FATF likely to release its report on India’s mutual evaluation on September 19 #IndiaFinance

India’s next round of mutual evaluation by the FATF is likely to be undertaken in 2031. File image.
| Photo Credit: AP

The Financial Action Task Force (FATF) is expected to release its report on India’s mutual evaluation, which was adopted at its June 2024 plenary in Singapore, on September 19. India now has the distinction of being in the “regular follow-up” category of FATF member countries, which include France, Italy, Russia, and the United Kingdom.

The plenary had concluded that India had reached a high level of technical compliance with the FATF’s requirements, and its anti-money laundering, combating financing of terrorism, and counter-proliferation financing regime was achieving good results. The outcomes ranged from a better understanding of money laundering and terror financing risks, and of international cooperation, to access to basic and beneficial ownership information.

It found that India had achieved good results in the use of financial intelligence, depriving criminals of their assets, and counter-proliferation financing measures. However, improvements are needed to strengthen the supervision and implementation of preventive measures in some of the non-financial sectors, and delays in concluding prosecutions.

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Stating that the FATF review outcomes would benefit India, a senior government official said it had improved the credibility and reputation of the country as a financially stable and secure nation, making it more attractive for investments; it has increased India’s access to international markets and is expected to lower borrowing costs; and it has also improved cooperation with other countries in areas such as counter terror financing, asset recovery of criminal elements, and law enforcement.

The good rating can also lead to increased access to international trade by increasing trust in India’s trade finance instruments.

Indian agencies had prepared well for the mutual evaluation process, an official said. They had drawn a range of sectoral risk assessments to identify and understand money laundering and terror financing risks. The country’s second National Risk Assessment adopted in 2022 represented a significant exercise that involved a large number of competent authorities as well as private sector participants.

The process was administered by a Joint Working Group overseen by an Inter-Ministerial Committee. “This approach helps in identifying vulnerabilities and threats within the financial system and other sectors,” the official said.

As part of the policy measures, Prevention of Money Laundering Act (PMLA) rules were rationalised with respect to “beneficial ownership”; professionals, trust and company service providers, and virtual asset service providers, were brought under supervision; definitions of client due diligence and non-profit organisations were amended, etc.

The Reserve Bank of India’s (RBI) master directions on KYC (Know Your Customer) were aligned to the PMLA amendments; the RBI has the right to issue directions to offshore branches and subsidiaries of regulated entities; asset reconstruction companies were explicitly included as regulated entities; a comprehensive regulation of payment aggregators was introduced; and risk-based approach of regulators rationalised.

The enforcement agencies have also taken a series of measures, including identification of ‘mule’ accounts used for diversion and laundering of funds; regulated entities are required to file suspected transaction reports even when a customer has not completed the customer due diligence process; a comprehensive amendment has been made to an order under Section 51A of the Unlawful Activities (Prevention) Act for targeted financial sanctions against terror financing, among others.

An advanced digital system for collection, processing, and dissemination of financial intelligence has been introduced. A risk-based approach to supervision of financial audit professionals, real estate agents, and the gems and jewellery sector has been adopted.

India’s next round of mutual evaluation is likely to be undertaken in 2031.