India for its 2020 FATF Review

FATF Review – Agreeing with common legislation and international treaties, great efforts have been made by governments of different countries for combating financial issues of an economy like money laundering and terror financing.

Lacking in view of harmony in structures and policies for international financial dealings, many developing economies stated a need for forming a universal governing body for providing common standards towards irregularities in the international financial system.

With the growing concerns of all center governments, FATF (Financial Action Task Force) came to existence.

About FATF 

FATF (Financial Action Task Force) is an intergovernmental organization established in 1989, to control financial affairs of its member countries FATF places standards, measures and policies to curb practices of money laundering, terror funding and other threats posed to the international financial system. At present, there are about 39 member countries working under FATF.

The agency was founded with objectives to provide some global standards to be followed by member governments to combat serious issues of money laundering and terror financing. Once in a decade, FATF undertakes audits and asks for reports from its member countries to analyze their policies to check the credibility and standard with global standards it places in the economy.

India joined FATF in 2010. Passing a decade in 2020 it’s time for the Indian government to provide a report card to the global watchdog FATF about its key takes taken in the years for barricading financial crimes of money laundering and terror financing.

Efforts of Indian Government for FATF Review in 2020

India on 25th June 2010 became the 34th member country of Financial Action Task Force (FATF). Since then, as a member, India was obliged to follow the practices guided by FATF and the standards it approves in consultation with the member countries for the financial entities and central governments against money laundering and terror funding.

Membership of FATF matters to India because of the following three major reasons:

First, India faces a lot of terror attacks and it requires aid from  other countries to track down money flow behind such terror attacks;

Secondly, India needs an open approach for global capital access along with tough enforcement against terrorism and money laundering; and

Thirdly, to emerge as an exporter of financial services and spread its wings across other countries.

Scheduled to have its meeting with FATF experts in 2020, the Government of India has raised its voice for striking gaps in all its policies gripping over money laundering and terror funding. The immediate need is of putting a proper regulatory mechanism for the gem & jewelry and the real estate sector.

Working onto global standards of FATF, India has a host of measures to place before FATF for its evaluation in 2020:

  • Setting up of Coordinating Committee: To curb practices of money laundering, a special ‘’ Inter-ministerial Committee ‘’ was formed under Section 72A of the Prevention of the Money Laundering Act, 2002. The committee evaluates regulatory mechanisms across sectors and facilitates policy & operational coordination with law enforcement agencies, intelligence agencies, and various other regulatory institutions.
  • Tracking of Politically Exposed Persons (PEPs): In terms of risk profile, PEPs (Politically exposed Persons) are considered as the high-risk customers for banks. To effectively dig risk-prone profiles, government-directed banks and other financial institutions to carry out Enhanced Due Diligence (EDD). EDD specifies for the in-depth search for personal history, net worth, relationship – in short, digging the complete history and information about the person.
  • To File charges against Economic OffendersGovernment during the years, bought strict penal provisions for those committing or attempting breach of law and involved in criminal activities. CBI registered 14 cases and ED (Enforcement Directorate) registered 82 cases against former MPs / MLAs attempting for economic offenses and tax evasions.
  • Abidance of offenders through legislation: A measure is taken in accordance with FATF, the Fugitive Economic Offenders Act, 2018 was introduced to confiscate assets and properties of economic offenders.
  • Other measures: With seizure of properties of accused in money laundering cases, crackdown of Hawala in Kashmir, vigil on high profile cases, revival of Benami Transactions (Prohibition ) Act, 1988, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions, to Operation Clean Money several policies and legislation have been placed in accordance with standards of FATF.

Membership in FATF is of prime importance for India. Last year, FATF helped India to capture worthy assets of PNB Offenders Nirav Modi and Choksi.

Terms to Know:

  1. Money Laundering:
    The process of making money from illegitimate sources like doing any criminal activity or terror activities and making the accumulated money look clean as received from a legitimate source.
  2. Enhanced Due Diligence (EDD):
    The process of making verification and identification of persons more rigorous and robust.
  3. Fugitive Economic Offenders Act:
    To curb the practice of economic offenses and to confiscate assets & properties of economic offenders charged in offenses above Rs 100 crore, the Indian government proposed the Fugitive Economic Offenders Act, 2018.

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