India faces major threats from ISIS and Al-Qaeda: FATF report

The Financial Action Task Force (FATF), a global watchdog for anti-money laundering (AML) and counter-terror financing (CTF), placed India in its “regular follow-up” category. This comes after an evaluation of the country’s systems for combating money laundering and terrorist financing.

While the FATF acknowledged that India has a functional and “effective” system in place, it emphasized the need for “major improvements,” particularly in strengthening the prosecution of these crimes.

The FATF’s report pointed out several areas where India needs to improve its efforts in fighting money laundering. One major issue is the low number of prosecutions and convictions. Although more investigations have been carried out under the Prevention of Money Laundering Act (PMLA), there hasn’t been a similar increase in successful court cases or completed trials. From 2018 to 2023, the Enforcement Directorate (ED) secured convictions in just 28 money laundering cases, which is low compared to the total number of investigations happening.

Another area for improvement is the risk profiling of customers by financial institutions. The report urged Indian financial institutions to better assess and monitor the risk profiles of their customers to prevent illegal activities. The FATF also suggested that India should improve the monitoring of its Ministry of Corporate Affairs (MCA) registry to ensure accurate ownership information for businesses. This step is vital to prevent the misuse of corporate structures for money laundering.

FATF flags links between money laundering, human trafficking, and terrorism

The report also raised concerns about the link between money laundering and human trafficking. India, it said, needs to address this connection more effectively to combat both issues. The country’s primary sources of money laundering, according to the FATF, come from internal criminal activities. These include fraud, cyber-enabled fraud, corruption, and drug trafficking.

On the issue of terrorism threats, the FATF noted that India faces a variety of challenges. These threats range from insurgencies in the Northeast and North, to left-wing extremist groups. The most significant threats, however, are linked to groups like the Islamic State (ISIS) and al-Qaeda, particularly in Jammu and Kashmir.

In the non-profit sector, the FATF suggested that India must focus more on preventing non-profit organizations (NPOs) from being exploited for terrorist financing. The report recommended that authorities conduct more targeted outreach and education to ensure NPOs are aware of the risks, particularly regarding how their funds may be misused for terrorism.

The FATF noted that there have been delays in prosecuting cases related to terror financing. From 2014 to 2022, progress slowed down because the government was dealing with legal issues concerning the Prevention of Money Laundering Act (PMLA). These legal challenges made it difficult to move forward with terror financing cases during that time.

India’s regular follow-up status viewed positively

Despite these challenges, India’s placement in the regular follow-up category is being seen as a positive outcome by the government. Some developed countries had raised objections regarding India’s handling of beneficial ownership, particularly in cases involving investments from tax havens. However, Indian officials responded by assuring that mechanisms are in place to track such investments.

The FATF’s report is an important signal to India that while it has made progress in its AML and CTF frameworks, there is still work to be done, especially in the areas of prosecution and enforcement. The regular follow-up status means India will have to report its progress to the FATF regularly to ensure ongoing improvements in its system.

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