New Delhi: India has described as an "outstanding outcome" its inclusion in the "regular follow-up" category of countries following the conclusion of the Mutual Evaluation of the Financial Action Task Force (FATF) that concluded in Singapore on Friday.
"India has achieved an outstanding outcome in the Mutual Evaluation conducted during 2023-24 by Financial Action Task Force (FATF)," a statement issued by the Finance Ministry read.
"The Mutual Evaluation Report of India, which was adopted in the FATF plenary held in Singapore between June 26 and June 28, 2024, places India in the 'regular follow-up' category, a distinction shared by only four other G20 countries. This marks a significant milestone in the nation’s efforts to combat money laundering (ML) and terrorist financing (TF).”
According to the statement, FATF has recognised the efforts made by India on mitigating the risks arising from ML/TF, including the laundering of proceeds from corruption, fraud, and organised crime; effective measures implemented by India to transition from a cash-based to a digital economy to reduce ML/TF risks; implementation of the JAM (Jan Dhan, Aadhaar, Mobile) Trinity, along with stringent regulations on cash transactions, that has led to a significant increase in financial inclusion and digital transactions which have made transactions more traceable, thereby mitigating ML/TF risks and enhancing financial inclusion.
"India’s performance on the FATF Mutual Evaluation accrues significant advantages to our growing economy, as it demonstrates the overall stability and integrity of the financial system," the Finance Ministry further reads. "Good ratings will lead to better access to global financial markets and institutions and increase investor confidence. It will also help in the global expansion of the Unified Payments Interface (UPI), India’s fast payment system."
What is the Mutual Evaluation that the FATF conducts?
The FATF is an intergovernmental organisation founded in 1989 at the initiative of the G7 to develop policies to combat money laundering and to maintain certain interests. In 2001, its mandate was expanded to include terrorism financing.
The objectives of FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF identifies countries and jurisdictions with weak measures to combat money laundering and terrorist financing.
FATF Mutual Evaluations are in-depth country reports analysing the implementation and effectiveness of measures to combat money laundering, terrorist and proliferation financing. The reports are peer reviews, where members from different countries assess another country, according to the FATF website. Mutual evaluations provide an in-depth description and analysis of a country's anti-money laundering and counter-terrorist financing system, as well as focused recommendations to further strengthen its system.
During a mutual evaluation, the assessed country must demonstrate that it has an effective framework to protect the financial system from abuse. Mutual Evaluations have two main components: effectiveness and technical compliance.
The most important part of a mutual evaluation is a country's effectiveness ratings. This is the focus of an on-site visit by a team of experts to the assessed country. During this visit, the assessment team will require evidence that demonstrates that the assessed country's measures are working and delivering the right results. What is expected from a country differs, depending on the money laundering, terrorist financing and other risks it is exposed to.
The assessment of technical compliance is also an important part of a mutual evaluation. The assessed country must provide information on the laws, regulations and any other legal instruments it has in place to combat money laundering and the financing of terrorism and proliferation.
What are the categories in which the FATF places countries?
The FATF places countries in various categories based on their level of compliance with international standards for anti-money laundering and combatting the financing of terrorism (AML/CFT). These categories are part of the FATF’s mutual evaluation process, which assesses countries’ AML/CFT frameworks and their effectiveness in implementing FATF Recommendations. The categorisation helps in monitoring progress and ensuring continuous improvement. The following are the main categories:
- Regular Follow-up: These countries have undergone a mutual evaluation. Countries in this category generally have a sound AML/CFT system but may have some areas of non-compliance or partial compliance with FATF Recommendations. The deficiencies identified do not pose a significant risk to the international financial system.
- Enhanced Follow-Up: Countries in this category are required to report back to the FATF on their progress in addressing deficiencies every two to three years. These are countries with major non-compliance issues or those that pose a higher risk to the international financial system.
- Post-Observation Period: Countries that have made substantial progress in addressing deficiencies identified in their mutual evaluation but need to sustain and demonstrate the effectiveness of their AML/CFT measures over time are put in this category.
- High-Risk Jurisdictions Subject to a Call for Action (Black List): The Black List identifies countries or jurisdictions with serious strategic deficiencies to counter money laundering, terrorist financing, and financing of proliferation. For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the country.
- Jurisdictions under Increased Monitoring (Grey List): The Grey List identifies countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
- No Follow-Up: Countries placed under this category have undergone a mutual evaluation and have been found to have no significant deficiencies in their AML/CFT systems.
What are the requirements from a country that is put under the "regular follow-up" category?
Regular follow-up is the default mechanism to ensure a continuous and on-going system of monitoring. It is the minimum standard that applies to all members after two-and-a-half years from the adoption of the country's mutual evaluation report (MER) and subsequently at three-year intervals. If any of the FATF standards have been revised since the end of the on-site visit (or previous follow-up report, if applicable), the country will be assessed for compliance with all revised standards at the time its re-rating request is considered (including cases where the revised recommendation was rated largely compliant or compliant).
According to the outcome statement issued on Friday following the Mutual Evaluation conducted by the FATF in Singapore, India has reached a high level of technical compliance with the FATF requirements and its anti-money laundering, combating the financing of terrorism and countering proliferation financing regime is achieving good results, including in its ML and TF risk understanding, international cooperation, access to basic and beneficial ownership information, use of financial intelligence, and 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," the outcome statement read.
"India also needs to address delays relating to concluding ML and TF prosecutions, and to ensure that CFT measures aimed at preventing the non-profit sector from being abused for TF are implemented in line with the risk-based approach, including by conducting outreach to NPOs (non-profit-organisations) on their TF risks."
