Money laundering and the financing of terrorism are financial crimes with economic effects.
International Monetary Fund (IMF), United Nations (UN), Asian Development Bank (ADB) and others are involved in countering the twin problems of money laundering and terrorist financing.
Financial Action Task Force (FATF) established in 1989 at a Group of Seven (G7) Summit held in Paris
The objectives of the FATF as identified are therefore “to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.” It acts as a policy-making body working to bring about national legislative and regulatory reforms in these areas. The FATF comprises of 35 member countries including two regional organisations, namely European Commission and the Gulf Cooperation Council.
The requirements of terrorist financing fall into two categories:
- firstly, funding specific terrorist operations and
- secondly, broader organisational costs to develop and maintain the organisational support as well as to promote the ideology of a terrorist organisation
The FATF Report on “Emerging Terrorist Financing Risks” (ETFR) released on October 2015 revealed that the traditional terrorist financing methods like proceeds of criminal activity, abuse and misuse of non-profit organisations, private donations, kidnapping for ransom, extorting local and Diaspora populations and businesses and illegal money transfers are still considered to be significant terrorist financing risks. Other emerging terrorist financing threats include crowdfunding, using prepaid cards for social network fundraising, promotion of virtual currencies and internet-based payment services. The control and exploitation of natural resources like oil, gas, timber, diamonds, gold etc. by terrorists to extract revenues for supporting their causes have also been identified as significant terrorist financing risks.
The platform of social media has been used by terrorist groups not only to raise funds but also attract followers who seek to support the cause of the terrorists.
With the aim to strengthen global counterterrorist financing regimes to tackle the threat of terrorist financing FATF came up with Consolidated Strategy on Combating Terrorist Financing having five focus areas. They are:
(1) Improve and update the understanding of terrorist financing risks, in particular the financing of ISIS/Da’esh.
(2) Ensure that the FATF Standards provide up-to-date and effective tools to identify and disrupt terrorist financing activity.
(3) Ensure countries are appropriately and effectively applying the tools, including UN Targeted Financial Sanctions, to identify and disrupt terrorist financing activity.
(4) Identify and take measures in relation to any countries with strategic deficiencies for terrorist financing.
(5) Promote more effective domestic coordination and international cooperation to combat the financing of terrorism.
Legal Framework in India:
1. Unlawful Activities (Prevention) Act, 1967 (UAPA): provided for the prevention of certain unlawful activities of individuals and associations and for matters connected therewith. It was amended in 2004 to criminalise terrorist financing. It was further amended in 2008 to broaden its scope and confirm with the requirements of the United Nations Convention on the Suppression of the Financing of Terrorism.
2. Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 was introduced to prevent smuggling and the Smugglers
3. Foreign Exchange Manipulators Act,1976 provided for the forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators.
4. Foreign Contribution (Regulation) Act, 1976 dealt with regulating the acceptance and utilization of foreign contribution and foreign hospitality
5. Narcotic Drugs and Psychotropic Substances Act, 1985 made stringent provisions for the control and regulations of operations relating to narcotic drugs and psychotropic substances
6. Foreign Exchange Management Act (FEMA), 1999 was enforced to regulate the development and maintenance of foreign exchange market
7. Prevention of Money Laundering Act, 2002 (PMLA) which came into force in 2005 and amended in 2009 and 2012 was introduced to counter the trend of money laundering
India’s compliance with global standards in countering money laundering and terror funding is on the right track, however the gaps need to be addressed and worked upon.
India has adopted its own model to fight money laundering and terrorist financing based on its specific domestic and regional considerations. The Ministry of Home Affairs (MHA) monitors the system to track terror funding. In fact, a special cell called Combating Financing of Terrorism (CFT) Cell was created in the Internal Security Division of MHA in 2011 to coordinate with Central Intelligence Enforcement Agencies and the State Law Enforcement Agencies to develop an integrated approach to tackle the problem of terror funding. The MHA also coordinates with the FATF Cell in the Department of Economic Affairs, Ministry of Finance. The Financial Intelligence Unit-India (FIU-IND) established under the Ministry of Finance in 2004 receives, analyses and disseminates information relating to suspicious financial transactions involving suspected money laundering and terrorist financing to Intelligence / Enforcement Agencies and Regulatory Authorities.
To enhance the functionality of the FATF in India, government agencies have launched a National Risk Assessment exercise on January 2016 so as to identify the sectors that are most susceptible to money laundering and terror funding and thereby plug deficiencies, if any. This conforms with the FATF recommendations.