“Outstanding Performance of India evaluated by the FATF”

29 Jun “Outstanding Performance of India evaluated by the FATF”

This article covers “Daily Current Affairs” and the topic details of “Outstanding Performance of India evaluated by the FATF” This topic is relevant to the “Economy” section of the UPSC—CSE Exam.

Why in the news:

India has attained a remarkable achievement in the mutual evaluation conducted in 2023-24 by the Financial Action Task Force (FATF), according to government sources. This milestone underscores significant progress in the country’s efforts to combat money laundering (ML) and terrorist financing (TF).

About the FATF:

• The Financial Action Task Force (FATF) is an international organization established in 1989 following a meeting of G-7 nations in Paris. Its goal is to combat global money laundering and terrorist financing activities.
• Initially focused solely on money laundering, the FATF expanded its mission after the 9/11 attacks in 2001 to include efforts against terrorist financing. In April 2012, it further broadened its scope to address the financing of Weapons of Mass Destruction (WMD).
• The FATF issues recommendations to its 39 member countries, including major financial centres worldwide. These recommendations, first outlined in April 1990 as the Forty Recommendations, provide a framework for combating money laundering and terrorist financing. 
• They were later supplemented with additional standards, including the 40+9 Recommendations in 2004, and expanded in 2012 to cover new threats such as WMD proliferation.
• The FATF operates through its Plenary, which convenes three times annually to make decisions and review member countries’ adherence to its standards. 
• Over 200 jurisdictions globally have committed to implementing FATF Recommendations, facilitated by a network of nine FATF-Style Regional Bodies (FSRBs).
• India, initially an observer in 2006, became a full FATF member in 2010. It also participates in regional bodies like the Asia Pacific Group (APG) and the Eurasian Group (EAG).
• Indonesia is an observer of the FATF, alongside important international organizations such as the Asian Development Bank (ADB), International Monetary Fund (IMF), Interpol, and the World Bank. These observers contribute to FATF discussions and initiatives related to global financial integrity and security.

FATF President:

• The FATF President is a senior official chosen by the FATF Plenary from its members. They preside over and lead FATF Plenary and Steering Group meetings, overseeing the FATF Secretariat’s operations. 
• The President serves as the primary spokesperson for the FATF, representing the organisation externally. Each term begins on 1 July and concludes on 30 June, two years later. 
• T. Raja Kumar of Singapore has been serving as the FATF President since July 2022.

FATF Secretariat:

• Situated at the OECD headquarters in Paris, the FATF Secretariat supports the substantive work of FATF members and its global network. 
• Funding for the Secretariat and related services is derived from the FATF’s annual budget, which is financed through contributions from its members.

Grey and Black Lists of the FATF:

• The FATF Plenary convenes three times a year (in February, June, and October) to review the Mutual Evaluation Reports (MERs) of member countries. 
• Countries found to have significant deficiencies in their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures are placed on the “grey list” for enhanced monitoring. 
• Failure to address FATF concerns can result in placement on the “blacklist” of high-risk jurisdictions.
• The Grey List warns countries considered havens for terrorist financing and money laundering activities, while the Black List includes Non-Cooperative Countries or Territories (NCCTs) supporting such activities. Due to recent developments, Iran, North Korea, and Myanmar are currently on the Black List.
• Countries on these lists face economic sanctions from financial institutions affiliated with the FATF, difficulties in obtaining loans, reduced international trade, and potential international boycotts.
• Pakistan was removed from the grey list after demonstrating significant progress in addressing FATF recommendations following several years of heightened monitoring.

Challenges and Solutions for FATF:

• Implementing FATF standards poses challenges such as domestic coordination issues, capacity limitations, and resource inadequacies. 
• There are also difficulties in understanding and mitigating Money Laundering/Terror Financing (ML/TF) risks, exacerbated by outdated risk assessment tools and weak national regulatory frameworks.
• Adopting a risk-based approach, supported by enhanced data sharing among stakeholders and leveraging modern technologies like machine learning for real-time, accurate data analysis, is crucial to strengthening the FATF’s effectiveness. These steps are vital in addressing the evolving landscape of ML/TF threats and enhancing global financial security.

Way Forward:

• Strengthening the FATF Global Network: The FATF has expanded its global network by establishing nine FATF-Style Regional Bodies (FSRBs) to promote the implementation of its standards worldwide.

• Providing Guidance and Technical Assistance: The FATF publishes guidance, best practices, and other resources to help countries implement its standards effectively. 
• Enhancing Monitoring and Evaluation: The FATF conducts regular mutual evaluations of member countries to assess their compliance with the FATF standards and identify areas for improvement. It also monitors the progress of countries on the “grey list” and “black list”.
• Promoting International Cooperation: The FATF encourages international cooperation and information sharing among member countries, financial intelligence units, and law enforcement agencies to combat money laundering and terrorist financing more effectively.
•  Addressing Emerging Threats: The FATF continuously updates its standards to address new and evolving threats, i.e. the financing of the proliferation of weapons of mass destruction and the misuse of virtual assets.

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Mains based Question:

Q. Discuss the role of FATF in the fight against money laundering.

Vishal Yadav