
FATF Mutual Evaluation Report of India
Largely Compliant (2023-2024)
The Financial Action Task Force (FATF) conducts periodic evaluations to assess a country’s ability to prevent money laundering, terrorist financing, and other financial crimes. India’s Mutual Evaluation Report (MER), released in 2024, highlights both significant achievements and critical areas requiring improvement. The report is a product of a joint review by the FATF, the Asia-Pacific Group on Money Laundering (APG), and the Eurasian Group (EAG).
This evaluation reflects India’s growing role in the global fight against financial crime while underscoring key reforms in anti-money laundering (AML) and counter-terrorism financing (CFT) measures.
Highlights from the Report
1. Compliance with FATF Recommendations
India has been evaluated on 40 key recommendations outlined by FATF. According to the latest report:
- 12 Recommendations are rated as fully compliant.
- 12 Recommendations are rated as largely compliant.
- 10 Recommendations are partially compliant, and 6 Recommendations remain non-compliant.
Source: FATF Mutual Evaluation 2024
Key recommendations where India performed well include the beneficial ownership framework, terrorist asset freezing, and risk understanding in financial institutions.
2. Strengthened Beneficial Ownership Regulations
India has improved its beneficial ownership framework, ensuring better transparency in corporate structures. Regulatory bodies, including the Ministry of Corporate Affairs and SEBI, now mandate that companies provide detailed disclosures of ultimate beneficial owners (UBOs). This enhancement aligns with FATF’s guidance to prevent shell company misuse.
3. Counter-Terrorism Financing (CFT) Improvements
India has demonstrated progress in identifying and freezing terrorist-related assets, with stronger collaboration between FIU-India, law enforcement agencies, and financial institutions. FATF has acknowledged India’s success in counter-terrorist financing operations, particularly in cross-border intelligence sharing.
However, challenges remain in fully integrating non-profit organizations (NPOs) into the risk monitoring system, a common area of concern globally.
Source: FATF Country Profile on India
4. Challenges in Political Exposed Persons (PEPs) Monitoring
Despite advances, FATF identified shortcomings in how financial institutions monitor and report transactions involving politically exposed persons (PEPs). Some banks and non-banking financial companies (NBFCs) lack robust mechanisms to detect and mitigate risks associated with PEPs.
Source: ComplyAdvantage
5. Deficiencies in Trade-Based Money Laundering (TBML) Detection
The report also noted gaps in India’s ability to monitor trade-based money laundering (TBML). While agencies like the Directorate of Revenue Intelligence (DRI) have increased vigilance, the lack of harmonized data-sharing mechanisms between customs and financial regulators poses challenges.
Recommendations
- Enhancing Cross-Sector Collaboration: FATF recommends improved cooperation between regulators, law enforcement, and financial institutions to streamline compliance monitoring.
- Greater Integration of NPOs into AML/CFT Frameworks: NPOs remain vulnerable to misuse for terror financing, and enhanced due diligence is required for high-risk organizations.
- Increased Automation in KYC Processes: Financial institutions are encouraged to adopt AI-driven tools to reduce false positives and improve the efficiency of Know Your Customer (KYC) protocols.
Impact on India's Global Standing
India’s progress in FATF compliance has strengthened its reputation as a responsible global financial player. Avoiding placement on the FATF grey list which can restrict access to global financial markets, has been a key priority for policymakers and businesses alike.
Failure to comply with FATF recommendations can result in negative consequences such as reduced foreign investments and trade restrictions. By addressing existing gaps, India aims to enhance financial integrity while fostering a secure business environment.
Key Future Initiatives
FATF Knowledge Exchange Center in India: India plans to establish a dedicated AML/CFT training and knowledge center to support domestic and regional capacity-building efforts.
Strengthening Compliance for Emerging Sectors: With the rise of cryptocurrencies and virtual asset service providers (VASPs), India’s AML framework is being expanded to cover crypto exchanges, stablecoins, and DeFi platforms.
Continued Collaboration with FATF: India will continue its partnership with FATF and other global regulatory bodies to ensure compliance improvements align with international standards.
The 2024 FATF Mutual Evaluation Report underscores India’s significant progress in combating financial crimes while highlighting areas for improvement. As the nation advances its AML/CFT measures, stakeholders must remain vigilant and proactive in addressing vulnerabilities.
India’s regulatory reforms, combined with global cooperation, are essential to maintaining financial stability and preventing misuse of the financial system for criminal purposes.
Sources and Additional Reading
- FATF Official Report on India:
https://www.fatf-gafi.org/en/publications/Mutualevaluations/India-MER-2024.html - Drishti IAS – Analysis of FATF Evaluation:
https://www.drishtiias.com/daily-updates/daily-news-analysis/fatf-mutual-evaluation-report-on-india - ComplyAdvantage – FATF October Plenary Updates:
https://complyadvantage.com/insights/fatf-plenary-october-2024-outcomes - World Customs Organization (WCO):
https://www.wcoomd.org - Ministry of Finance, India – FATF Compliance Updates:
https://www.finmin.nic.in