Why India needs to really pay attention to FATF

We begin with two headlines from this month. One says: ‘FATF's Thumbs-Up To India's Efforts To Tackle Terror Financing, Money Laundering: Why It Matters’. Another goes: ‘FATF Flags Terror Financing Lacunae In Indian NGO Sector’. 

Let us see what these mean when put together. If one were to follow the news conscientiously nowadays, one would find Indian authorities outlawing at least one non-governmental organisation (NGO) every month. The closure of these organisations at least finds a mention in the media. There are many others, in fact the majority, that shut down in the darkness, with no news of their demise.

This is because under this government, data on the closure of NGOs has been pulled down from the official websites where these things were previously made public. Outrage and protest against the relentless shrinking of civic space by the Indian government have also been criminalised. Deliberate attempts are being made to force civil society into submission every day.

But that is exactly what we need to be questioning right now — clearly and loudly. What makes it an especially opportune moment is that the Financial Action Task Force (FATF) has published India’s mutual evaluation report (MER) after a gap of 14 years, calling out India for non-compliance with its standards in regulating the non-profit sector.

Now one may ask, what is the FATF and why is it important? The FATF is an inter-governmental body with 40 members — India among them — mandated to tackle global money laundering, terrorist financing and countering the financing of proliferation of weapons of mass destruction. It functions by setting international standards for countries and then regularly evaluating and ranking countries’ anti-money laundering and countering the financing of terrorist regimes against those standards.

The FATF is important because in 2023, civil society groups in India documented that the Indian government had consistently exploited FATF’s recommendations to either enact or tighten the Foreign Contribution (Regulation) Act (FCRA), Unlawful Activities (Prevention) Act (UAPA) and the Prevention of Money Laundering Act (PMLA) — three laws that have become convenient tools of oppression at the hands of Indian authorities against those who dare speak up against the government.

Specifically, FATF operates through a peer-review system to mutually assess the full and effective implementation of its 40 recommendations on money laundering and nine special recommendations on terrorist funding by member states.

In line with the mutual evaluation process, a country’s compliance is examined by other FATF member states, resulting in the production of an in-depth assessment report with targeted recommendations to address shortcomings, which is the aforementioned MER.

Countries which fail to comply with the standards are put under increased monitoring and termed “high risk jurisdiction”, externally referred to as a “grey or blacklist”. In the past, countries such as Turkey and Pakistan have been placed on these lists.

After a series of delays, India’s mutual evaluation process started in November 2023 and concluded in June 2024. On the conclusion of the evaluation process, FATF published its summary findings.

On the one hand, FATF lauded India for its “high level of technical compliance” with FATF’s other standards. This is what the first headline we began with refers to. On the other hand, and this is about the second headline, it called on the country to ensure that the measures it has put in place to prevent the non-profit sector from being abused for terrorist financing are implemented in line with a risk-based approach mentioned in FATF’s recommendation 8.

So what does this mean? Recommendation 8 requires that laws and regulations to combat money laundering and terrorism financing target only those non-profit organisations (NPOs) that a country has identified — through careful, targeted “risk-based” analysis — as vulnerable to terrorism financing abuse, and that fall under the FATF definition of NPO. It also recommends that corrective measures must be focused and proportionate to avoid disrupting the legitimate activities of NPOs.

However, in complete defiance of Recommendation 8, Indian authorities have not only passed laws that are severely over-broad in nature but continue to exploit them against civil society organisations and human rights defenders for carrying on their legitimate human rights work.

With a mere 2.2 per cent cases registered under India’s anti-terror law resulting in convictions between 2016 and 2019, and at least 83 per cent of the cases pending by end-2022, FATF also called on India to address the delays in concluding prosecutions under UAPA.

It recommended the same for prosecution under PMLA, which has seen only 31 cases completing trial in the past nine years, indicating a clear lack of efficiency.

These recommendations, however, did not find a mention in the press release issued by India’s finance ministry, which self-congratulated the country for an “outstanding outcome” in FATF’s review. The convenient cherry-picking of recommendations is also evident from the continuous cancellation of FCRA licenses of NGOs even after the review and misuse of UAPA and PMLA to shut down critical voices.

India will again be reviewed after three years. In this time, the government needs to ensure that it reaches out to the non-profit sector and conducts adequate risk assessment to put in place measures that are focussed and proportionate and not overbroad and vague like the FCRA. It also needs to put an end to politically motivated prosecutions under anti-terror and money laundering laws. True governance does not lie in discrediting dissent.