Roadmap for Answer Writing

Introduction:

• Briefly introduce the Financial Action Task Force (FATF) and its role as the global body responsible for combating money laundering and terrorism financing.
• Mention India’s membership in FATF since 2010 and the importance of adhering to its recommendations.

Key Areas of the FATF Recommendations:

• Discuss the critical aspects covered in the latest FATF evaluation (e.g., criminalization of money laundering and terrorism financing, customer due diligence, and enhancing enforcement mechanisms).

India’s Performance in Implementing FATF Recommendations:

1. Expansion of AML/CFT Legislation:
   • Explain how India expanded the Prevention of Money Laundering Act (PMLA), 2002 in May 2023 to include more professionals and entities, thus broadening the scope of anti-money laundering (AML) and combating the financing of terrorism (CFT).
   • Example: Inclusion of chartered accountants, company secretaries, and other professionals.
2. Enhancement of Customer Due Diligence (CDD) Practices:
   • Discuss improvements in the Know Your Customer (KYC) and Know Your Business (KYB) norms, such as verifying GST numbers to enhance financial transaction transparency.
   • Example: Strengthened compliance with FATF’s emphasis on transparency and accountability in financial transactions.
3. Improved Supervision and Enforcement Mechanisms:
   • Highlight the actions taken by Indian regulators such as SEBI and RBI to strengthen supervision and ensure compliance.
   • Example: SEBI’s mandate for Foreign Portfolio Investors (FPIs) to report material changes within seven working days and the RBI’s restrictions on shareholdings from FATF non-compliant jurisdictions.

Challenges and Areas for Further Improvement:

1. Incorporation of DNFBPs (Designated Non-Financial Businesses and Professions):
   • Discuss the absence of DNFBPs (e.g., real estate agents, dealers in precious metals) under the PMLA and the need to include them to fully comply with FATF recommendations.
2. Addressing Terrorism Financing:
   • Mention the growing concern around crowdfunding platforms and informal value transfer systems being used for terrorism financing, which FATF has highlighted. India must regulate these systems more effectively.

Conclusion:

• Conclude by summarizing India’s progress in implementing FATF recommendations, while emphasizing the need for continuous improvements and adapting to evolving global standards to ensure comprehensive compliance.

Relevant Facts (with sources) for the Answer:

1. Expansion of AML/CFT Legislation:
   • India expanded the Prevention of Money Laundering Act (PMLA), 2002 in May 2023 to cover additional professionals and entities like chartered accountants, company secretaries, and directors (Source: Government of India).
2. Enhancement of Customer Due Diligence:
   • Introduction of KYC and KYB norms, including the requirement to verify GST numbers before engaging in business (Source: Indian Financial Services).
3. Supervision and Enforcement:
   • SEBI mandated Foreign Portfolio Investors (FPIs) to report changes in structure, ownership, or control within seven working days to enhance financial transparency (Source: SEBI).
   • RBI imposed restrictions on individuals from FATF non-compliant jurisdictions from acquiring significant shareholdings in banking companies (Source: RBI).
4. Challenges in Compliance:
   • Designated Non-Financial Businesses and Professions (DNFBPs), such as real estate agents, are not fully covered under PMLA, which needs to be addressed (Source: FATF).
   • Terrorist organizations increasingly use crowdfunding and informal value transfer systems, which need more stringent regulation (Source: FATF Report).

By following this roadmap, you can structure your answer effectively, addressing the key actions taken by India and areas that need further focus in relation to FATF recommendations.