A mutual evaluation report by the Financial Action Task Force (FATF) has found a 'high level of technical compliance' in India's measures to tackle illicit finance.
The country's main anti-money laundering (AML) risks come from domestic fraud (including cyber-fraud), corruption and drug trafficking, according to FATF. Its AML framework is achieving good results, including on understanding risk, accessing beneficial ownership information and depriving criminals of their assets. Authorities make good use of financial intelligence and co-operate effectively, both domestically and internationally.
'Despite the size and institutional complexity of the Indian system, Indian authorities cooperate and coordinate effectively on matters dealing with illicit financial flows, including the use of financial intelligence', says the report. India also achieved positive results in international co-operation, asset recovery and implementing targeted financial sanctions for proliferation financing.
India's federal finance ministry took extensive steps in 2023 to prepare for FATF's inspection, including several amendments to the Prevention of Money Laundering (Maintenance of Records) Rules. The shareholding threshold for company beneficial owners was reduced to 10 per cent. Banks and financial institutions were ordered to determine whether a client is acting on behalf of a beneficial owner and to check the identity of the beneficial owner at the time of commencement of an account relationship.
The FATF report makes recommendations for further improvement. Financial institutions are taking steps to apply enhanced measures to politically exposed persons (PEPs); however, the report recommends that India addresses the lack of coverage of domestic PEPs and ensures that reporting entities fully implement the technical compliance requirements.
Implementation of preventative measures by the non-financial sector and virtual asset service providers, and supervision of those sectors, is still at an early stage.
Moreover, says FATF, it is 'critical' that AML trials are completed and offenders are punished, as a backlog of uncompleted AML trials has built up.
FATF also suggest that India is not implementing a properly risk-based approach to non-profit organisations (NPOs). It needs to conduct 'outreach' to NPOs on their terrorist financing risks, said FATF.
However, India has made significant steps in financial inclusion, more than doubling the proportion of the population with bank accounts, encouraging greater reliance on digital payment systems and making use of simplified due-diligence for small accounts. India has now been placed in FATF's regular follow-up process and will report back to the organisation in three years.