India should establish clear obligations for domestic PEPs: FATF

Global body says non-profit sector requires protection from terror

India needs to establish due diligence on domestic politically exposed persons (PEP), tighten checks on transactions involving gems and jewellery, and protect the non-profit sector from terrorist abuse, said the global anti-money laundering and terror financing body, Financial Action Task Force (FATF), on Thursday.

Releasing India’s mutual evaluation report, the FATF said India’s technical compliance rating on 40 parameters were either compliant (11) or largely compliant (26) while only on the above three parameters it had been found to be partially compliant.

“India has no low rating (by the FATF) on any parameter in the report... it is either high ratingor medium rating,” said Department of Revenue Additional Secretary Vivek Agarwal in a select media briefing in New Delhi.
 

 

The 40-member FATF, established in 1989, had adopted the mutual evaluation report on Indiain June and placed the country in the “regular follow-up” category, the highest rating given by the global watchdog and a distinction shared by only four other G20 countries.
 

As India is in the green category, it may report risk assessment after three years. “But there is no compulsion on us,” Agarwal added.
 

“India should address technical compliance deficiencies...establishing clear obligations concerning domestic PEPs. Reporting entities should improve identification of domestic PEPs and take risk-based enhanced measures in relation to them,” the report said. 
 

The FATF report suggested India needed to tighten checks on transactions involving precious metals and stones because several of these deals were conducted in cash and fell outside the purview of typical monitoring procedures.
 

India, one of the world’s biggest importers of gold and an important processor and exporter of diamond jewellery, has about 175,000 businesses in this sector, but only some 9,500 are registered with the Gem and Jewellery Export Promotion Council, which verifies proof of identity, the FATF said in its report. 
 

“As a result of tax law provisions relating to cash threshold prohibition, the Dealers in Precious Metals and Stones (DPMS) sector falls outside the scope of preventive measures,” the FATF said. “There are doubts on the dissuasiveness of the penalty provisions.” 
 

As the report asked India to fasten money-laundering trails, Aggarwal said the government was trying to speed up the prosecution process.
 

“The government has a system of notifying special courts and we are inducting more prosecutors to expedite trials,” he added.

He further added it was critical India addressed these issues in view of accused persons waiting for cases to be tried and prosecutions to be concluded.
 

The country must implement measures to prevent the non-profit sector from being misused for terrorist financing, following a risk-based approach that includes outreach to these organisations about potential risks, the report said.
 

Agarwal said the Income Tax Department had used multiple data points to identify “at risk” non-profit organisations (NPOs) and there was ongoing engagement with NPOs to sensitise them so that they did not fall in the terror-financing trap.
 

The watchdog noted India faced terrorist-financing threats from groups active in the Jammu & Kashmir region and money laundering from illegal activities related to drug trafficking and cyber crime.

The report said while several changes, for instance mechanisms to monitor terrorist-financing rules, were starting to help, other guidelines, including those for the supervision of virtual asset service providers, had been too recent to evaluate.