The Financial Action Task Force (FATF), which monitors terror financing, has recognised India for its strong technical compliance with its recommendations and for taking significant steps to combat illicit finance. However, in a report released on 19th September, the FATF noted that India must enhance its systems to keep pace with its growing economy, emphasising the need for quicker trials related to money laundering and terrorist financing. India is now in the regular follow-up category, alongside only four other G20 nations. 

The mutual evaluation report indicates that a joint assessment by the FATF, the Asia/Pacific Group on Money Laundering (APG), and the Eurasian Group (EAG) has determined that India has established an effective anti-money laundering and counter-terrorist financing (AML/CFT) framework that is yielding positive results. Notable areas of success include improved risk understanding, better access to beneficial ownership information, and the ability to deprive criminals of their assets. 

The report highlights that Indian authorities effectively utilise financial intelligence and maintain strong cooperation at both domestic and international levels. It notes that India is the world's most populous country and has the largest diaspora while being a lower-middle-income nation with one of the fastest-growing economies, currently ranked fifth globally. The main risks for money laundering in India stem from domestic illegal activities, primarily fraud (including cyber-enabled fraud), corruption, and drug trafficking. 

While India actively pursues money laundering cases related to fraud and forgery, the report suggests that it needs to enhance efforts against other offences like human trafficking and drug trafficking. Additionally, the country must tackle the backlog of money laundering cases awaiting court resolution. 

The report indicates that India faces significant threats from terrorism and terrorist financing, particularly related to groups like ISIL and al-Qaeda operating in and around Jammu and Kashmir. While praising India's focus on disruption and prevention and its capacity for conducting complex financial investigations, the evaluation stresses the importance of finalising prosecutions and effectively convicting and sanctioning those involved in financing terrorism. 

Additionally, the report emphasises the need to implement measures that prevent the non-profit sector from being exploited for terrorist financing, advocating for a risk-based approach that includes outreach to these organizations. 

The report commends India for its progress in financial inclusion, noting that the percentage of the population with bank accounts has more than doubled, due diligence for small accounts is being implemented, and the use of digital payment systems has been promoted. These initiatives have enhanced financial transparency and supported efforts to combat money laundering and terrorist financing. 

It further highlights that, despite the complexity of India’s financial system, authorities effectively cooperate and coordinate on issues related to illicit financial flows, including the use of financial intelligence. India has also seen positive outcomes in international cooperation, asset recovery, and the implementation of targeted financial sanctions related to proliferation financing. 

The report notes that Indian authorities have a solid understanding of the risks associated with money laundering, terrorism, and proliferation financing, but it emphasises the need to share these insights with relevant stakeholders. It highlights that while there is a strong grasp of risk and the application of preventive measures in the financial sector, particularly among commercial banks, smaller financial institutions are less informed. 

As a result of this assessment, India has been categorised under "regular follow-up" and will report back to the Plenary in three years, in accordance with established procedures. 

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