The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 by the G7 to combat money laundering. Its mandate expanded in 2001 to include the fight against terrorist financing and proliferation financing.
The main objective of the FATF is to set international standards and encourage the effective implementation of legal, regulatory, and operational measures to address these threats to the integrity of the global financial system.
The FATF consists of 39 member jurisdictions and 2 regional organizations, representing many major financial centers worldwide. It operates on a consensus basis, and its decisions are binding on its members. The FATF's headquarters is in Paris, France, hosted by the Organisation for Economic Co-operation and Development (OECD).
The FATF maintains two crucial lists: the blacklist and the greylist. The blacklist includes high-risk jurisdictions exhibiting serious strategic deficiencies in their AML/CFT regimes, necessitating enhanced due diligence from financial institutions. In contrast, the greylist consists of countries under increased monitoring that have committed to an action plan to rectify identified deficiencies.
India has been a member of the FATF since 2010 and is also part of the Asia/Pacific Group on Money Laundering (APG), a regional FATF body. In its latest Mutual Evaluation Report (MER) released in June 2023, India was placed in the 'regular follow-up' category, which is the highest rating possible.
The report highlighted India's strong technical compliance with FATF standards and effective measures against money laundering and terrorist financing. The use of technology, particularly the JAM trinity (Jan Dhan, Aadhaar, Mobile), has been pivotal in reducing financial crime risks. However, it also noted delays in prosecutions related to financial crimes, which need addressing.
This positive FATF assessment enhances India’s global reputation as a responsible financial center, potentially attracting more foreign investments. It can also lead to improved credit ratings, reducing borrowing costs for Indian businesses in international markets. Furthermore, it supports initiatives like GIFT City, fostering confidence among international financial institutions.
While India has made significant progress, it must expedite prosecutions related to financial crimes, continuously strengthen its AML/CFT framework, and maintain active cooperation with the FATF and global partners to combat financial crimes effectively. The recent FATF assessment represents a significant achievement for India, underscoring its commitment to addressing financial crimes and enhancing its AML/CFT regime.
Q1. What is the purpose of the FATF?
Answer: The FATF aims to set international standards to combat money laundering and terrorist financing, promoting effective legal and operational measures among its member countries.
Q2. How does India comply with FATF standards?
Answer: India has been rated positively for its technical compliance with FATF standards and effective measures against financial crimes, though it needs to address prosecution delays.
Q3. What are the FATF's blacklisting criteria?
Answer: Countries identified as having serious strategic deficiencies in their AML/CFT regimes are placed on the FATF's blacklist, requiring enhanced due diligence from financial institutions.
Q4. What is the significance of the greylist?
Answer: The greylist includes countries under increased monitoring that have committed to address their strategic deficiencies in AML/CFT, indicating ongoing improvement efforts.
Q5. How does FATF's assessment impact foreign investments in India?
Answer: A positive FATF assessment enhances India's reputation as a financial center, attracting foreign investments and potentially improving credit ratings for Indian businesses.
Question 1: What is the primary function of the FATF?
A) To provide loans to developing countries
B) To combat money laundering and terrorist financing
C) To regulate international trade
D) To promote foreign investments
Correct Answer: B
Question 2: When did India become a member of the FATF?
A) 2005
B) 2010
C) 2015
D) 2020
Correct Answer: B
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