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8th FOLLOW-UP REPORT
Mutual Evaluation
of India
June 2013
FINANCIAL ACTION TASK FORCE
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promotes policies to protect the global financial system against money laundering, terrorist financing
and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are
recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.
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www.fatf-gafi.org
© 2013 FATF/OECD. All rights reserved.

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the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France
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Mutual Evaluation of India: 8th Follow-up report
& Progress Report on Action Plan
CONTENTS
ACRONYMS ............................................................................................................................................. 2
I. INTRODUCTION .......................................................................................................................... 3
II. MAIN CONCLUSIONS AND RECOMMENDATIONS TO THE PLENARY........................................ 5
Core Recommendations ............................................................................................................. 5
Key Recommendations ............................................................................................................... 5
Other Recommendations ........................................................................................................... 5
Conclusions ................................................................................................................................. 5
III. OVERVIEW OF INDIA’S PROGRESS............................................................................................. 7
Overview of the main changes since the adoption of the MER ................................................. 7
The legal and regulatory framework .......................................................................................... 8
IV. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE CORE RECOMMENDATIONS
RATED PC .................................................................................................................................... 9
V. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE KEY RECOMMENDATIONS
RATED PC .................................................................................................................................. 19
VI. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE OTHER RECOMMENDATIONS
RATED PC OR NC ...................................................................................................................... 28
 2013 1
ACRONYMS
AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism
ARFAC AML/CFT Regulatory Framework Assessment Committee
BOAC Beneficial Ownership Assessment Committee
C Compliant
CSAC Casino Sector Assessment Committee
DNFBP Designated Non-Financial Businesses and Professions
LC Largely compliant
MER Mutual evaluation report
ML Money laundering
NC Non-compliant
NPOC Non Profit Organisations Sector Assessment Committee
PC Partially compliant
PMLA Prevention of Money Laundering Act
R. Recommendation
SR. Special Recommendation
STR Suspicious Transaction Report
TF Terrorist financing
UAPA Unlawful Activities (Prevention) Act
2  2013
MUTUAL EVALUATION OF INDIA: 8TH FOLLOW-UP REPORT

(& PROGRESS REPORT ON ACTION PLAN)
Application to move from regular follow-up

Note by the Secretariat
I. INTRODUCTION
The first mutual evaluation report (MER) of India was adopted on 24 June 2010 1. India was placed
in a regular follow-up process for mutual evaluation processes. However, in the context of its
membership application and discussion that took place at the June 2010 Plenary, India presented a
detailed Action Plan to improve compliance of its Anti-Money Laundering/Combating the Financing
of Terrorism (AML/CFT) regime, including with respect of the nine core 2 and key 3
Recommendations, which are also requirements for FATF membership, rated as PC. The Action Plan
to strengthen India’s AML/CFT System was amended and subsequently adopted by the June 2010
FATF Plenary. At that time, the FATF Plenary decided to grant membership status to India. However,
since India had not met all the FATF membership criteria, the Plenary also decided that India should
report to each Plenary on the progress made in the implementation of the Action Plan to strengthen
India’s AML/CFT System, and that a technical follow-up visit should take place prior to the June 2011
Plenary. India reported back to the FATF in October 2010 (first follow-up report); in February 2011
(second follow-up report); and the Report by the review team on technical follow-up visit (third
report) was adopted by the FATF Plenary in June 2011. Afterwards, India continued to report back
to the FATF in February 2012 (fourth follow-up report), June 2012 (fifth follow-up report),
October 2012 (sixth follow-up report), and February 2013(seventh follow-up report). In
February 2013, India indicated that it would report to the Plenary again in June 2013 concerning the
additional steps taken to address the deficiencies identified in the report, and apply to move from
regular follow-up.
This paper is based on the procedure for removal from the FATF’s regular follow-up process, as
agreed by the FATF Plenary in October 2008 and subsequently amended 4. The paper contains a
detailed description and analysis of the actions taken by India in respect of the core and key
Recommendations rated partially compliant (PC) or non-compliant (NC) in the mutual evaluation,
as well as a description and analysis of the other Recommendations rated PC or NC, and for
information a set of laws and other materials (included as Annexes). The procedure requires that a
country “has taken sufficient action to be considered for removal from the process – To have taken
sufficient action in the opinion of the Plenary, it is necessary that the country has an effective
AML/CFT system in force, under which the country has implemented the coreand key Recommendations at
1 www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20India%20full.pdf.
2 The core Recommendations as defined in the FATF procedures are R.1, SR.II, R.5, R.10, R.13 and SR.IV.
3 The key Recommendations are R.3, R.4, R.23, R.26, R.35, R.36, R.40, SR.I, SR.III and SR.V.
4 Third Round of AML/CFT Evaluations Processes and Procedures, par. 41 www.fatf-
gafi.org/media/fatf/documents/process%20and%20procedures.pdf.
 2013 3
a level essentially equivalent to a Compliant (C) or Largely Compliant (LC), taking into consideration
that there would be no re-rating” 5. India was rated PC or NC on the following Recommendations:
Core Recommendations rated PC (no core recommendations were rated NC):

R.1, R.5, R.13, SR.II, SR.IV
Key Recommendations rated PC (no key recommendations were rated NC)

R.3, R.23, R.35, SR.I
Other Recommendations rated PC

R.6, R.17, R.21, R.33, R.34, SR.IX
Other Recommendations rated NC

R.12, R.24, SR.VIII
As prescribed by the Mutual Evaluation procedures, India provided the Secretariat with a full report
on its progress. The Secretariat has drafted a detailed analysis of the progress made for
Recommendations 1, 5, 13, 23 and 35, and Special Recommendations I, II, and IV (see rating above),
as well as an analysis of all the other Recommendations rated PC or NC. However, given India’s
detailed follow-up reports discussed at nearly every single FATF plenary meeting following the
adoption of the MER in June 2010, the FATF Plenary decided in February 2013 that the analysis of
the current report could be presented in table form. The draft analysis was provided to India (with a
list of additional questions) for its review, and comments received. The final report was drafted
taking into account some of the comments from India. During the process India has provided the
Secretariat with all information requested.
As a general note on all applications for removal from regular follow-up: the procedure is described
as a paper based desk review, and by its nature is less detailed and thorough than a mutual evaluation
report. The analysis focuses on the Recommendations that were rated PC/NC, which means that
only a part of the AML/CFT system is reviewed. Such analysis essentially consists of looking into the
main laws, regulations and other material to verify the technical compliance of domestic legislation
with the FATF standards. In assessing whether sufficient progress had been made, effectiveness is
taken into account to the extent possible in a paper based desk review and primarily through a
consideration of data provided by the country. It is also important to note that these conclusions do
not prejudge the results of future assessments, as they are based on information which was not
verified through an on-site process and was not, in every case, as comprehensive as would exist
during a mutual evaluation.
5 FATF Processes and Procedures par. 39 (c).
4  2013
II. MAIN CONCLUSIONS AND RECOMMENDATIONS TO THE PLENARY

CORE RECOMMENDATIONS
With regard to R.1, India made clear progress to address the technical deficiencies identified in its
MER. The major and most critical shortcoming, namely the (high) monetary threshold condition for
most money laundering predicates, is fully addressed. While India improved its ML offence, it is not
fully in line with the Palermo and Vienna Conventions. However, the scope of the outstanding
technical deficiencies is relatively minor without real impact on the effectiveness of India’s
AML regime. Consequently, India’s current level of compliance with R.1 can be considered to be
essentially equivalent to LC. All of the seven technical deficiencies with regard to R.5 are fully
addressed. As a result, India’s current level of compliance with R.5 is essentially equivalent to LC. In
addition, since its mutual evaluation, India has addressed the two technical deficiencies with regard
to R.13 and SR.IV and has taken extensive measures to ensure effective implementation. India’s
current level of compliance with R.13 and SR.IV is essentially equivalent to LC. Finally, India has also
addressed all technical deficiencies in relation to SR.II and its current level of compliance with SR.II
is essentially equivalent to LC.
KEY RECOMMENDATIONS
India has addressed all of the technical deficiencies in relation to R.3 identified in its MER and
India’s overall compliance with R. 3 can be assessed at a level essentially equivalent to LC. With
regard to R.23, India took actions with regard to all of the deficiencies identified and most of them
are (at least) largely addressed. Consequently, India’s current level of compliance with R.23 is
considered to be essentially equivalent to LC. The deficiencies in relation to R.35 were a spill-over
from R.1 and R.23 and India’s current level of compliance with these two Recommendations is
considered to be essentially equivalent to LC. On that basis, it can be concluded that India’s level of
compliance with R.35 is now essentially equivalent to LC. Finally, the initial PC rating for SR.I was
mostly due to a spill-over effect from R.3, R.5, R.23, SR.II and SR.III. All of the technical deficiencies
with regard to R.3, R.5 and SR.II are fully addressed while the ratings for R.23 and SR.III are
essentially equivalent to LC and the impact of their spill-over is limited. As a result, India’s current
level of compliance with SR.I is also equivalent to LC.
OTHER RECOMMENDATIONS
India has made progress with regard to the other 10 Recommendations that were rated PC or NC.
India has achieved a sufficient level of compliance with Recommendations R.6, R.17, and R.21 and
Special Recommendation IX. India has also made efforts to improve its compliance with
Recommendations 12, 16, 24, 33, and 34 and Special Recommendation VIII although deficiencies
remain and implementation of these recommendations has not yet reached a level equivalent to an
LC rating.
CONCLUSIONS
Overall, India has reached a satisfactory level of compliance with all of the core and key
Recommendations.
 2013 5
The mutual evaluation follow-up procedures indicate that, for a country to have taken sufficient
action to be considered for removal from the process, it must have an effective AML/CFT system in
force, under which it has implemented all core and key Recommendations at a level essentially
equivalent to C or LC, taking into account that there would be no re-rating.
India has made sufficient progress for all core and key Recommendations. Consequently, it is
recommended that India is removed from the regular follow-up process.
6  2013
III. OVERVIEW OF INDIA’S PROGRESS

OVERVIEW OF THE MAIN CHANGES SINCE THE ADOPTION OF THE MER
Since the adoption of the MER in 2010, India has focused its attention on strengthening its
AML/CFT regime based on a high-level political commitment to the Action Plan to strengthen India’s
AML/CFT System adopted by the FATF in June 2010. India rectified nearly all of the technical
deficiencies identified with respect to the criminalisation of money laundering (ML) and terrorist
financing (TF) and the implementation of effective confiscation and provisional measures through
amendments to the Prevention of Money Laundering Act (PMLA) and the Unlawful Activities
(Prevention) Act (UAPA).
The financial services regulators have all issued an extensive range of enforceable circulars, which,
together with amendments to the PMLA and the related Prevention of Money Laundering (PML)
Rules, substantially address the technical deficiencies identified in relation to customer due
diligence and other preventive measures. Indian authorities reported that the PML Rules are
currently being revised to ensure full consistency with the recent amendments to the PMLA. The
supervisory framework has been enhanced with all the regulators having amended their inspection
procedures to give much greater emphasis to AML/CFT in the routine examination programme.
AML/CFT compliance monitoring has been introduced for the first time for India Post’s financial
services business and the inspection programme commenced in April 2011.
With respect to the suspicious transactions reporting regime, the FIU has further enhanced its
outreach programme to provide guidance to the financial sector on their reporting obligations, and
has engaged in extensive compliance monitoring. The result has been a significant increase in the
number of STRs filed both with respect to ML and TF, without any evidence that this constitutes
defensive reporting. Approximately two-thirds of the STRs received are disseminated to law
enforcement, intelligence agencies and the regulators.
The recent amendments to the PMLA brought several of the Designated Non-Financial Businesses
and Professions (DNFBPs) within its scope. The following DNFBPs are now subject to the PMLA:
casinos; real estate agents/sub-registrars in charge of registering property; dealers in precious
metals/stones; dealers in high-value goods; and safe deposit keepers. No immediate action is
currently planned with respect to lawyers and accountants, who the authorities consider to pose a
low risk for money laundering on the basis of two risk assessments that have been undertaken.
However, the amendments to the PMLA contain a provision that will allow bringing additional
DNFBPs under the PMLA at a later stage.
In response to the mutual evaluation report, the authorities established four inter-agency
committees to review the steps needed to respond to the MER’s conclusions. These interagency
committees are:
1. The AML/CFT Regulatory Framework Assessment Committee (ARFAC);
2. The Casino Sector Assessment Committee (CSAC);
3. The Beneficial Ownership Assessment Committee (BOAC); and
4. The Non Profit Organisations Sector Assessment Committee (NPOC).
 2013 7
Implementation of the Action Plan and the committees’ recommendations is being overseen by a 10-
person FATF Cell located within the Ministry of Finance.
THE LEGAL AND REGULATORY FRAMEWORK

Since the adoption of the MER in 2010, India has completed key AML/CFT legislative steps:
 Amendments to the PMLA were enacted by Parliament on
17 December 2012 and came into force on 15 February 2013. These
amendments improve India’s AML regime as follows:
o Strengthening the ML offence which addresses most of the
technical deficiencies in relation to R.1.
o Strengthening confiscation and provisional measures which
address all of the R.3 ML related technical deficiencies.
o Covering commodities futures brokers and several DNFBPs
within the scope of the PMLA which has an impact on India’s
compliance with Recommendations 5, 10, 11, 12, 13, 16, 23, 24
and 29 and Special Recommendation IV.
o Introducing of a broader range of sanctions under the PMLA,
including sanctions against designated directors and
employees of reporting entities, to improve compliance with
Recommendation 17.
o Introducing an explicit provision which will ensure that there
is no longer room for interpretation that the conviction of a
legal person would be contingent on the concurrent
prosecution/conviction of a natural person; and increasing
administrative sanctions for legal persons. These amendments
have a positive impact on India’s compliance with
Recommendation 2.
 Amendments to the UAPA were enacted by Parliament on
20 December 2012 and came into force on 1 February 2013. These
amendments improve India’s CFT regime as follows:
o Strengthening the TF offence which addresses all of the
technical deficiencies in relation to SR.II.
o Strengthening confiscation and provisional measures which
address all of the R.3 TF related technical deficiencies.
 Amendments to Banking Laws Act were enacted by Parliament on
20 December 2012 and came into force on 18 January 2013. These
amendments increase the maximum fine for breaches of the Act (and
thereby the instructions issued under the Act) and remedy deficiencies
identified in relation to R.17 and R.29.
8  2013
IV. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE CORE RECOMMENDATIONS RATED PC
Core Recommendations
Recommendations Rating Summary of Factors Underlying Rating Actions taken to remedy deficiencies
1 – ML offence PC • (High) monetary threshold condition for most ML Amendments to India’s Prevention of Money Laundering Act (PMLA)
predicates. were enacted by Parliament on 17 December 2012 and came into
force on 15 February 2013.
All predicate offences previously contained in Part B of the Schedule
(46 offences with a threshold value of INR 3 million (“30 lakh rupees”
or USD 60 000) were added in Part A without a threshold value. Part C
of the Schedule now includes all offences listed in Part A,
supplemented by all offences covered by Chapter XVII of the Indian
Penal Code, when these offences have cross-border implications. All
in all, the list of predicate offences continues to include 156 offences
under 28 different statutes but without any monetary threshold. As
result, the major technical deficiency identified in relation to R.1 is fully
addressed.
• ML provision does not cover physical concealment of Amendments to the PMLA were enacted by Parliament on
criminal proceeds. 17 December 2012 and came into force on 15 February 2013.
• ML provision does not cover the sole knowing The amended section 3 of the PMLA now reads: “Whosoever directly
acquisition, possession and use of criminal proceeds. or indirectly attempts to indulge or knowingly assists or knowingly is a
party or is actually involved in any process or activity connected with
the proceeds of crime including its concealment, possession,
acquisition or use and projecting or claiming it as untainted property
shall be guilty of the offence of money laundering.” While the current
formulation specifically refers to concealment, possession, acquisition
and use, it does not do away with the condition that the proceeds of
crime need to be “projected or claimed as untainted property”.
The wording of the ML offence is thus not fully in line with the Vienna
 2013 9
and Palermo Conventions but case law provided by India appears to

mitigate the concerns regarding the possible limiting effect of the
conditional element in the ML offence. On that basis, it can be
concluded that the scope of these technical deficiencies is relatively
minor. It is not expected that there will be any impact on the
effectiveness of India’s AML regime. The deficiency is mostly
addressed.
• Effectiveness issues: The absence of any conviction In May 2013, India provided an update of the number of
for ML, and the high evidentiary standard untested ML investigations and prosecutions underway. The number of
before the courts, particularly in respect of the proof of ML investigations increased from 798 on 31 December 2009 (at the
the foreign predicate offence. time of the ME on-site visit), to 1 405 on 15 December 2011, to 1 510
on 31 August 2012, to 1 530 on 30 November 2012, and 1 561 on
30 April 2013. After an increase in the number of ML prosecutions from
6 on 31 December 2009 to 36 on 31 March 2011, this number
remained almost status quo in 2012 (37 on 30 November 2011 to 40
on 31 August and 42 on 30 November 2012). India reported that in
March 2013, 7 new prosecution complaints were filed. India clarified
that all 49 cases are at various stages of trial before the designated
special courts.
More detailed statistics are included in the table below:
No PMLA Statistics as on 30.04.2013
1. No. of ML cases registered 1 561

for investigation
2. No. of Provisional 197
Attachment Orders (PAOs)
issued
10  2013
3. No. of PAOs confirmed 162
4. Values of properties under INR 35 737.3

attachment million
(USD 65 000)
5. Prosecution complaints 49
filed
The Enforcement Directorate (ED), India’s central LEA in charge of
investigating and prosecuting ML offences, undertook several outreach
initiatives to raise awareness of various stakeholders in establishing an
effective AML regime in the country:
a) It established channels, including through liaison officers, for
regular interaction with the LEAs investigating the
PMLA predicate offences. Nodal Officers have been
appointed by the Law Enforcement Agencies (LEAs).
b) The ED signed a MOU with the FIU-IND for better
coordination.
c) The ED published booklets with FAQ, which have been
distributed among the various AML stakeholders.
d) The ED contributed to special workshops organised by
various LEAs.
e) The ED designated some of its legal officers to interact and
familiarise the judiciary with the provisions of the PMLA.
f) The ED organised briefing sessions for advocates and
counsels dealing with the PMLA in the Special Courts.
In addition, India underlined that the amended section 44 of the PMLA
requires that the trial of the ML offence should be conducted in parallel
with the trial of the predicate offence. Indian authorities are confident
that trials of the ML offence will now be conducted in a much shorter
 2013 11
timeframe and that this will lead to an increase in the conviction rate.
India is taking various actions with the aim to effectively implement the
PMLA. As a result, an increase in ML investigations and prosecution
complaints can be observed. However, the absence of any
ML conviction remains a serious effectiveness issue.
Recommendation 1, overall conclusion
India’s ML offence is not fully in line with the Palermo and Vienna
Conventions but the scope of the outstanding technical deficiencies is
relatively minor without real impact on the effectiveness of India’s
AML regime. On that basis, it can be concluded that India’s current
level of technical compliance with R.1 is essentially equivalent to LC.
5 – Customer due PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
diligence commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
Commodities future brokers are now subject to the PMLA. This
deficiency is addressed.
• No provisions in law or regulation that require CDD to PML Rules were amended on 16 June 2010 to require renewal of CDD
be renewed when there is a suspicion of ML/FT or when there are suspicions of money laundering or terrorist financing,
when there are doubts about the veracity or adequacy or where there are doubts about the adequacy or veracity of previously
of previously obtained customer identification data. obtained customer identification data. This deficiency is addressed.
• No provisions in law or regulation that require an PML Rules were amended on 16 June 2010 to require institutions to
institution proactively to determine whether a determine whether a customer is acting on behalf of a beneficial
customer is acting on behalf of another person. owner. This deficiency is addressed.
• Lack of clarity and divergent practices in relation to On 3 January 2013, the Department of Revenue within the Ministry of
the identification and verification of beneficial Finance, in charge of ensuring implementation of AML measures,
12  2013
ownership. issued an Office Memorandum describing the Revised Method for

Determination of Beneficial Ownership. Section 1 of this Memorandum
essentially mirrors the language of the interpretive note to the new
R.10. Section 5 of the Memorandum expects the financial sector
regulators (Reserve Bank of India - RBI; Securities and Exchange
Board of India - SEBI; and Insurance Regulatory Development
Authority - IRDA) to ensure compliance with the Revised Method. As a
follow-up, the regulators promptly issued circulars containing the
language of the Memorandum: RBI on 18 January 2013; SEBI on
24 January 2013, and IRDA on 4 February 2013. This deficiency is
addressed.
• Professional secrecy provisions prevent identification RBI circular was issued on 10 June 2010 prohibiting banks from
of beneficial owners of client accounts. opening client accounts for lawyers and accountants when the
account-holder is unable to disclose the identity of the beneficial
owners of the funds due to professional secrecy provisions. This
• No obligation in IRDA circular to understand IRDA circular issued on 12 November 2010 requires insurers to collect
ownership and control structures of legal persons. information in relation to the controlling interests and mind and
management of a corporate customer. This circular was further
completed with the IRDA circular on beneficial ownership issued on
4 February 2013. This deficiency is addressed.
• The RBI and IRDA circulars do not require a specific RBI and IRDA circulars were issued on 9 June 2010 and
override of the procedures for low risk customers 16 June 2010, respectively, to require that the low risk provisions
when there are suspicions of ML/FT, or where factors should not apply when there are suspicions of ML/FT or when other
suggest that the customer poses a higher risk. factors give rise to a belief that the customer does not, in fact, pose a
low risk. This deficiency is addressed.
 2013 13
• No explicit requirement in the RBI and IRDA circulars RBI and IRDA circulars were issued on 9 June 2010 and
to consider filing an STR when the institution can no 16 June 2010, respectively, to introduce a requirement that an
longer be satisfied that it knows the true identity of the institution should file an STR when it can no longer be satisfied that it
customer. knows the true identity of a customer. This deficiency is addressed.
• Term life policies exempt from AML requirements at IRDA circular issued on 12 November 2010 requires the
stage of writing the policy. CDD measures to be applied with respect to term life policies with
effect from 1 January 2011, but classifies them as, prima facie, low
risk. This deficiency is addressed.
All of the seven technical deficiencies are fully addressed. As a result,

India’s current level of compliance with R.5 is essentially equivalent to
LC.
13 – Suspicious PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
transaction commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
reporting Commodities future brokers are now subject to the PMLA and the
• There is no definition of “activities of terrorism” in the PML Rules were amended on 16 June 2010 and an explanation to the
PMLA, leaving it to reporting institutions to interpret definition of suspicious transaction was inserted as follows:
the scope of the STR reporting requirement with “Transaction involving financing of the activities relating to terrorism
respect to the financing of the activities of terrorism. includes transaction involving funds suspected to be linked or related
to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist
organisation or those who finance or are attempting to finance
terrorism.” This deficiency is addressed.
• Effectiveness issue: Concerns about the low number Since the adoption of the MER, the FIU has been engaged in a
14  2013
of STRs filed in relation to ML and FT (especially in number of projects, both to extend the outreach to the reporting
relation to the banking sector). entities, and to analyse the trends in the reporting system. A key
project in this respect has been the establishment, under the umbrella
of the Indian Banks’ Association (IBA), of a joint public/private sector
working group, which issued a guidance document for STR reporting
on 30 March 2011. This document provides thorough and detailed
guidance to assist institutions to establish a framework for identifying
and reporting suspicious transactions.
The FIU has also undertaken extensive outreach to financial
institutions in the form of seminars and training workshops, which have
included special programmes on terrorist financing. The FIU has also
undertaken focused reviews of compliance with the STR requirements
by both the public and private sector banks. These overall efforts to
develop improved outreach and compliance monitoring appear to have
had a significant and positive impact upon the levels of reporting by
elements of the banking sector.
This deficiency is addressed.
Since its mutual evaluation, India has made important progress with
regard to R.13 and its current level of compliance is essentially
equivalent to LC.
SR.II – Criminalise PC • FT provisions not in line with the FT Convention: Amendments to the Unlawful Activities (Prevention) Act (UAPA) were
TF o criminalisation of Treaty offences not enacted by Parliament on 20 December 2012 and came into force on
consistent with art. 2.1(a); 1 February 2013.
o not all Treaty offences included in the list o The two deficiencies regarding the Treaty offences are
 2013 15
of terrorist acts; addressed through the addition of sub-section 2 in section 15

o international organisations not covered; of the UAPA which states that “The terrorist act includes an
act which constitutes an offence within the scope of, and as
o FT attempt is not fully covered. defined in any of the treaties specified in the
Second Schedule.” The proposed Second Schedule to the
UAPA includes offences corresponding to all nine Treaties
annexed to the TF Convention.
o The sub-section (1)(iii)-clause c of section 15 of the UAPA
now explicitly refers to “an international organisation or inter-
governmental organisation or any other person to do or
abstain from doing any act”, what addresses the deficiency
identified in the MER, namely that terrorist acts under
section 15 did not target international organisations.
o Through the amendments to section 17 of the UAPA, the
attempt to commit the TF offence also extends to the acts of
raising or collecting funds and consequently, the TF attempt is
fully covered.
All four deficiencies in relation to the FT Convention are addressed.
• No criminalisation of sole knowing funding of terrorist To address the specific deficiency regarding the criminalisation of sole
individuals and terrorist organisations. knowing funding of terrorist individuals and terrorist organisations, the
following “explanation” was added for the interpretation of the
amended section 17: “Raising or collecting or providing funds, in any
manner for the benefit of, or, to an individual terrorist, terrorist gang or
terrorist organisation for the purpose not specifically covered under
section 15 (as set out above section 15 contains the different terrorist
acts) shall also be construed as an offence.” By adding this
explanation, the financing of a terrorist organisation and an individual
terrorist for any purpose, as required by the FATF Standards, is
16  2013
covered. This deficiency is addressed.
• Effectiveness issue: Minimal number of convictions. In May 2013, India provided updated statistics. The number of persons
accused of terrorist financing and the number of cases under
investigation have continued to increase (respectively 470 and 143 in
total from 2006 to 31 March 2013) while the number of persons
convicted has remained low, namely 5 in total over the same period
with no new convictions since April 2011. In addition, there were no
cases under trial in 2012. These figures reflect an effectiveness issue
in the process that leads from accusation to conviction in India.
Following the enactment of the UAPA amendments, the Ministry of
Home Affairs undertook several awareness raising initiatives in view of
and effective implementation of the CFT legislation in January and
April 2013.
Even though some improvement regarding effectiveness since the
2010 MER can be observed, the deficiency regarding effectiveness
remains.
Special Recommendation II, overall conclusion
All technical deficiencies in relation to SR.II are addressed and India’s

level of compliance with SR.II is now essentially equivalent to LC.
SR.IV – Suspicious PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
transaction commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
reporting Commodities future brokers are now subject to the PMLA and the
 2013 17
• There is no definition of “activities of terrorism” in the The PML Rules were amended on 16 June 2010 and an explanation to
PMLA, leaving it to reporting institutions to interpret the definition of suspicious transaction inserted as follows:
the scope of the STR reporting requirement with “Transaction involving financing of the activities relating to terrorism
respect to the financing of the activities of terrorism. includes transaction involving funds suspected to be linked or related
to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist
organisation or those who finance or are attempting to finance
terrorism.” This deficiency is addressed.
• Effectiveness issue: Concerns about the extremely The reporting of suspicious transactions relating specifically to FT
low number of STRs filed in relation to FT in (which was highlighted in the MER as appearing to be exceptionally
comparison with India’s vulnerability with regard to low in the context of India’s ongoing terrorism threat) is now showing a
terrorism significant upward trend, especially with respect to those reports not
involving automatic name-matches with the FT lists. This deficiency is
addressed.
Special Recommendation IV, overall conclusion
Based on the information above, it can be concluded that India’s

current level of compliance with SR.IV is essentially equivalent to LC.
18  2013
V. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE KEY RECOMMENDATIONS RATED PC
Key Recommendations
3 – Confiscation PC • Confiscation of property laundered is not covered in the Amendments to the PMLA were enacted by Parliament on
and provisional relevant legislation and depends on a conviction for a 17 December 2012 and came into force on 15 February 2013 while
scheduled predicate offence. amendments to the Unlawful Activities (Prevention) Act (UAPA)
measures
were enacted by Parliament on 20 December 2012 and came into
force on 1 February 2013.
The Amendments to sections 5 and 8 of the PMLA ensure that the
confiscation of property laundered is also covered. The
amendment to section 8 also ensures that confiscation of property
is no longer dependent on a conviction for a scheduled predicate
offence. The confiscation of property is now dependent on a
predicate offence investigation registered at the judicial level, either
in India or in any other country. The technical deficiencies are
addressed.
• The UAPA does not allow for confiscation of intended The amended definition of “proceeds of terrorism” in section 2(g) of
instrumentalities used in terrorist acts or funds collected the UAPA, explicitly includes “any property which is being used, or
to be used by terrorist individuals. is intended to be used, for a terrorist act or for the purpose of an
individual terrorist or a terrorist gang or a terrorist organisation”.
Through this amendment to the definition of “proceeds of
terrorism”, section 24(2) of the UAPA also provides for the
confiscation of funds collected to be used by individual terrorists.
The deficiency is addressed.
• The UAPA and NDPS Act do not allow for property of The amendment to section 24(3) of the UAPA provides for property
corresponding value to be confiscated. of corresponding value to be confiscated.
It is important to note that in the past, discussions also referred to
 2013 19
Key Recommendations
proposed amendments to India’s drugs legislation (NDPS Act).

India proposed these amendments with the aim to fully address the
deficiencies with regard to R.3 but they are not yet enacted.
However, since the necessary drug offences are also covered as
predicate offences under the PMLA, the amendments to India’s
drugs legislation are not needed to ensure compliance with the
requirements of R.3.
• There are no clear provisions and procedures on how to Amendments to section 8(7) of the PMLA and section 33(5) of the
deal with the assets in case of criminal proceedings UAPA introduce procedures for dealing with instances where the
when the defendant has died. trial cannot be concluded because of the death of the accused or
the accused being declared as a proclaimed offender or for any
other reason. The deficiency is addressed.
• Effectiveness issue: Concerns based on the limited According to updated statistics provided by India in May 2013, the
number of confiscations in relation to ML/FT offences. number of provisional attachment orders issued has continued to
increase, from 138 on 30 April 2012, to 153 on 31 August 2012,
167 on 30 November 2012, and 196 on 31 March 2013. Only one
of these provisional attachments resulted in a confiscation order.
More detailed statistics are included in the effectiveness section in
relation to R.1 above.
India further clarified that even though, so far, only one confiscation
has been made; out of the 195 other provisional attachments, 192
were confirmed by the Adjudicating Authority which is an indicator
of the quality of the provisional attachment orders. Once these
attachment orders are confirmed by the Adjudicating Authority, the
owner of the property is deprived and the property is transferred to
Enforcement Directorate. In addition, the authorities also point to
20  2013
Key Recommendations
the fact that, on average, the amount of the individual attachment

orders significantly increased since July 2010, namely from
INR 76 million (approximately USD 1.5 million) on 31 July 2010 to
INR 183 million (approximately USD 3.7 million) on 31 March 2013.
As a result, it can be concluded that while the provisional
attachments appear to be of good quality, the number of
confiscations remains very low.
India has addressed all the technical deficiencies in relation to R.3.

On that basis, it can be concluded that India’s current level of
compliance with R.3 is essentially equivalent to LC.
23 – Regulation, PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
supervision and commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
monitoring Commodities future brokers are now subject to the PMLA and the
• Fit and proper testing by regulators prior to appointment In 2011, the AML/CFT Regulatory Framework Assessment
does not apply to Non-executive Directors. Committee (ARFAC) recommended that a “fit and proper” test
should be applied prior to the appointment of all directors.
Regulators have already introduced some administrative measures
but the ARFAC recognised that, in the longer term, amendments to
the regulatory laws would be needed to address this matter
properly.
Indian authorities further specified that the Insurance Act requires
prior approval from IRDA for the appointment/reappointment of
the CEO/a Director or Managing Director of insurance companies.
 2013 21
Key Recommendations
On that basis, IRDA issued Corporate Governance Guidelines

which contain details regarding fit and proper criteria for all
Directors of Insurance Companies. However, the ARFAC’s report
also mentioned: “While these [directions] will meet the immediate
objective, a clear ‘fit and proper’ regime laid out through bridging
gaps in appropriate legislation should be aimed at in the long term.”
As a result, while Indian authorities have taken immediate
measures in view of addressing this deficiency by issuing
guidelines, further legal amendments will be needed to fully
address it, as concluded in the ARFAC report.
• Effectiveness issues: The regulator within the Ministry of Finance, Department of

Economic Affairs, in particular, the Budget Division and the
o Authorised Persons and Payment Service Department of Post have issued circulars/enforceable guidelines
Providers, including India Post, have only recently requiring India Post to comply with AML/CFT measures when
been brought under the PMLA, and hence it is too doing banking business.
early to assess effectiveness;
In April 2011, India reported that 6 154 departmental post offices
o no inspections or ongoing monitoring by the out of the 25 312 in the country had been inspected. Progress with
Ministry of Finance of India Post as yet; regard to inspections carried out was being monitored by the
Budget Division. In January 2013, India reported that during the
second semester of 2012, an additional 5 297 post offices were
inspected by the competent supervisor. India thus continues to
make progress against this specific action plan item.
• Concerns that the regulators’ procedures for targeting The RBI’s Department of Banking Supervision has amended its
on-site inspections do not adequately take into account inspection manual to improve the focus on the AML/CFT risks of
the AML/CFT risks of individual institutions. individual institutions. The RBI also conducted a thematic review of
KYC/AML systems in place and corresponding compliance by
banks. On that basis, the RBI’s High Level Steering Committee
22  2013
Key Recommendations
recommended the adoption of a risk-based supervision model for

all banks.
India reported that between January and March 2013, the RBI’s
Urban Banks Department conducted inspections of 442 Urban
Cooperative Banks (UBCs). In several instances, cases of violation
of the RBI’s KYC/AML/CFT guidelines were observed, such as:
1) absence of a system for monitoring suspicious transactions of
INR 1 million (USD 20 000) and more; 2) non-generation of
CTRs/STRs; and 3) absence of risk categorisation and risk
profiling. To follow up on these deficiencies, the RBI took the
following actions: 27 advisory notices, 24 warning letters, and
27 show cause notices were issued. In addition, 7 entities were
penalised and a total amount of INR 4 million (approximately
USD 80 000) in the form of penalties were imposed.
During the same period, the RBI’s Rural Planning and Credit
Department carried out 194 inspections of the institutions under its
supervision: 30 Regional Rural Banks (RRBs), 9 State Co-
operative Banks (SCBs), 152 District Central Co-operative Banks
(DCCBs) and 3 other institutions. Major observations on
KYC/AML/CFT violations by these banks related to: 1) customer
identification; 2) reporting requirements; and 3) record-keeping.
The irregularities were discussed with the institutions concerned in
view of taking initiatives to remedy the deficiencies and further
supervisory action.
In addition, the NHB and NABARD have revised their inspection
procedures to be broadly in line with those of the RBI. Indian
authorities provided details on various awareness raising activities
conducted by both the NHB and NABARD in cooperation with the
 2013 23
Key Recommendations
FIU-IND.
In 2010-2011, SEBI has held meetings with the stock exchanges
and depositories and developed plans for enhanced targeted
inspection and supervision. Indian authorities report that since
then, SEBI has included the AML/CFT risks as part of its inspection
of securities intermediaries. In case of Stock Brokers and
Depository participants, compliance of AML/CFT norms is verified
by the stock exchanges and depository participants during their
annual inspections and also in half yearly internal audits.
Depository participants are required to conduct audit with respect
to their operations which includes
account opening/KYC/AML norms. SEBI has also carried out
specific theme based inspections focusing on compliance with
KYC (which includes broader CDD) and AML/CFT guidelines for
stock brokers and depository participants. Indian authorities also
reported that Mutual Funds are subject to inspection, including for
compliance with AML/CFT requirements, on a yearly basis.
IRDA has modified the inspection manual to address this issue.
According to the revised inspection manual, focused inspections of
insurance companies are carried out on a need basis, in addition to
initial thorough inspections. Triggers for such focused inspections
arise from market intelligence, FIU-IND reports; periodic routine
inspections. IRDA has identified the following areas as key risk
areas in the AML/CFT framework for insurance companies:
CDD measures; STR reporting; sanctions lists. Indian authorities
report that IRDA’s focus during inspections is placed on
systems/processes rather than transactional failures.
India has taken important steps in view of addressing this
24  2013
Key Recommendations
deficiency.
India reported actions with regard to all of the deficiencies identified

in relation to R.23 and most of these deficiencies are (at least)
largely addressed. Consequently, India’s current level of
compliance with R.23 is essentially equivalent to LC.
35 – Conventions PC • Palermo TOC Convention not ratified. India ratified the Palermo Convention on 5 May 2011. The
deficiency is fully addressed.
• Criminalisation of ML not in line with the Vienna and India’s ML offence is not fully in line with the Palermo and Vienna
TOC Conventions (concealment, acquisition, possession Conventions but the scope of the outstanding technical deficiencies
and use). is relatively minor without real impact on the effectiveness of India’s
AML regime. The deficiency is largely addressed.
• Restricted ML seizure/confiscation regime. As indicated above in relation to R.3, this deficiency is fully
addressed.
• Inadequate sanctions for the ML offence in the NDPS The threshold of INR 500 000 (USD 10 000) for the fine applicable
Act and the sanctions for legal persons in the PMLA. to legal persons in section 2 of the PMLA has been removed
through the recent amendments to the PMLA. The fine imposable
on legal persons is now at the discretion of the court. As explained
above in relation to R.3, amendments to the NDPS Act are not
needed to ensure compliance with the FATF Recommendations
given that the necessary drug offences are covered by the PMLA.
• Deficiencies in the regulatory and supervisory regime As indicated above in relation to R.23, the deficiencies in India’s
 2013 25
Key Recommendations
regulatory and supervisory regime are largely addressed.
• Effectiveness issue: Absence of convictions. The effectiveness concerns regarding the total absence of
ML convictions expressed in the MER still remains.
India reported that it has enhanced its trial process. Throughout the
country, 117 Special Courts for conducting trials under the PMLA
were set up. Moreover, in addition to the measures taken to further
expand its legal division and overall number of staff, the
Enforcement Directorate hired over 50 lawyers for conducting the
trials in these Special Courts. Finally, as indicated above in relation
to R.1, through the recent amendments to the PMLA (in particular
section 44), it is expected that trials will be conducted within a
shorter timeframe.
India has addressed nearly all of the technical deficiencies

identified in relation to R.35. Consequently, its level of compliance
with R.35 is now essentially equivalent to LC.
SR.I – Implement PC • FT criminalisation not in line with the FT Convention (FT As explained above in relation to SR.II, this deficiency is now fully
UN instruments offences, international organisations, attempt). addressed.
• Confiscation of terrorist funds is deficient. As explained above in relation to R.3, this deficiency is now fully
addressed.
• UN RES are not fully implemented. Though India considers that the implementation of the relevant
UNSCRs is consistent with the requirements of SR.III, concerns
remain as to whether the procedures in place for authorising
26  2013
Key Recommendations
access to funds or other assets frozen pursuant to UNSCR 1267

are appropriate.
India reported that the Ministry of External Affairs has drafted a
Gazette Notification which is currently with the Ministry of Law and
Justice for approval. This Gazette Notification would put in place
formal procedures for authorising access to funds for basic
expenses consistent with FATF requirements. India is taking the
necessary steps in view of addressing this deficiency.
• Effectiveness issue: Concerns regarding preventive While the concerns regarding the preventive regime appear to be
regime and judicial follow-up in terms of final (largely) addressed (see R.5 and R.23 above), the effectiveness
convictions. issue regarding R.1 remains outstanding.
Special Recommendation I, overall conclusion
Since the adoption of its MER in 2010, India has taken measures
to improve its compliance with SR.I, which is now essentially
equivalent to LC.
 2013 27
VI. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE OTHER RECOMMENDATIONS RATED PC OR NC
Other Recommendations
6 – Politically PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
exposed persons commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
• No requirement in the RBI and SEBI circulars to RBI issued a circular on 9 June 2010, requiring banks to implement
implement ongoing risk management procedures for ongoing risk management procedures for identifying PEPs and
identifying PEPs. accounts for which a PEP may be the beneficial owner.
SEBI issued a circular on 14 June 2010 requiring capital market
intermediaries to put in place appropriate risk management systems
to determine whether their client or potential client or the beneficial
owner of such client is a PEP.
This deficiency is addressed.
• No requirement in the RBI circulars to apply RBI circular of 9 June 2010 specifies that enhanced measure should
enhanced measures to close relatives of PEPs. also be applied with respect to close relatives (but not close
associates) of PEPs. This deficiency is mostly addressed.
• No obligation in the IRDA circular to apply enhanced IRDA issued on 12 November 2010 requires insurers to apply
measures to entities where the beneficial owner of the enhanced CDD measures with respect to a policy of which a PEP is
customer is a PEP. the beneficial owner. This deficiency is addressed.
India has addressed nearly all of the technical deficiencies with

regard to R.6 and its current level of compliance is therefore
28  2013
essentially equivalent to LC.
12 – DNFBPs – R.5, NC • Scope limitation: The PMLA does not apply to any of Amendments to the PMLA were enacted by Parliament on
6, 8-11 the DNFBP sectors, with the exception of casinos. 17 December 2012 and came into force on 15 February 2013.
The following DNFBPs are now subject to the PMLA
(section 2(2)(v)): casinos; real estate agents/sub-registrars in
charge of registering property; dealers in precious metals/stones
and dealers in high-value goods, and safe deposit keepers. No
immediate action is planned with respect to lawyers and
accountants but the amendment to section 2 gives the Central
Government the authority to designate additional DNFBPs, by
notification, at a later stage.
While India has clearly taken steps to address this deficiency, it is
only partially addressed.
• Only the basic requirements of the PMLA and the The Casino Sector Assessment Committee has examined
accompanying Rules apply to casinos, and these do FATF standards, legislation of other countries, typologies reports
not address much of the detail required under the and the Report of the DNFBP Risk Assessment (2009 – see MER)
FATF standards. to identify typologies relevant to the casino sector in the Indian
context. The Report identified ten main areas for strengthening the
legal framework The recommendations formulated by the
Committee were approved by the Government and instructions were
issued to both the Government of Sikkim and the Government of
Goa to ensure compliance.
Indian authorities reported that the Government of Sikkim has
issued AML/CFT guidelines for casinos operating in Sikkim. These
guidelines were issued in September 2011 under the Sikkim Casino
Games (Control and Tax) Act, 2002. On 10 January 2013, the
Government of Goa issued through a formal notification in the
 2013 29
Official Gazette of the Government of Goa “The Goa Anti Money

Laundering and Financing of Terrorism Guidelines.” These
guidelines were issued under rule 9(7) of the PML Rules. In case of
non-compliance with these guidelines, sanctions under section 13 of
the PMLA can be imposed.
• Effectiveness issue: Extension of the PMLA to the While the Governments of Goa and Sikkim issued the necessary
casino sector is very recent and there is insufficient AML/CFT guidelines, the nature of this report does not allow
evidence of effective implementation concluding that AML/CFT preventive measures are effectively
implemented in India’s casino sector, especially given the very
recent nature of the Goa AML/CFT guidelines.

While India has made progress with regard to R.12, it is difficult to
conclude that its current level of compliance would be essentially
equivalent to LC. This is mainly due to the fact that the scope of
DNFBPs subject to the PMLA was only recently expanded and it is
unclear to what extent the requirements under R.5; 6, and 8-11 are
implemented by these DNFBPs.
16 – DNFBPs – NC • Scope limitation: The PMLA does not apply to any of See above in relation to R.12.
R.13-15 & 21 the DNFBP sectors, with the exception of casinos.
• Only the basic requirements of the PMLA and the See above in relation to R.12.
accompanying rules apply to casinos, and these do
not address much of the detail required under the
FATF standards.
• Implementation issue: Extension of the PMLA to the See above in relation to R.12.
casino sector is very recent and there is insufficient
evidence of effective implementation
30  2013

While India has made progress with regard to R.16, its current level
of compliance is not yet equivalent to LC.
17 – Sanctions PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
• Sanctions applied for AML/CFT deficiencies across all Section 13(2) of the PMLA was amended and includes a broad
sectors are not effective, proportionate or dissuasive. range of sanctions for reporting entities, their directors and
employees to be applied in cases of non-compliance with the
AML/CFT obligations.
In 2011, the AML/CFT Regulatory Framework Assessment
Committee (ARFAC) recommended that the regulators review the
range and effectiveness of their sanctions, and prepare guidance on
their implementation.
The Banking Laws Act was amended on 20 December 2012 and
these amendments came into force on 18 January 2013.
Sections 46 and 47A were amended to increase the maximum fine
for breaches of the Act (and thereby the instructions issued under
the Act) from INR 50 000 to INR 10 million (instead of from
USD 1 000 to USD 200 000). In addition, if the contravention or
default persists, a further penalty not exceeding INR 50,000 (instead
of the initial INR 25,000 or 500 USD) can be imposed for every day
the contravention or default continues.
1. The range of sanctions available to SEBI and the
 2013 31
exchanges is sufficiently broad but the absolute level of fines

imposed in many cases is small. In 2011, the FATF expressed the
view that the exchanges should have the ability to levy much higher
financial sanctions for significant systems failures, without having to
rely on deterrent measures that directly impact an institution’s ability
to conduct business (e.g., through suspension or limitation of
business). Indian authorities remain of the view that in most
inspections completed so far only minor and no serious deficiencies
have been observed. They further report that through the current
approach the compliance level of the intermediaries with respect to
AML/CFT and KYC norms has considerably improved.
This being said, SEBI has recently reviewed its range of penalties to
be applied by the stock exchanges starting from the financial
year 2013-2014. Indian authorities report that the penalties for
violation of the KYC and the AML/CFT requirements more generally
have been enhanced. The range of penalties the stock exchanges
will be able to impose when conducting inspections of securities
market participants has become more deterrent and commensurate
with the seriousness of the violations and possible repetitions of
violations.
In 2011, the Indian Government introduced the Insurance Laws
(Amendment) Bill, 2008 in Parliament. One of the amendments
proposes to increase the maximum penalty for failure to comply with
IRDA’s directions from INR 500 000 to INR 10 million (from
USD 10 000 to USD 200 000), and to have the available range of
sanctions increased. The Standing Committee on Finance issued its
report on 13 December 2011 and with the approval of the Finance
Minister, a Cabinet Note for introducing the official amendments to
the Insurance Laws (Amendments) Bill, 2008 was recently
32  2013
approved. These official amendments are proposed to be

introduced in the current session of Parliament.
India has taken measures to address the deficiency identified in the
2010 MER but it is not yet fully addressed.

Since its MER in 2010, India has taken measures to improve its
compliance with R.17 which can now be considered to be
essentially equivalent to LC.
21 – Special PC • Scope limitation: The PMLA does not apply to Amendments to the PMLA were enacted by Parliament on
attention for higher commodities futures brokers. 17 December 2012 and came into force on 15 February 2013.
risk countries
• There are no clear and direct requirements for the Updated RBI and IRDA master circulars (dated 2 July 2012 and
institutions in the banking and insurance sectors to 27 January 2012, respectively) require institutions in the banking
pay special attention to both business relationships and insurance sector to pay special attention to both business
and transactions with persons from or in countries relationships and transactions with persons from, or in countries that
that do not, or insufficiently, apply the FATF do not or insufficiently apply the FATF Recommendations. This
Recommendations. deficiency is addressed.
• Financial institutions are not expressly required to Updated RBI and IRDA master circulars (2 July 2012 and
examine the background and purpose of transactions 27 January 2012, respectively) require that if transactions with
with persons from or in countries that do not persons from, or in countries that do not adequately apply the FATF
adequately apply the FATF standards. standards have no apparent economic or visible lawful purpose,
financial institutions must examine the background and purpose of
such transactions as far as possible, make written findings, and
ensure that such findings are available to competent authorities and
auditors. This deficiency is addressed.
 2013 33
• India has no clear legal authority that enables it to The AML/CFT Regulatory Framework Assessment Committee
apply a range of appropriate counter-measures in the (ARFAC) has examined the existing institutional framework and the
securities or insurance sectors where a country options available to apply appropriate counter-measures where a
continues not to apply or insufficiently applies the country continues not to apply or insufficiently applies the FATF
FATF Recommendations. Recommendations. One of the recommendations was aimed at
setting up a mechanism for communication of AML/CFT risks to the
financial institutions in order to enhance the current procedures. The
report was adopted by the Government. The Committee also
proposed amendments to the PMLA with a view to introduce an
explicit obligation to require reporting entities to apply counter-
measures in certain circumstances. However, the recent
amendments to the PMLA do not include such provision.
India reported that through an Order of the Department of Revenue
issued on 28 May 2012, an AML Steering Committee chaired by the
Additional Revenue Secretary was established with very broad
Terms of Reference; including considering and recommending to
the Government any policy changes in the legal and administrative
framework. This is one of the many initiatives India has taken to
follow up on the recommendations in the ARFAC’s report, including
with regard to R.21.
While India has taken steps in view of addressing this deficiency, so
far, it appears to be partially addressed only.
• Effectiveness issue: There is a concern that covered Regulatory circulars have been issued to specify that institutions
institutions do not look beyond the FATF statements, should go beyond the FATF statements and consider publicly
and that they make little use of publicly available available information when identifying countries which do not or
information when identifying countries which do not or insufficiently apply the FATF Recommendations. In addition, the
insufficiently apply the FATF Recommendations. ARFAC has issued further recommendations to enhance the
effectiveness with regard to R.21 (see above). While some action
34  2013
has been taken to address this deficiency, no further initiatives have

yet been taken with regard to the recommendations to enhance the
effectiveness with regard to R.21.

By addressing the scope issue in the PMLA, issuing sector specific
circulars, and taking initiatives to follow up on the ARFAC
recommendations, India addressed some of the technical
deficiencies identified in the MER. Amendments to the PMLA
proposed by the Committee were not part of the recently enacted
PMLA amendments and no further amendments are pending. The
effectiveness issue is equally only partially addressed. However, it
appears that India’s current level of technical compliance with R.21
is essentially equivalent to LC.
24 – DNFBP: NC • Scope limitation: The PMLA does not apply to any of Amendments to the PMLA were enacted by Parliament on
regulation, the DNFBP sectors, with the exception of casinos. 17 December 2012 and came into force on 15 February 2013.
supervision and The following DNFBPs are now subject to the PMLA
monitoring (section 2(2)(v)): real estate agents/sub-registrars in charge of
registering property; dealers in precious metals/stones and dealers
in high-value goods, and safe deposit keepers. No immediate action
is planned with respect to lawyers and accountants, although the
amendment to section 2 gives the Central Government the authority
to designate them, by notification, at a later stage. While India has
clearly taken steps to address this deficiency, it is only partially
addressed.
• With respect to the casino sector: A Casino Sector Assessment Committee (CSAC) has reviewed the
o No statutory “fit and proper” tests for owners, existing regulatory framework for the casino sector and has given
 2013 35
operators and managers. the specific recommendations against each of the issues involved.
o Insufficient range of sanctions available to the The CSAC report was approved by the Minister of Finance and
regulator to permit a proportionate response to instructions were issued to competent authorities for compliance. It
identified deficiencies. should be noted that, since the regulation of casinos is not a matter
for the central government, implementation of the Committee’s
o Doubts about the statutory authority of the recommendations will require the existing legislation to be amended
regulator to enforce compliance with the PML at individual State level (currently in each of the three States where
Rules and its own AML/CFT circular. casinos have been licensed). There is no action plan or timeline
available as to how and when any amendments to existing
legislation will be proposed.
The Indian authorities also refer to the AML/CFT guidelines issued
by the States of Goa and Sikkim, as mentioned above in relation to
R.12. “The Goa Anti Money Laundering and Financing of Terrorism
Guidelines.” were issued under rule 9(7) of the PML Rules and in
case of non-compliance with these guidelines; sanctions under
section 13 of the PMLA can be imposed. However, the guidelines
issued by the Government Sikkim are issued under the Sikkim
Casino Games (Control and Tax) Act, 2002 and do not contain any
sanctions to be imposed in case of violation of the
AML/CFT sections. As a result, doubts about the statutory authority
of the Government of Sikkim to enforce compliance with the PMLA,
PML Rules, and its own AML/CFT circular remain.
In addition, statutory “fit and proper” tests for owners, operators and
managers of casinos do still not exist.
This deficiency is only partially addressed.
• Lack of dissuasive sanctions for obstructing the This deficiency is not yet addressed.
36  2013
regulator’s right to inspect.

Amendments to the PMLA to bring additional, but not all, DNFPBs
under the PMLA came recently into force. Implementation can only
start now. Adding some DNFBPs to the scope of the PMLA is only a
first step in addressing the deficiency identified. In addition, while
the CSAC had formulated specific recommendations to address the
deficiencies with regard to the casino sector, legislative
amendments to regional legislation are needed. While India has
taken some action to improve its compliance with R.24, it is not yet
equivalent to LC.
33 – Legal persons PC • Information on additional beneficial ownership of legal The Beneficial Ownership Assessment Committee (BOAC) has
– beneficial owners persons beyond the immediate beneficial owner is not produced its report which contains recommendations to address the
required to be collected by either the corporate identified deficiencies, including a proposal to amend the
registry, within corporate records held by legal Companies Act and for beneficial ownership to be maintained within
persons, or by company secretaries. the central registry or corporate records.
The Companies Bill, 2012 has been passed by Lok Sabha (the
Lower House of Parliament) on 18 December 2012. The Bill is
currently pending for discussions in Rajya Sabha (the
Upper House).
Provisions 89 and 90 of the Companies Bill, 2012 deal with
beneficial ownership and beneficial interest in companies.
Provision 89(40) of the Bill empowers the Central Government to
frame rules for holding and disclosing beneficial interest and
beneficial ownership. In addition, provision 149 defines the term
‘nominee director’.
 2013 37
India reported that it will decide on what additional measures are still
needed based on the recently adopted FATF technical compliance
methodology.
• There are no measures in place to prevent the BOAC - as above.
unlawful use of HUFs in relation to ML or FT – for
instance, HUFs are not required to maintain
information on beneficial ownership.
• While law enforcement and other authorities have BOAC - as above.
sufficient powers to access current and accurate
information on beneficial ownership of legal persons
(in particular foreign companies), this is not possible
in a timely fashion.

Progress is subject to adoption and implementation of the
Committee’s recommendations to address the MER identified
deficiencies. While amendments to the Companies Act are currently
under consideration by Parliament, they have not yet been enacted.
India’s level of compliance with R.33 remains at PC.
34 – Legal PC • There is no requirement to obtain, verify and retain The Beneficial Ownership Assessment Committee (BOAC) has
arrangements – adequate, accurate and current information on the produced its report which contains recommendations to address the
beneficial owners beneficial ownership and control of private trusts. identified deficiencies, including a proposal to amend the Trust Act
and establish a central registry.
• That are no measures in place that guarantee that As above.
minimal adequate and accurate information
concerning the beneficial owners of private trusts can
38  2013
be obtained or accessed by the competent authorities

in a timely fashion
Progress is subject to adoption and implementation of the
Committee’s recommendations to address the MER identified
deficiencies. Consequently, India’s level of compliance with R.34
remains at PC.
SR.VIII – Non-profit NC • There is no review undertaken of the adequacy of The NPO Sector Assessment Committee (NPOC) has completed its
organisations domestic laws in the NPO sector. review of the adequacy of domestic laws in the NPO sector and
made recommendations to strengthen the domestic laws in this
area, including a proposal for a single law and regulatory agency
governing NPOs. These are detailed in the report of the Committee
of March 2011 and a separate report titled, “Foreign Contribution
and NPOs” dated 11 April 2011, which were subsequently adopted
by the Government. India reports that a follow-up mechanism has
been put in place to ensure the implementation of the
recommendations. India also reported concrete initiatives taken
within the Central Board of Direct Taxes. The principal goal of these
initiatives is to identify and investigate cases of tax evasion rather
than misuse of NPOs for FT purposes. This being said, the specific
deficiency identified in the MER is addressed.
• There are no periodic reassessments undertaken by India refers to the report “Foreign Contribution and NPOs” adopted
reviewing new information on the sector’s potential on 11 April 2011 (see above) and underlines its conclusion, namely
vulnerabilities to terrorist activities. that the risk posed by the NPO sector is considered to be low.
While so far, no sector-specific reassessment took place, India
reports that the receipt of foreign funds by individual NGOs/NPOs is
subject to rigorous scrutiny, including information from
 2013 39
security/intelligence agencies, on a case-by-case basis. Given that

India’s focus is on only one part of the NPO sector, this deficiency is
only partially addressed.
• There is no outreach to the NPO sector with a view to The Ministry of Home Affairs (MHA) conducted a series of outreach
protecting the sector from abuse for terrorist financing programmes covering four of the regions in India. India reports that
takes place. the MHA has the intention to conduct similar outreach programmes
on a regular basis. This deficiency is addressed.
• There is only limited information available on the With regard to addressing this deficiency, India refers to the
identity of person(s) who own, control or direct their recommendations issued by the NPOC. It reports that scrutiny
activities, including senior officers, board members guidelines are developed on a yearly basis to ensure that cases
and trustees. with possible tax evasion are identified. The information provided by
India clearly refers to monitoring of the NPO sector for combating
tax fraud. While the measures in place will to some extent
contribute to preventing the misuse of NPOs for TF purposes, it
remains unclear how they would cover the whole NPO sector.
India is of the view that the TF risk in the NPO/NGO sector mainly
relates to the receipt of funds from abroad. This particular aspect is
regulated by the Foreign Contribution Regulation Act, 2010
(FCRA 2010). To be registered or granted permission under this
Act, the NGO/NPO concerned needs to submit the following
information: the list of members of the Executive
Committee/Governing Council/etc of the entity/association (i.e.
name, name of father/husband, nationality, occupation with address
of workplace, post held in the entity/association, relationship with
other members, address for correspondence); details of
registration/incorporation of the entity/association; and activities
over the last three years, including audited account statements. In
addition, the name and address of the branch of the bank through
which the foreign contributions/funds would be received account
40  2013
number should also be submitted.

As with the previous deficiency, India’s focus is on some parts of the
NPO sector only and as a result, this deficiency is only partially
addressed.
• India has not demonstrated that measures are in The Foreign Contribution (Regulation) Act, 1976 was replaced by
place to sanction violations of oversight measures or the Foreign Contribution (Regulation) Act, 2010 (FCRA). The
rules by NPOs or persons acting on behalf of NPOs Foreign Contribution (Regulation) Rule, 2011 (FCRR) for the NPOs
for NPOs other than those registered under the receiving foreign funds to be regulated in a more efficient manner
Income Tax Act and under the FCRA. came into force on 1 May 2011. Five new positions were created in
the monitoring unit of the FCRA wing to increase its strength.
In addition, India reports that the Central Board of Taxes is in the
process of implementing an on-line return filing facility. As a result,
once fully implemented, information regarding NPOs claiming tax
exemption is being regularly uploaded on the website of the Income-
tax Department and is thus publicly available.
While India needs to be commended for these efforts in combating
misuse of NPOs for tax purposes and in relation to foreign
contributions, the deficiency identified in the MER is only partially
addressed.
• The majority of NPOs are not registered as such with The Foreign Contribution (Regulation) Act, 1976 was replaced by
government agencies, including the tax authorities. the Foreign Contribution (Regulation) Act, 2010 (FCRA). The
Foreign Contribution (Regulation) Rule, 2011 (FCRR) for the NPOs
receiving foreign funds to be more efficiently regulated came into
force on 1 May 2011. India reports that banks have a crucial role in
ensuring that the provisions of the FCRA and FCRR are not
misused. Banks are subject to a mandatory disclosure obligation to
the Government in relation to receipt of a foreign contribution. These
 2013 41
actions definitely contribute to focus authorities’ attention on higher

risk NPOs but it is not clear what percentage of the NPO sector is
now registered. Consequently, it cannot be determined to what
extent this deficiency is addressed.
Special Recommendation VIII, overall conclusion
The Review of Foreign Contribution by NPOs and the new Foreign
Contribution (Regulation) Rules, 2010, together with the outreach
activities being undertaken, enable the authorities to focus on higher
risk NPOs. While India has clearly made progress with regard to
SR.VIII, its level of compliance is not yet equivalent to LC.
SR.IX – Cross- PC • Effectiveness issue: Concerns based on the low Indian authorities provided details on various initiatives taken in view
Border Declaration number of currency declarations, the detected false of the effective implementation of its cross-border
declarations, and the cash seizures, including declaration/disclosure systems. One of these initiatives relates to
and Disclosure
seizures of unaccompanied cash or BNIs. the development of an IT tool which allows for the on-line
identification of all Currency Declaration Forms (CDFs) filed by
persons carrying currency above the threshold limit at international
borders, including at land customs stations and airports. In addition,
customs authorities further improved IT resources for the
centralisation of the data collected and for making them available to
LEAs and FIU-IND.
Recently, 87 X-Ray Baggage Inspection System (XBIS) have been
installed at various airports, seaports, and land customs stations in
the country. The installation of 76 more advanced versions of the
XBIS at the most important airports was approved. In addition,
specific measures to detect unaccompanied cash or BNIs have
been initiated.
The Indian Customs Department has also been examining various
42  2013
technologies available for inspections of cargo, including parcels by

mail. The procurement of specific equipments shall be carried out
on a need basis.
It can be concluded that Indian authorities have clearly taken
actions to address this deficiency. The nature of this report does not
allow for a detailed assessment of their effectiveness but it can be
expected that effectiveness has improved.
• The cross-border declaration/disclosure systems The Arrival Card has been amended so as to remove the
appear to be applied only to currency and BNI via ambiguities regarding the statutory requirement of declaring
airports, with no information on movements of currency in excess of the prescribed threshold, and the sanctions for
currency and BNI via land borders or unaccompanied non-compliance. The new version of the amended Arrival Card is
movement of currency through postal and cargo expected to be used by relevant customs authorities at all cross
systems. border control points. Specific instructions for the use of this new
version were issued for both the land customs stations and sea
ports.
Indian authorities provided the following statistics regarding the
number of CDFs filed:
Customs Entry 2011-2012 2012-2013 Total

Point
Airport 9 174 9 919 19 093
Land Customs 9 56 65
Stations
Total 9 183 9 975 19 158
 2013 43
While the number of CDFs filed at land customs stations remains

very low, Indian authorities have taken action in view of addressing
this deficiency.
• The shortcomings identified with regard to the As mentioned above in relation to R.3, these shortcomings are
attachment, confiscation and forfeiture provisions addressed.
discussed in Section 2.3 and to the freezing, seizing
and attachment of property related to terrorist
financing (as discussed in Section 2.4) have a
negative impact on Special Recommendation IX.
Special Recommendation IX, overall conclusion
India has taken several measures to improve its compliance with
regard to SR.IX and its level of compliance is currently equivalent to
LC.
44  2013

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8th FOLLOW-UP REPORT

© 2013 FATF/OECD. All rights reserved.

Photocredits coverphoto: ©Thinkstock

AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism

ARFAC AML/CFT Regulatory Framework Assessment Committee

BOAC Beneficial Ownership Assessment Committee

CSAC Casino Sector Assessment Committee

DNFBP Designated Non-Financial Businesses and Professions

MER Mutual evaluation report

NPOC Non Profit Organisations Sector Assessment Committee

PMLA Prevention of Money Laundering Act

SR. Special Recommendation

STR Suspicious Transaction Report

UAPA Unlawful Activities (Prevention) Act

MUTUAL EVALUATION OF INDIA: 8TH FOLLOW-UP REPORT

Application to move from regular follow-up

Core Recommendations rated PC (no core recommendations were rated NC):

Key Recommendations rated PC (no key recommendations were rated NC)

Other Recommendations rated PC

Other Recommendations rated NC

5 FATF Processes and Procedures par. 39 (c).

II. MAIN CONCLUSIONS AND RECOMMENDATIONS TO THE PLENARY

III. OVERVIEW OF INDIA’S PROGRESS

THE LEGAL AND REGULATORY FRAMEWORK

and Palermo Conventions but case law provided by India appears to

No PMLA Statistics as on 30.04.2013

1. No. of ML cases registered 1 561

3. No. of PAOs confirmed 162

4. Values of properties under INR 35 737.3

Recommendation 1, overall conclusion

ownership. issued an Office Memorandum describing the Revised Method for

Recommendation 5, overall conclusion

All of the seven technical deficiencies are fully addressed. As a result,

Recommendation 13, overall conclusion

of terrorist acts; addressed through the addition of sub-section 2 in section 15

covered. This deficiency is addressed.

Special Recommendation II, overall conclusion

All technical deficiencies in relation to SR.II are addressed and India’s

Special Recommendation IV, overall conclusion

Based on the information above, it can be concluded that India’s

V. REVIEW OF THE MEASURES TAKEN IN RELATION TO THE KEY RECOMMENDATIONS RATED PC

proposed amendments to India’s drugs legislation (NDPS Act).

the fact that, on average, the amount of the individual attachment

Recommendation 3, overall conclusion

India has addressed all the technical deficiencies in relation to R.3.

On that basis, IRDA issued Corporate Governance Guidelines

• Effectiveness issues: The regulator within the Ministry of Finance, Department of

recommended the adoption of a risk-based supervision model for

Recommendation 23, overall conclusion

India reported actions with regard to all of the deficiencies identified

regulatory and supervisory regime are largely addressed.

Recommendation 35, overall conclusion

India has addressed nearly all of the technical deficiencies

access to funds or other assets frozen pursuant to UNSCR 1267

Special Recommendation I, overall conclusion

Recommendation 6, overall conclusion

India has addressed nearly all of the technical deficiencies with

essentially equivalent to LC.

Official Gazette of the Government of Goa “The Goa Anti Money