New Delhi: While the Financial Action Task Force (FATF) has acknowledged that India has achieved a “high level” of compliance, it has also emphasised that New Delhi is falling short in conducting case-by-case risk assessments due to its stringent crackdown on non-governmental organisations.
FATF is an international watchdog for terror funding and money laundering.
It held its plenary meeting in Singapore from June 23 to 28, where it discussed the Mutual Evaluation Report of Kuwait and India. It also removed Turkey and Jamaica from its ‘grey list’, while adding Monaco and Venezuela to this category.
The Mutual Evaluation (ME) process is a peer review conducted by FATF members to assess the effectiveness of a member’s legal framework in combating financial crime. India’s first Mutual Evaluation Report was published in 2010.
While the FATF plenary discussed India’s second report, it will be made public only later.
The FATF’s statement, issued at the end of the plenary, said that India had a “high level of technical compliance with the FATF requirements and its AML/CFT/CPF regime is achieving good results”.
However, it also added that there were concerns about the need for improvement, especially in non-financial sectors and in addressing delays in prosecuting offenders. Specifically, the FATF said that India needs “to ensure that CFT [combating the financing of terrorism] measures aimed at preventing the non-profit sector from being abused for TF [Terrorism Funding] are implemented in line with the risk-based approach, including by conducting outreach to NPOs on their TF risks”.
Effectively, the FATF has conveyed that India’s use of laws like the Foreign Contributions Regulation Act to clamp down on non-government organisations is not in line with the “risk-based approach” laid down by the international watchdog.
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The Indian government’s press release claimed that India has achieved an “outstanding outcome” in the Mutual Evaluation process, as it places India in the ‘regular follow-up’ category, a distinction shared by only four other G20 countries”.
As per the FATF’s methodology, a country can be placed in either “regular follow-up”, “enhanced follow-up” or referred to ICRG. The FATF publication stated that “Regular follow-up is the default monitoring mechanism for all countries”.
While the press release listed three ‘achievements’ recognised by FATF, it didn’t have any mention of the watchdog’s concern about India’s crackdown on non-government organisations using standards as a guise.
The Mutual Evaluation Process has two components – Technical Compliance and Effectiveness Assessment. A team of expert assessors, selected by the FATF President, drafts the Mutual Evaluation Report after analysing information received from the country under scrutiny and conducting a field visit.
This report rates India on its technical compliance with 40 FATF recommendations and assesses the effectiveness of its legal framework based on 11 immediate outcomes.
In India’s first Mutual Evaluation Report in 2010, the country was found fully compliant with only four out of the 40 FATF recommendations on combating money laundering. It was deemed ‘largely compliant’ with 21, ‘partially compliant’ with 11, and ‘non-compliant’ with three recommendations.
The methodology used for the 2010 evaluation included nine special recommendations on terror financing. India was assessed as ‘non-compliant’ on one of these recommendations, specifically concerning the monitoring of non-profit organisations.
Following the 2010 report, India entered a “regular follow-up” process to demonstrate progress on implementing its Action Plan. By June 2013, the FATF determined that India had shown “sufficient level of progress” to plug the gaps and removed it from the list of countries requiring regular monitoring.
In both the 2010 and 2013 reports, the FATF expressed concern, based on the standard methodology at the time, that India had not adequately secured its non-profit sector against misuse for terror financing.
Two months after the June 2010 FATF plenary, the Indian parliament passed the Foreign Contributions Regulation Act 2010, which introduced several stringent new measures over the previous 1976 repealed act to prohibit the use of foreign funds for “any activities detrimental to the national interest”.
Under the NDA government, the FCRA was again amended in 2020, which further tightened the government’s scrutiny and control over NGOs receiving foreign funds.
Similarly, the Prevention of Money Laundering Act and UAPA were also amended to make them more draconian after the 2010 MER, with the government arguing that it was to bring it in line with FATF compliance.
Over the last few years, a slew of prominent non-profit groups had their registration under FCRA cancelled which stops them from receiving any foreign donations. These range from Indian branches of international NGOs like Compassion International, Greenpeace and Amnesty to think tanks like the Centre for Policy Research.
For a short time, even Nobel laureate Mother Teresa’s Missionaries of Charities lost its license in 2022 due to “adverse inputs”, but it was restored in two weeks after there was outrage from opposition parties.
Even though the Indian government continued its crackdown on NGOs using the strengthened laws, the international watchdog revised its guidelines related to the non-profit sector.
At the October 2014 plenary, FATF clarified the “risk-based” approach is a case-by-case assessment and not a one-size-fits-all policy.
Two years later, FATF revised ‘Recommendation 8,’ which focused on NPOs, based on concerns that it was having a chilling effect on legitimate activity in the development sector worldwide. The revised recommendation mandates that countries “should have in place focused, proportionate and risk-based measures, without unduly disrupting or discouraging legitimate NPO activities, in line with the risk-based approach”.
The revised interpretative note emphasised that these measures should be implemented in a “manner which respects countries’ obligations under the Charter of the United Nations and international human rights law.”
In 2021, FATF set up a project to understand the “unintended” consequences of complying with international standards. The stocktake’s analysis recognised that there were “countries that incorrectly implement the Standards and justify restrictive legal measures to NPOs in the name of “FATF compliance”, both unintentionally and, in some cases, intentionally”.
Inputs from civil society groups have now become integral to FATF’s mutual evaluations, with assessment teams considering their perspectives before conducting onsite visits to scrutinized countries.
During India’s Mutual Evaluation process, the assessment team conducted its onsite visit in November last year. Ahead of this visit, the Global NPO Coalition on FATF released a shadow report for consideration by the FATF’s experts, which argued India had not taken a “risk based approach” and was misusing Recommendation 8 to crack down on Indian civil society.
The report highlighted that since 2010, 56% of NGO applications for licenses to access foreign donations had been rejected. It also cited a survey of over 700 NGOs, which found no evidence that India systematically identifies non-profit groups at risk of terror financing.
Besides, the shadow report pointed out that FATF itself had concluded that civil society groups in the human rights field pose no risk of contributing to terror financing.
“The Typologies Report of 2014, the Best Practices Paper of 2015, and the draft Best Practices Paper of 2023 all conclude that expressive NPOs (including human rights organizations) present no terrorist financing risk. Indeed, the 2023 draft of the Best Practices Paper states that such NPOs should not even be considered as being within the FATF definition of NPO,” asserted the report.
