New Delhi: The India-specific mutual evaluation report released by the Financial Action Task Force (FATF) has highlighted that India has employed an effective system that has improved anti-money laundering (AML) and tackled counter-terrorist financing over the past 5 years, but there is room for improvement in aspects such as long pendency of trials and shortcoming in assessment of money laundering risks emanating from offences such as human trafficking. It also points out that Indian agencies have not shown they have adapted to updated practices for combating the misuse of Non-Profit Organisations (NPOs) for terrorist financing.
The report, released Thursday by the global money laundering and terrorist financing watchdog, delves into the status of cases investigated by the Directorate of Enforcement—India’s key agency for combating money laundering. It notes that over the past 5 years, there have been only 28 convictions.
It adds that while the situation has improved since 2022-23 in terms of number of prosecutions and convictions, India should strive further to reduce the number of pending trials considering the present resources are “not sufficient” to deal with the enormous number of pending cases.
FATF mutual evaluation reports are country-specific assessments where the multinational body evaluates the effectiveness of a country’s laws in combating money laundering and terrorist financing. The FATF releases its mutual evaluation report after a team of experts visits the country under assessment. In India’s case, this visit took place from 6 November to 24 November last year. The evaluation, originally scheduled for 2020, was delayed due to Covid-19 and the report was eventually adopted at the FATF plenary in Singapore in June this year.
India became the 36th member of the watchdog in 2010 and its first India specific mutual evaluation report was released in 2013.
“India should aim to reduce the number of pending trials in ML cases–both for new trials and for the backlog, addressing the low number of convictions associated ML cases and increasing conviction-based confiscation, by making major changes to increase the capacity of the court system, and potentially the capacity of the ED (sic),” the FATF suggested in its report.
“There have been only 28 ML convictions over the last five years, due to a series of constitutional challenges which were resolved in ED’s favour in July 2022 and the saturation of the court system. Although the number of prosecutions and convictions have started to increase over the period of 2022-23, the backlog remains considerable and the current resources are not sufficient to deal with the large number of pending cases,” the watchdog documented.
India’s overall report card
In addition to evaluating the effectiveness of a country’s laws, the FATF also provides a recommended framework to help improve the performance of law enforcement agencies in preventing the illegal flow of money as part of its “40 Recommendations”.
The FATF found India to be “largely compliant” with the majority of recommendations outlined in its 2012 recommendations. “Compliant” is the highest possible rating, while “largely compliant” indicates overall compliance with some shortcomings.
On money laundering offences, the FATF asserted that India’s approach of investigation does not take into account the full range of categories of offences designated by the body such as migrant smuggling and human trafficking.
On recommendation with respect to dealing with Non-Profit Organisations (NPOs), the FATF asserted that Indian agencies are yet to update practices on combating the abuse of NPOs for terror financing.
In its October plenary last year, the FATF had agreed to amend a recommendation designed to protect Non-Profit Organisations (NPOs) from potential terrorist financing abuse. The plenary also included guidelines on how to avoid implementing FATF requirements that could become “burdensome” or “restrictive” for NPOs.
Commenting on the FATF’s India Mutual Evaluation Report, Amnesty International said that FATF has called for “priority actions”, including ensuring no harassment and intimidation of India’s non-profit sector.
“The global financial watchdog significantly calls for ‘priority actions’, one of which is to ensure India’s civil society is not unnecessarily harassed and intimidated under the pretext of money-laundering or terrorism-financing. While the Indian Government may harp only on the positives in the FATF’s report on India, they can’t conveniently downplay how they have been rapped for their partial compliance with measures to protect the legitimate activities of the non-profit sector,” said Aakar Patel, chair of board at Amnesty International India.
Amnesty International further called on the government to put in measures to bring laws such as FCRA and UAPA in line with the international humanitarian laws to ensure these are not weaponised against critics and non-governmental organisations.
“Amnesty International has consistently flagged how these laws have been weaponised by authorities to target, intimidate, harass and silence critics. In consultation with the non-profit sector, the government needs to put in place measures that are focused, proportionate and not overbroad by bringing laws like FCRA and UAPA in line with international human rights standards,” he said.
“The Indian Government must take seriously the priority actions recommended by the FATF report and calibrate its actions with a risk-based approach to stop the witch-hunt under India’s anti-terror and money-laundering laws of non-profit organisations, human rights defenders and activists who dare to dissent,” Patel added.
The Report further stressed the importance of consultation with NPOs to help them address terror financing risks and vulnerabilities and cited that the government did not consult adequately with the non-profits before bringing amendments to Foreign Contribution (Regulation) Act in 2020.
The FATF documented that that amendment in the act that mandated key administrative changes in the way NPOs operated before, adversely affected the operations of some NPOs.
Notified in September 2020, the amended act mandated key changes, such as mandatory Aadhaar for key functionaries of NGOs, receiving foreign contribution only in the designated FCRA bank accounts opened with the State Bank of India (SBI), ban on domestic transfer of foreign funds, and reduction of administrative expense limit from 50 percent to 20 percent.
FCRA is mandated for any NPOs that received foreign fundings, and the FATF documented that India cancelled or did not renew FCRA certificates of 21 NPOs in the past five years on the ground of their involvement in terror or radical activities. Overall, the FATF documented that 1,828 FCRA registrations have been suspended while 1,260 registrations have not been renewed over the last five years.
In its recommendation regarding politically exposed persons, the FATF asserted that India has only “partially complied” with the recommendation as there is “ambiguity” on how the agency could establish sources of wealth of politicians or politically exposed persons.
The FATF guidelines suggest that these parameters can be assessed by collecting information on things like obscure ownership, discrepancies between the information provided and publicly available data, including declared assets and official salaries.
The FATF also highlighted the need for improvements in the supervision of Designated Non-Financial Businesses and Professions (DNFBPs)—which include casinos, real estate agents, dealers in precious metals and stones, lawyers, notaries, independent legal professionals, accountants, and trust and company service providers—to curb money laundering and illicit flow of money.
“India has achieved strong results in its technical compliance with the FATF Standards. The remaining areas requiring significant improvement are risk-based measures to protect NPOs, establishing due diligence requirements on domestic PEPs and supervision of DNFBPs,” the FATF documented.
This is an updated version of the article
(Edited by Zinnia Ray Chaudhuri)