The Financial Action Task Force (FATF) on Thursday lauded India’s significant progress in combating illicit finance while expressing concerns about ongoing threats related to terrorism financing, especially from groups like ISIL and Al Qaeda. These insights were shared in a recent joint report by the FATF, the Asia/Pacific Group on Money Laundering (APG), and the Eurasian Group (EAG).

In a statement on X, the FATF praised India’s high level of technical compliance with its standards and commended the country’s effective anti-money laundering and counter-terrorist financing (AML/CFT) measures. These efforts have led to improved risk assessments and better access to beneficial ownership information. Indian authorities were recognized for their successful use of financial intelligence and strong domestic and international cooperation.

Despite these positive developments, the FATF urged India to enhance its focus on finalizing prosecutions and enforcing appropriate penalties for terrorist financing. The report noted, “While India has made notable advancements in disruption and prevention, it must refine its approach to completing money laundering and terrorist financing trials.”

The FATF also highlighted the importance of a risk-based strategy regarding non-profit organizations, recommending actions to prevent their misuse for terrorist financing.

As the world’s most populous country and a rapidly growing economy, India faces significant money laundering risks primarily from fraud, corruption, and drug trafficking. Although progress has been made in addressing fraud-related money laundering, the report indicated that further efforts are needed to tackle human trafficking and drug offenses, as well as to resolve the backlog of pending cases.

India’s strides in financial inclusion were also noted, with increased bank account ownership, enhanced digital payment systems, and simplified due diligence for small accounts contributing to greater financial transparency.

While Indian authorities have effectively coordinated efforts against illicit financial flows, the report pointed out the need for improved information sharing among stakeholders, particularly smaller financial institutions. Commercial banks have shown a strong grasp of risk management, but compliance regarding domestic politically exposed persons (PEPs) remains a concern. The FATF called for enhanced preventive measures from the non-financial sector and indicated that regulations for virtual asset service providers are still in early implementation stages.

Following this assessment, India will be placed under “regular follow-up” by the FATF and is expected to provide updates in three years, reflecting the ongoing need for strengthened AML/CFT frameworks amid evolving challenges.