by the report is a need to ensure that measures aimed at preventing the non-profit sector from being abused for terrorist financing are implemented in line with a risk-based approach, including by conducting outreach to such organisations.
Financial Inclusion
Appreciating India's steps towards financial inclusion, the report said the proportion of the population with bank accounts has more than doubled, due diligence for small accounts is taking place and reliance on digital payment systems has been encouraged. These efforts have supported financial transparency, contributing to efforts to tackle anti-money laundering and counter-terrorist financing.
"Despite the size and institutional complexity of the Indian system, Indian authorities cooperate and coordinate effectively on matters dealing with illicit financial flows, including the use of financial intelligence. India also achieved positive results in international cooperation, asset recovery and implementing targeted financial sanctions for proliferation financing," the report states.
Indian authorities also have a comprehensive understanding of the money laundering, terrorism and proliferation financing risks, it says, but also points to a need for sharing insights on them with stakeholders.
The report says there is a good understanding of risk and application of preventative measures in the financial sector, especially by commercial banks, but less so by some other smaller financial institutions.
"Following the assessment, India is placed in 'regular follow-up' and, in line with procedures, will report back to the Plenary in three years," the report says.