The Financial Action Task Force (FATF) has urged India to accelerate its prosecutions in financial fraud cases. Meanwhile, India has been placed in the ‘regular follow-up’ category, based on actions against fugitive economic offenders like Vijay Mallya and Nirav Modi, among others

With this India joins an elite group of just four G20 nations with a ‘Regular Follow-up’ rating from FATF, the global anti-money laundering watchdog, which has 40 member countries. The agency adopted India’s mutual evaluation report on combating terror financing and money laundering in June but officially released it on Thursday.

‘Proud moment’

“A significant milestone and a proud moment in our fight against money laundering and terrorist financing,” the Finance Ministry said in a social media post. Further, it said that India leads the way in anti-money laundering/countering the financing of terrorism (AML/CFT) compliance, achieving top performance in FATF’s technical compliance evaluation. “A proud moment for India as we stand with only 5 nations reaching 36-40 recommendations,” it added.

The report said that India has implemented an effective anti-money laundering and combating terror financing system; however, major improvements are needed to strengthen prosecutions in money-laundering, and terror financing cases.  It has rated India as “moderately” effective on its parameter of “money laundering investigation and prosecution” while saying the country was compliant in most areas.

The task force sets global standards for national authorities targeting illicit funds generated through drug trafficking, illegal arms trade, cyber fraud and other serious crimes. The number of money laundering convictions over the last five years has been impacted by a series of constitutional challenges and the saturation of the court system, the global watchdog said in its report, released on Thursday. India‘s courts have huge backlogs of cases, with many left pending for years.

The Enforcement Directorate has seized assets of suspected financial criminals totalling €9.3 billion ($10.4 billion) over the last five years, but confiscation based on convictions amounted to less than $5 million, the report said.

“It is critical India addresses these issues, considering the accused persons are waiting for cases to be tried and prosecutions to be concluded,” it said. The three areas with partial compliance include the scrutiny of political figures’ sources of wealth by banks and oversight of the finances of non-profit organisations and non-financial businesses and professionals.

The watchdog also noted that India faced terrorist financing threats from groups active in the Jammu & Kashmir region and money laundering from illegal activities related to corruption, drug trafficking and cybercrime. “India needs to focus on concluding prosecutions and convict and sanctioning terrorist financiers,” the FATF statement said.

India’s response

“We have passed the test with distinction,” Finance Ministry Additional Secretary (Revenue) Vivek Agarwal said, adding that since India is in regular follow-up as per FATF, the country may report its risk assessment after three years. “But there is no compulsion on us,” he added.

On the possibility of terror financing abuse by not-for-profit organisations (NPO), Agarwal said FATF has said that preventive measures should be taken to check terror financing. The income tax department has used multiple data points to identify “at risk” NPOs and there is ongoing engagement with NPOs to sensitise them so that they are not used as a medium for financing terror, Agarwal said while adding that India has no low rating (by FATF) on any parameter. It is either a high rating or a medium rating,

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