Financial Action Task Force is an inter-governmental policy-making body mandated to establish international standards for combating money-laundering and terror financing. FATF countries have to put in place adequate legislative measures and capacities to curb money-laundering and terror financing. It was established by G-7 countries in 1989 in recognition of the emerging complexities of money laundering in a world of technological and financial innovation.
India joined FATF in June 2010. In keeping with the recommendations of FATF, it will amend the Prevention of Money Laundering Act, and also introduce some new legislations like ‘The Benami Transactions (Prohibition) Bill to prevent misuse of benami transactions which is a key source of illicit funds. Membership of FATF will help in the following ways:
- FATF membership and the ensuing legislative framework will make India a more attractive destination for foreign companies. This is because capital flows from FATF-countries to non-FATF countries face significant costs and restrictions. Full membership of FATF secures the lowest costs for capital flows. 5.
- It will also facilitate exports of financial services by Indian companies. In 2007 some countries denied permission to Indian banks to expand, claiming that Indian financial system could not be trusted to block/trace money laundering and terror financing.FATF membership address these concerns.
- India faces terrorist attacks, and needs the comprehensive toolkit for law enforcement agencies to be able to track the money behind terrorist attacks, both within India and from other countries.
- India’s tax enforcement authorities (Enforcement Directorate, Financial Intelligence Unit, Central Economic Intelligence Bureau, Directorate of Revenue Intelligence) would be able to exchange and access vital information with member countries on money laundering and terrorist financing activities. It’s a significant step in tracing illegal funds stashed away in tax havens. 4
- India wishes to approach FATF to include the ‘fake currency notes’ as an instrument of ‘terror financing’. GOI believes that fake currency will be used by terrorist organizations to fund their operations in J&K and also by sleeper cells. Recent seizures of fake Indian currency point to use of highly sophisticated machinery, and the GOI perceives this as an attack on economic security and sovereignty of India.2.
- In its latest report FATF has found that hawala route of illegal money transactions are being used for paying ransom in sea-piracy cases. GOI is also keeping its eye open on this issue.1.
It is important to note that India is now being accepted into a substantive role in critical global bodies such as the Financial Stability Board (FSB), Basle Committee on Banking Supervision (BCBS), International Organization of Securities Commissions (Iosco), G-20 , etc. India has also signed the UN Convention against Corruption also known as the Merida Convention. 5.