FATF and International AML/CFT Cooperation

Global standards, peer evaluation and cooperation convert national controls into a cross-border integrity system.

The Financial Action Task Force (FATF) is an intergovernmental standard-setting body. Its Recommendations are globally influential standards, but they are not a treaty and FATF is not a supranational prosecutor. Domestic legislatures, regulators, investigators and courts give the standards legal and operational effect.

The Forty Recommendations

The consolidated 40 Recommendations, first adopted in their current integrated form in 2012 and updated over time—including through October 2025—address money laundering, terrorist financing and proliferation financing. They are organised around seven broad areas:

• AML/CFT policies and coordination: risk assessment, national policy, cooperation and targeted countermeasures.
• Money laundering and confiscation: criminalisation, provisional measures and deprivation of criminal property.
• Terrorist and proliferation financing: offences, targeted financial sanctions, NPO risk and controls on relevant value transfer.
• Preventive measures: customer due diligence, records, suspicious transaction reporting, controls for higher-risk situations and internal programmes.
• Transparency and beneficial ownership: timely access to adequate, accurate and up-to-date information on legal persons and arrangements.
• Institutional powers and responsibilities: supervisors, FIUs, investigators, law enforcement, sanctions and statistics.
• International cooperation: mutual legal assistance, extradition, freezing, confiscation and agency-to-agency exchange.

RISK-BASED APPROACH Countries and private institutions should identify and understand risk, then apply enhanced measures to higher risks and simplified or proportionate measures where permitted for lower risks. Risk-based supervision is different from zero-risk exclusion.

How Mutual Evaluation Works

Dimension	Question	Output
Technical compliance	Are the required laws, institutions and powers in place?	Ratings against each Recommendation: compliant, largely compliant, partially compliant or non-compliant.
Effectiveness	Does the system actually mitigate risk and produce results?	Assessment against 11 Immediate Outcomes, from low to high effectiveness.
Risk and context	Which threats, vulnerabilities, sectors, institutions and structural conditions matter most?	A country-specific interpretation rather than mechanical one-size-fits-all scoring.
Follow-up	Are deficiencies being remedied after adoption of the report?	Regular or enhanced follow-up and possible re-ratings for technical changes.

The 11 Immediate Outcomes examine whether risks are understood; international cooperation works; supervisors act; preventive controls are applied; ownership is transparent; financial intelligence is used; laundering is investigated and sanctioned; proceeds are confiscated; terrorism financing is investigated; terrorists and vulnerable nonprofit activity are protected from financing abuse; and proliferation-financing sanctions are implemented.

Grey Listing and Calls for Action

FATF category	Meaning	What it does not automatically mean
Jurisdictions under increased monitoring	A jurisdiction works with FATF on an agreed action plan to address strategic deficiencies; commonly called the grey list.	FATF does not call for blanket enhanced due diligence or indiscriminate de-risking solely because of listing.
High-risk jurisdictions subject to a call for action	Jurisdictions with serious strategic deficiencies for which enhanced due diligence and, in the gravest situations, countermeasures may be called for; commonly called the black list.	It is not a permanent label; the official list and required responses must be checked at the relevant date.

Listing can increase compliance costs, payment friction, correspondent-banking scrutiny, investment uncertainty and reputational pressure. These effects make peer review influential even though FATF itself does not impose criminal penalties. A balanced policy avoids collective punishment of legitimate customers and maintains humanitarian or financial-inclusion channels while controlling genuine risk.

India’s 2024 Mutual Evaluation

India became a FATF member in 2010. Its latest joint evaluation by FATF, the Asia/Pacific Group on Money Laundering (APG) and the Eurasian Group (EAG) followed an on-site visit from 6 to 24 November 2023 and was published in September 2024. The report found a high level of technical compliance and important areas of effectiveness while identifying significant implementation gaps.

INDIA: STRENGTHS AND PRIORITIES IN THE 2024 EVALUATION

Area	Finding	UPSC interpretation
Risk understanding	Strong understanding at central level, with major risks including fraud, cyber-enabled crime, narcotics and corruption.	The next step is granular and shared sector/State-level risk understanding.
Financial intelligence	Good use of financial intelligence and cooperation among key agencies.	Quality, feedback and conversion into timely cases remain the effectiveness test.
Asset deprivation	Strong focus on depriving criminals of proceeds and property.	Final confiscation, proportionality and restitution should accompany attachment figures.
International cooperation	Generally effective and constructive cooperation.	Speed and prioritisation matter because value and data move quickly.
Beneficial ownership	Authorities can access useful information through multiple sources.	Accuracy, timeliness and enforcement against false or nominee filings require continued attention.
ML/TF prosecution	India should conclude laundering and terrorist-financing prosecutions more quickly and apply effective sanctions.	Trial delay is a security and rule-of-law problem, not only a court-management issue.
Non-financial sectors	Preventive implementation and supervision need improvement in parts of the designated non-financial sector.	Real estate, precious assets and professional gatekeepers need risk-based, sector-specific action.
Nonprofit organisations	Risk-based measures and outreach should better target the subset vulnerable to terrorist-financing abuse.	Protect legitimate civic activity while acting on demonstrated risk rather than sector-wide suspicion.

On effectiveness, the evaluation assessed India as having substantial effectiveness for Immediate Outcomes 1, 2, 5, 6, 8 and 11, and moderate effectiveness for Immediate Outcomes 3, 4, 7, 9 and 10. This combination explains the central lesson: a strong legal and institutional structure must still produce quicker, consistent and proportionate results across sectors.

INDIA-SPECIFIC THREAT PICTURE The evaluation identifies bank, investment and cyber fraud; forgery; narcotics trafficking; and corruption as significant proceeds-generating risks. It highlights channels such as hawala, cash couriers, shell companies, offshore structures and trade-based laundering, with vulnerabilities including real estate, precious stones and third-party accounts.

International Cooperation Toolkit

Tool	Purpose	Operational challenge
FIU-to-FIU exchange	Rapid financial-intelligence sharing through secure counterparts and networks.	Intelligence use, confidentiality and onward dissemination vary by jurisdiction.
Mutual legal assistance	Obtain admissible evidence, searches, restraint or other formal assistance.	Different legal thresholds, form requirements and response times.
Extradition	Secure the return of a wanted person under treaty, statute or reciprocity.	Dual criminality, evidentiary standards, nationality rules and human-rights concerns.
Asset tracing and recovery	Identify, freeze, confiscate and return criminal value abroad.	Fast dissipation, third-party claims, ownership opacity and allocation of recovered assets.
Joint or coordinated investigation	Synchronise operational steps across jurisdictions.	Deconfliction, sovereignty, evidence rules and information security.
Supervisory cooperation	Share risk and action concerning cross-border financial groups or service providers.	Data protection, regulatory perimeter gaps and uneven capacity.

MAINS CONCLUSION FATF compliance is not an end in itself. The objective is a trusted, inclusive and effective financial system that detects illicit value early, prosecutes serious offenders fairly, deprives networks of benefit and cooperates across borders.