The Financial Action Task Force has been appreciative of India’s recent efforts to deal with various shades, as it were, of illicit finance. A recent review by the FATF concluded that “India has implemented an anti-money laundering (AML) and counter-terrorist financing (TF) framework that is achieving good results, including on risk understanding, access to beneficial ownership information and depriving criminals of their assets.” This certificate makes India a more credible destination for doing business. But gaps pointed out by FATF in the AML/TF system need to be addressed, even as India has managed to tick most boxes in FATF’s technical rule book.
Out of 40 recommendations of the FATF, India is compliant in 11 and largely so in 26. Regarding outcomes, India has achieved the second highest rating of ‘substantial level of effectiveness’ in six out of 11 parameters and the next rating of ‘moderate level of effectiveness’ in five metrics. The strides made in digitisation of payments and financial inclusion appear to have played an important role in increasing transparency and identifying suspicious transactions. The report observes that Indian authorities have developed the skillsets to deal with financial crime. But it points towards three areas where improvement is needed. One, more checks and balances are needed on politically exposed persons (PEPs), so that application of the money laundering provisions is seen to be even handed. These are individuals who hold or held prominent positions which can be linked to financial malpractices. Though due diligence is being done with many domestic PEPs, there is a hint of inconsistency in the identification of PEPs. A list of such sensitive posts can be prepared so that the banking system is alert about disclosure of their assets, salaries and other financial transactions.
Two, FATF has noted that while larger commercial banks are aware of money laundering and terror financing risks and have adequate systems to check them, similar systems are lacking in payments banks, rural banks and other smaller non-bank financial companies. RBI should review the systems at these entities and release fresh guidelines. The third area where the FATF wants the government to improve pertains to financial transactions involving non-profit organisations. These outfits are seen to be prone to misuse by money launderers and drug traffickers.
Indian authorities should also address FATF’s concern regarding the backlog of cases relating to money laundering and terror financing in the courts. Setting up special benches to clear these cases may help. The authorities also need to improve their skills to investigate and prosecute cases relating to human trafficking, migrant smuggling and drug trafficking. The number of convictions secured under the Prevention of Money Laundering Act leaves much to be desired. Ultimately, investigative rigour is the name of the game.
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