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FATF praises India's Prevention of Money Laundering Act, terror financing; asks to improve prosecution.
The Financial Action Task Force (FATF) is an inter-governmental body decision-making body. It was established in 1989 during the G7 Summit in Paris to develop policies against money laundering. It is a “policy-making body” which works to generate the political will to bring about national legislative and regulatory reforms in money laundering. It has also started dealing with virtual currencies. The FATF Secretariat is located in Paris.
FATF sets standards and promotes effective implementation of:
There are currently 40 members of the FATF: 38 jurisdictions and 2 regional organisations (the Gulf Cooperation Council and the European Commission). India became an Observer at FATF in 2006. Since then, it has been working towards full-fledged membership. On June 25, 2010, India was taken in as the 34th country member of FATF.
FATF's role in combating terror financing became prominent after the 9/11 terror attacks in the US. In 2001 its mandate expanded to include terrorism financing. Financing of terrorism involves providing money or financial support to terrorists.
This backlist mentions the names of the countries that do not cooperate in the global efforts to prevent financial crimes such as money laundering, financing of terrorism, and financing of proliferation of weapons for mass destruction. At present (September 2024), only the Democratic Republic of North Korea, Iran and Myanmar are mentioned in the FATF blacklist – countries subject to a Call for Action.
This is the list of countries where the anti-money laundering and counter-terrorist financing (AML/CFT) regulations are not entirely compelling and efficient enough to counter money laundering and terrorism financing. At present (September 2024), 21 countries are on the FATF Grey list, including Nigeria, Croatia, Namibia, Kenya, Syria, Vietnam, and many more.
Consequences of being in the FATF grey list:
These are listed as 40 Recommendations that are divided into seven distinct areas:
The FATF monitors countries to ensure they implement the FATF standards fully and effectively. FATF mutual evaluations are in-depth country reports that analyse the implementation and effectiveness of measures taken against money laundering, terrorist and proliferation financing.
The reports are peer reviews, where members from different countries assess another country. After an analysis of a country’s anti-money laundering and counter-terrorist financing system, mutual evaluations give recommendations to further strengthen a country’s system.
The FATF had undertaken an evaluation for India in June 2010. India was then placed in the “regular follow-up” category.
The “regular follow-up” ranking is being seen as a favourable outcome by India, as some developed countries had raised objections.
The “regular follow-up” rating is currently shared by only four other G20 countries — the UK, France, Italy and Russia (suspended from FATF in February 2023).
Most of the developing countries are in the “enhanced follow-up” category, which requires submission of reports on an annual basis, as against once in three years in the “regular follow-up” category.
There was a disruption to the progress of prosecution of cases under the Prevention of Money Laundering Act (PMLA) during 2014-2022 as the government faced several challenges to the constitutionality of the law, although the number of money laundering investigations increased since the review period.
The number of prosecution complaints and concluded trials did not show a proportionate increase. Between 2018 and the FATF team’s visit in 2023, the Enforcement Directorate (ED) was able to secure convictions in only 28 money laundering cases.
Limited number of prosecutions and convictions, risk-profiling of customers of financial institutions, monitoring of the Ministry of Corporate Affairs (MCA) registry for availability of accurate owner information, and the link between money laundering and human trafficking.
For the Non-Profit Organisations (NPO) sector, the FATF said India should ensure that measures aimed at preventing the sector from being abused for terror financing are implemented. It also called for major changes to address delays in prosecution of terror financing cases.
India needs to strengthen prosecution in money laundering (ML) and terror financing (TF) cases, protecting the non-profit sector from terrorist abuse, and supervision and implementation of preventive measures.
To reduce the number of pending trials, India should aim to reduce the number of pending trials in ML cases – both for new trials and for the backlog, addressing the low number of convictions associated ML cases and increasing conviction-based confiscation, by making major changes to increase the capacity of the court system, and potentially the capacity of the ED.
Must read articles
PMLA : https://www.iasgyan.in/daily-current-affairs/pmla
ANTI-MONEY LAUNDERING LAW : https://www.iasgyan.in/daily-current-affairs/anti-money-laundering-law
SUPREME COURT TO REVIEW PMLA ACT :https://www.iasgyan.in/daily-current-affairs/supreme-court-to-review-pmla-act#:~:text=Prevention%20of%20Money%20Laundering%20Act%202002%20(PMLA),force%20on%201st%20July%202005.
Source:
https://www.fatf-gafi.org/en/countries/black-and-grey-lists.html
https://www.business-standard.com/about/what-is-fatf
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PRACTICE QUESTION Q.Money laundering poses a serious threat to a country’s economic sovereignty. Discuss in the context of India. What steps are required to be taken to control this menace? 250 words |
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