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India’s terror financing & FATF’s regular follow-up

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SO far, India’s 2023-24 mutual evaluation by the Financial Action Task Force (FATF) has placed it under the “regular follow-up” category, alongside only four other G-20 countries. While maintaining this status, FATF should not overlook the concerns raised by the Five Eyes Intelligence Alliance (FVEY), which focuses on identifying and combating international terrorist financing networks. FVEY has often highlighted vulnerabilities in various countries’ counter-terrorism financing frameworks, including India’s. These concerns primarily relate to financial irregularities in India, which could be linked to money laundering and terrorist financing in the region, particularly supporting terrorist networks in Pakistan and Afghanistan.

The Financial Action Task Force (FATF) evaluates India’s measures to combat financial corruption and money laundering through regular assessments. A joint FATF-APG-EAG assessment noted that while India has made progress in implementing anti-money laundering (AML) and counter-terrorist financing (CTF) standards, there are calls for faster prosecutions and improved efficiency in handling financial crimes. The FATF Recommendations serve as a benchmark for global efforts to tackle financial crimes and India’s adherence to these guidelines is closely monitored.

India’s main money laundering risks originate from illegal activities within the country, these risks relate primarily to fraud, including cyber-enabled fraud, corruption and drug trafficking. India pursues money laundering related to fraud and forgery in line with predicate crime risks to a large extent, but less so with some other offences such as human trafficking and drug trafficking. The country needs to address the backlog of money laundering cases pending conclusion of court processes. Apparently India boasts of taking a strong emphasis on demonstrating its ability to conduct complex financial investigations, but in reality, India largely lacks the merit of its claims. Against this backdrop, India needs to focus on concluding the prosecutions and convict and appropriately sanction terrorist financiers. The Financial Action Task Force (FATF) provides guidelines to combat terrorist financing, which focuses on several parameters including risk assessment, customer due diligence, transaction monitoring and international cooperation.

The FATF recommendations serve as a framework for countries, including India, to strengthen their anti-money laundering (AML) and counter-terrorist financing (CTF) measures. According to recent FATF assessments, some flaws within India’s financial institutions include inconsistent application of customer due diligence (CDD) across different institutions, particularly with smaller financial institutions, concerns regarding identification of beneficial ownership and a need for improved risk profiling of customers, with larger banks demonstrating more robust anti-money laundering measures compared to smaller ones; the FATF’s role is to identify these weaknesses and push for improvements by recommending necessary regulatory changes and monitoring compliance to combat money laundering and terrorist financing activities.

India’s financial institutions have been criticized for various flaws, particularly relating to deficiencies in anti-money laundering (AML) and combating the financing of terrorism (CFT). The Financial Action Task Force (FATF) has highlighted the need for India to impose greater monetary penalties on these institutions to ensure compliance with international standards. The FATF has noted that India faces serious anomalies in these financial irregularities, which underscore the urgency of addressing these institutional weaknesses and enhancing regulatory frameworks. Also, there have been reports and concerns regarding the involvement of organized crime of money laundering and terror financing activities in India. Such activities largely undermine regional security.Needless to say, terrorism emanating from Afghan soil poses a significant threat to Pakistan, particularly due to the presence of groups like the Tehreek-i-Taliban Pakistan (TTP) that operate within Afghanistan. Some sources allege that India has been involved in supporting these terrorist factions, suggesting a broader regional context of geopolitical conflict influencing terrorism in Pakistan, particularly these terrorist networks are suggested to serve as conduits for funding and organizing terrorist operations, which are detailed as violations of international norms related to terrorism.

India has been implicated in promoting insurgency movements in Balochistan through alleged terror financing. Reports suggest that Indian intelligence agencies have provided support to various terrorist organizations operating in the region, such as the Balochistan Liberation Army (BLA), which is designated as a terrorist organization by several nations.

Moreover, India’s current challenges include addressing financing that may be linked to groups like ISIL or Al Qaeda, as reported in recent assessments of its anti-money laundering and counter-terrorism financing (AML/CFT) framework. Notably, the FATF can also take its input from the Five Eyes Intelligence (an intelligence alliance comprising the US, UK, Australia, Canada and New Zeeland).The intelligence forum expresses concern about India’s lack of effective regulation and oversight of its financial sector, being exploited by terrorist group to launder money and finance their activities. According to various reports, India’s financial system has been identified as potential target for terrorist financing, as the intelligence group has noted that India’s hawala and cashed-based economy make it challenging to track and prevent illicit financial transactions.

Additionally, India’s NGOs sector is also alleged of committing the crimes of money-laundering and terrorist financing. This involves utilizing systems that could facilitate money laundering and terrorist financing, undermining international financial integrity standards set by the FATF. It’s suggested that these groups exploit weaknesses in financial regulations and oversight to fund their operations. The dossiers that Pakistan’s Permanent Envoy to the UN handed over to the UN secretary General in 2017, 2020 significantly contain the information regarding India’s terrorist role.

Thus, given India’s history of espionage in the neighbouring countries via RAW’s terrorist proxies in Afghanistan, Bangladesh, Bhutan, China, Nepal, Myanmar and Sri Lanka, the FATF must unravel the links of India’s terror financing in these countries. Arguably, India needs to improve its international cooperation and information sharing with other countries. In this regard, the FATF is expected to conduct a neutral examination of India’s measures against terror financing, particularly focusing on how these measures affect the security of South Asian countries.

—The writer, based in Pakistan, an independent IR & International Law analyst, also an expert in Conflict and Peace Studies (with special focus on Palestine, Kashmir), is member of European Consortium of Political Research (ECPR), including the Washington Foreign Law Society/American Society of International Law. He also deals with the strategic issues.

(rizvipeaceresearcher@gmail.com)

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