Why in the News?

India has achieved an outstanding outcome in the Mutual Evaluation conducted during 2023-24 by the Financial Action Task Force (FATF).

The Mutual Evaluation Report of India, which was adopted in the FATF plenary held in Singapore recently, places India in the “regular follow-up” category, a distinction shared by only four other G-20 countries.

What’s in Today’s Article?

• About FATF (History, Objectives, Members, Mutual Evaluation Process, etc.)
• News Summary

About Financial Action Task Force (FATF):

• The Financial Action Task Force (FATF) is an intergovernmental organisation founded in 1989.
• It is an initiative of the G7 countries to develop policies to combat money laundering.
  • In 2001, its mandate was expanded to include terrorism financing.
  • It has also started dealing with virtual currencies.
• It sets international standards that aim to prevent these illegal activities and the harm they cause to society.
• 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 monitors progress in implementing its recommendations through "peer reviews" ("mutual evaluations") of member countries.
• The FATF Secretariat is located in Paris.

Objectives of FATF:

• FATF sets standards and promotes effective implementation of:
  • legal, regulatory and operational measures for combating money laundering.
  • The FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

Members of FATF:

• The FATF currently comprises 38 member jurisdictions and two regional organisations, representing most major financial centres in all parts of the globe.
• India became an Observer at FATF in 2006. In 2010, India was taken in as the 34th country member of FATF.

FATF’s Mutual Evaluation Process:

• Mutual Evaluation Process is a comprehensive and rigorous assessment conducted to evaluate a country's compliance with international standards for combating money laundering (ML) and terrorist financing (TF). This process includes:
• Evaluation Team: A team of experts from FATF member countries conducts the evaluation, analysing the country's measures and their effectiveness in preventing ML and TF.
• Assessment Criteria: The evaluation is based on FATF's 40 Recommendations, which cover a wide range of preventive measures, criminal justice, law enforcement, and international cooperation.
• Technical Compliance: This aspect assesses whether the country's legal and institutional frameworks are in line with FATF standards. It examines the laws, regulations, and other measures in place to combat ML and TF.
• Effectiveness: The evaluation also measures the effectiveness of these frameworks. This involves assessing how well the country implements and enforces its laws and regulations, and how effectively it achieves the desired outcomes in combating ML and TF.
• Country Reports: The findings are compiled into a Mutual Evaluation Report, which provides a detailed analysis of the country's compliance and effectiveness. The report includes ratings and recommendations for improvement.
• Follow-Up: After the evaluation, the country may be placed in follow-up processes to address any deficiencies. This involves periodic reporting to FATF on the progress made in implementing the recommended improvements.
• Public Disclosure: The Mutual Evaluation Report is published, providing transparency and encouraging countries to enhance their AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) regimes.

India Achieves an ‘Outstanding Outcome’ in FATF Mutual Evaluation:

• India has achieved a remarkable outcome in the 2023-24 Mutual Evaluation by the Financial Action Task Force (FATF), placing it in the “regular follow-up” category,.
• This signifies a high level of compliance in combating ML and TF, though some non-financial sectors require improvement in supervision and preventive measures.
• The FATF highlighted India's success in mitigating ML/TF risks through digital economy initiatives like the JAM Trinity (Jan Dhan, Aadhaar, Mobile) and stringent cash transaction regulations.
• This evaluation enhances India's financial stability and integrity, boosting access to global financial markets and investor confidence, and supporting the expansion of the Unified Payments Interface (UPI).

Government’s Response:

• India's recognition by the FATF reflects the country's effective measures over the past decade to protect its financial system from ML and TF threats.
• This achievement underscores India's commitment to international standards and enhances its capacity to lead global efforts against financial crimes.
• Since 2014, the government has enacted legislative changes and bolstered enforcement efforts, aligning with international standards and yielding positive results, including disrupting terror funding networks.
• The Department of Revenue led India's engagement with the FATF, supported by a diverse team from various sectors, showcasing the country's comprehensive approach to combating ML and TF.