FATF Urges India to Tighten Scrutiny on Domestic Politicians and Officials' Bank Accounts

The Financial Action Task Force (FATF) has recommended that India enhance its due diligence practices concerning the bank accounts of local politicians, government officials, and their families, according to two government sources familiar with the matter. This recommendation, which focuses on more stringent checks on the finances of politically exposed persons (PEPs), is part of an ongoing FATF review of India’s anti-money laundering systems that began in 2023. The FATF is expected to publish its final report on the review shortly.

Under international regulations, politicians, their families, and close associates are subject to rigorous scrutiny regarding their bank accounts due to the heightened risk of bribery and corruption. The FATF report, which has been shared with the Indian government, suggests that banks should implement more thorough monitoring of the sources of funds in the accounts of domestic PEPs. Additionally, it recommends that senior bank managers be required to approve the opening of any new accounts for these individuals or their relatives.

India already imposes stringent banking checks on foreign political figures. However, the FATF's report highlights the need for similar levels of oversight for domestic political figures. A senior finance ministry source, who spoke on the condition of anonymity, acknowledged, “There are areas where we need to improve which we will.”

The Indian government has previously indicated its hesitation to impose stricter banking scrutiny on domestic political figures. In December, ahead of the general elections that resulted in Prime Minister Narendra Modi's re-election, the government informed parliament that it did not intend to implement such measures at that time. Instead, the government opted to await the FATF’s report before deciding on any potential changes.

In June, the FATF acknowledged India's significant progress, noting that the country had reached a high level of compliance in enforcing anti-money laundering laws. India was rated as “compliant” and “largely compliant” on 37 out of the 40 parameters evaluated by the FATF. The three areas where India fell short include the scrutiny of domestic political figures, as well as the oversight of non-profit organizations and non-financial businesses and professionals.

The FATF's interim report, which was discussed at its June meeting in Singapore, recommended that India expedite the prosecution of money laundering and terrorist financing cases while ensuring that non-profit organizations are not unfairly targeted. Despite these recommendations, the Indian government hailed the FATF's evaluation as an “outstanding outcome” in June, though it refrained from disclosing specific details.

The Indian government now has five years to implement the recommended banking rules before the next FATF review, according to one of the sources. The FATF did not respond to requests for comment on the matter.

By fLEXI tEAM