RBI CONCEPT:FINANCIAL ACTION TASK FORCE (FATF)#63

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What is the Financial Action Task Force (FATF)?

  • A major economic evil related to the financial sector is the practice of money laundering.  Money laundering involves keeping financial assets from illegal activity in a disguised manner. This money is kept without detection of the illegal activity for future use.
  • Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.
  • Now many illegal economic activities and the resultant financial transactions involve different countries. Hence, to make effective counter policies against money laundering, globally coordinated measures are needed.
  • Financial Action Task Force – is an intergovernmental body responsible for setting global standards for anti-money laundering and combating the financing of terrorism. 
  • The FATF was formed at the efforts of the OECD, which is a group of the developed countries. At present, the FATF has 36 member countries and 2 regional organisations(the Gulf Cooperation Council and the European Commission), representing most major financial centres in all parts of the globe.
  • The FATF Secretariat supports the Task Force and President. The Secretariat service is provided by the OECD, and the Secretariat is located at the OECD Headquarters in Paris.

Formation

  • The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.  The objectives of the FATF are 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.
  • The FATF is, therefore, a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The mandate of the FATF

  • The mandate of the FATF is to counter money laundering and the related crimes. Effective action against money laundering and terrorist financing, including both preventive and law enforcement measures, is essential for securing a more transparent and stable international financial system.
  • Likewise, new threats, such as the financing of proliferation of weapons of mass destruction, can emerge and result in the clandestine use of the international financial system.

India and the Financial Action Task Force (FATF)

  • India became a member of the Financial Action Task Force (FATF) in 2010. The membership of FATF comes nearly four years after the country became an observer in 2006.
  • FATF membership is very important for India in its quest to become a major player in international finance. It will help India to build the capacity to fight terrorism and trace terrorist money and help to successfully investigate and prosecute money laundering and terrorist financing offences.
  • India will benefit in securing a more transparent and stable financial system by ensuring that financial institutions are not vulnerable to infiltration or abuse by organized crime groups.
  • There are many national level efforts to combat money laundering. Financial Intelligence Unit – India (FIU-IND) is the central, national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.

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