FATF insights: ED role in fight against financial crimes

In a world burdened by economic instability and conflict, India is a beacon of optimism and growth. The nation’s rapid economic development is underpinned by a robust commitment to financial integrity, demonstrated by its active measures to curb illegal financial activities and counter illicit funds and assets. Central to this sustainable development is the country’s ability to foster an ecosystem which promotes clean money and wealth creators while aggressively tackling money laundering (ML) and terrorist financing (TF) .The Mutual Evaluation Report (MER), published by the Financial Action Task Force (FATF) in 2024, is a key testament to India’s success in this regard and the prowess of India’s anti-money laundering law enforcement authority, the Enforcement Directorate (ED), in combating financial crimes. This comprehensive evaluation, based on an on-site assessment conducted between November 6 and 24, 2023, marks the culmination of years of work to align India’s financial systems with global standards. The report reiterates the effectiveness of India’s anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks. ED has been a critical player in this endeavour, adopting stringent actions against financial crime to ensure the security and integrity of the economy.A Broad Framework of the Global StandardsThe evaluation was carried out by a team of 12 experts drawn from multiple countries, each with extensive experience in tackling money laundering and terrorist financing. Their work culminated in a detailed assessment based on the FATF’s 40 recommendations and 11 Immediate Outcomes. This evaluation serves as a global benchmark for other nations striving to develop systems that counter financial crimes.Over the course of their on-site visit, the experts interviewed officers from ED as well as various other law enforcement agencies (LEAs), regulators, and members of the private sector. These discussions aimed to assess how effectively India addresses risks arising from both domestic and cross-border criminal activities. The team found that India’s legal framework and risk-based approach demonstrated a high degree of sophistication. The experts appreciated ED’s advanced understanding of contemporary ML/TF risks, including cyber-enabled fraud, ransomware, and the increasing use of crypto-assets in illicit transactions. FATF has duly recognized ED’s efforts to adapt its strategies to meet these emerging threats.Read more: India faces terror threats from ISIL, Al-Qaeda-linked groups around J&K: FATF reportED places a lot of emphasis in identifying and addressing the constantly evolving risks. This is particularly evident in the shift from traditional cases, such as those involving bank frauds, to more complex cases involving newer risks such as cyber-enabled frauds and crypto-assets ED’s real-world actions have had a noticeable impact on reducing financial crime in sectors such as real estate and banking, with a decline in non performing assets (NPAs) arising from bank frauds. Furthermore, the experts recognized India’s cleanup of the real estate sector as a significant contributor to its economic growth. FATF has acknowledged these efforts by rating India as ‘Substantially Effective’ on Immediate Outcome 1 on the understanding of risk.ED’s Intelligence Network: Proactive and VigilantA cornerstone of ED’s success lies in its ability to gather financial intelligence from a wide variety of sources, enabling it to act proactively rather than reactively. A notable highlight is e ED’s close coordination with Financial Intelligence Unit-India (FIU-IND) for domestic as well as international intelligence through the Egmont Group, an international network of FIUs for the secure exchange of financial intelligence. This multi-source intelligence system includes collaborations with financial institutions, Virtual Asset Service Providers (VASPs), and foreign jurisdictions. These partnerships allow ED to gather crucial data on cross-border financial movements and enhance its investigative capabilities. India’s case studies, shared with the FATF assessors, provide concrete examples of ED’s intelligence-led operations.To cite one instance which has been quoted by FATF, a government scholarship scheme intended to aid economically weaker students was misused by a group of educational institutions to siphon off public funds. Following suspicious transaction reports (STRs) indicating fraudulent activity, an operational analysis by FIU-IND revealed that numerous bank accounts were opened for ineligible individuals, with suspicious links between beneficiaries and the institutions. Funds meant for students were transferred to the institutions or withdrawn in cash. ED initiated an investigation based on this analysis, leading to search operations at 22 locations in February 2023. The searches uncovered ₹36 lakh in cash, 1200 SIM cards, a Micro ATM, and other incriminating evidence. ED’s probe revealed a scam worth ₹100 crore, with educational institutions submitting fraudulent scholarship applications for ineligible candidates. The investigation led to three arrests, with a prosecution complaint filed in court.MER has duly recognized India’s robust financial intelligence network and gained plaudits for it, earning the country a ‘substantial level of effectiveness’ in Immediate Outcome 6, which focuses on the use of financial intelligence.Case Selection and Investigations: A Methodological ApproachThe assessors also commended ED’s professional and methodological approach to identifying and investigating cases of money laundering. ED has a multi-pronged approach to the identification of cases that may trigger ML investigations, including open sources, direct referral by law enforcement agencies (LEAs), FIU-India, and international cooperation. This multi-avenue approach to identify money laundering (ML) investigations, ensures clear responsibility across ED and other LEAs.One of the key systems ED employs is the Risk Assessment Monitoring Committee (RAMC), which assesses thousands of potential cases for their relevance to ML investigations. RAMC screens a myriad of cases and identifes the appropriate ones for investigation, ensuring optimum utilization of resources in a vast country. It selects cases based on various factors such as the number of victims, the involvement of influential persons, and drug trafficking cases involving larger networks, even if they do not meet the quantity threshold. RAMC has initiated investigations into Ponzi schemes, loan frauds, teacher recruitment scams, and illegal mining. This approach aligns ML investigations with national risk priorities, focusing on high-profile and complex cases while ensuring that seemingly minor financial crimes are not overlooked.The bulk of proceeds of crime in India stem had been stemming from predicate offences such as fraud, corruption, illicit drugs, and arms trafficking. These funds are either integrated within India or siphoned off to offshore locations, with money laundering methods involving banks, shell companies, trade-based money laundering (TBML), hawala, and cash couriers. Over the review period, ED investigated over 22,000 predicate offences, with fraud, forgery, corruption, and drug trafficking being the most common. FATF has also quoted the statistics on money laundering investigations by underlying predicate offences which indicates that offences of fraud and forgery constituted around 50.1% of the investigations which complements the risk analysis as well. Similarly, corruption and bribery cases constituted 19.4% and participation in organised criminal groups constituted 17.8% of the cases. FATF has acknowledged that the selection of cases for investigation by ED is in consonance with the money laundering risks in India.However, the FATF also pointed out certain technical challenges faced by ED during the evaluation period. Due to multiple constitutional challenges to the Prevention of Money Laundering Act (PMLA) that were pending before the Apex Court, several trials were delayed, resulting in a ‘Moderate Effectiveness’ rating for Immediate Outcome 7, which pertains to money laundering prosecutions and convictions. FATF has recommended that “India should aim to reduce the number of pending trials in ML cases – both for new trials and for the backlog, addressing the low number of convictions associated ML cases and increasing conviction-based confiscation, by making major changes to increase the capacity of the court system, and potentially the capacity of ED.”Confiscation of Criminal Proceeds: A Priority for IndiaOne of ED’s primary responsibilities is the identification and confiscation of the proceeds of crime. This action has multiple objectives: make it unprofitable for criminals to engage in financial crimes; recover proceeds of crime and use them for the country’s and community’s welfare; and restore the stolen money to victims. India’s longstanding national policy priority on confiscation was further bolstered during its G20 presidency, when it promoted asset recovery as an international priority which was positively observed by FATF.Between 2018 and 2023, during the review period, ED successfully traced and attached ₹83,412 crores in proceeds of crime which were further confirmed by an independent Adjudicating Authority. During the same period, assets worth ₹16,537 crores were confiscated, which were either managed by ED effectively or restituted them back to victims wherever required.In a high-profile case involving Vijay Mallya and others, there was a criminal conspiracy to defraud a bank-led consortium by fraudulently obtaining loans, which were then siphoned off through shell companies and invested in real estate and other assets, both in India and overseas. ED identified proceeds of crime worth ₹11290 crore (EUR 1.25 billion), of which ₹5040 crore (EUR 560.3 million) was seized through provisional attachment orders. Despite Mallya’s absence from India, ED worked tirelessly to trace his assets globally, leading to several seizures, including properties in India and a EUR 1.6 million property in France. In 2021, a Special Court, upon the bank consortium’s application, ordered the restitution of ₹14130 crore (EUR 1.57 billion) in assets to the consortium—25% higher than the initially identified proceeds of crime, including interest accrued. This landmark restitution, granted before the conclusion of the trial of the criminal case, ensured that the defrauded funds were returned to the victims in a timely manner.FATF has also duly recognised ED’s efforts in efficient management of seized assets including crypto assets. During an investigation into fraud via an online gaming app, ED traced proceeds of crime to various cryptocurrencies and tokens, valued at ₹14.47 crore (EUR 5 million). The virtual assets were seized and secured in a cryptocurrency wallet in ED’s name. To prevent depreciation, ED sought approval from the Special Court to convert the cryptocurrency into fiat currency. After receiving the concerned party’s consent, the Court authorized the conversion, securing the value of the seized assets.Confiscation of proceeds of crime is not just about punishing criminals but also serves to restore public confidence. By returning stolen funds to the victims, the, ED plays an essential role in promoting economic equity and the rule of law. FATF, recognizing ED’s efficiency in confiscation and asset management, rated India ‘Substantially Effective’ in Immediate Outcome 8, which pertains to confiscation of proceeds of crime.International CooperationIndia faces significant challenges due to the outflow of proceeds of crime which drain vital resources from the Indian economy, hindering its development and perpetuating economic inequality. Successful investigation and prosecution of financial crimes including money laundering offences and asset repatriation depends almost entirely upon international cooperation between law enforcement agencies and other competent authorities across multiple jurisdictions. Such cooperation is vital for sharing information, coordinating investigations, freezing assets, and enforcing court orders.The international cooperation mechanisms of ED, facilitated by the Overseas Investigation Unit (OIU), are crucial in tracking illicit financial flows across borders. ED has effectively leveraged Mutual Legal Assistance (MLA) Treaties and International Conventions as well as Principle of reciprocity to gather evidence and information on international money laundering cases. Further, ED has been proactive in using multiple informal networks such as ARINs, INTERPOL, GlobE Network, Egmont Group, Customs Overseas Intelligence Networks (COIN), Income Tax Overseas Units (ITOU) as well as direct agency-to-agency partnerships for gathering intelligence and information for furthering its investigations as well as in buttressing the asset recovery efforts.As a result, FATF rated India as ‘Substantially Effective’ in Immediate Outcome 2, related to international cooperation. This demonstrates India’s ability to engage effectively with foreign jurisdictions, which is crucial for cases involving international money laundering and sends across a crucial message that criminals and proceeds of crime are not spared anywhere in the world.Conclusion: A Balanced Approach to Financial IntegrityThe Mutual Evaluation Report of India serves as both an affirmation of the country’s significant achievements and a blueprint for future improvements. India’s robust AML/CFT framework, led by Department of Revenue, has proven effective in addressing complex and evolving threats. While judicial delays and certain technical barriers remain, India’s overall performance in the FATF evaluation reflects its unwavering commitment to combating financial crime.As India continues to strengthen its financial intelligence, case selection processes, and international cooperation, ED remains at the forefront of this battle, ensuring that India’s financial system is resilient in the face of both domestic and global threats. India’s performance in this evaluation underscores the country’s capability to lead the global fight against financial crimes while paving the way for sustainable economic development. This endorsement that India’s AML/CFT ecosystem is one of the best in the world will improve confidence in our system and the economy both domestically and internationally. As the pivot of this ecosystem, ED strives to further improve its organisational effectiveness. We understand that fighting financial crimes is a fundamental part of promoting clean money and sustainable economic development, for India’s vision of a Viksit Bharat.Rahul Navin is director of the Enforcement Directorate

Sign in

Cricket

World News

Cities

HT Business

Lifestyle

Entertainment

Education News

Astrology

HT Premium

Assembly Elections: Latest News

Videos

Photos

Sports

HT Insight

HT INITIATIVES

Real Estate

More from HT

FATF insights: ED role in fight against financial crimes

India's robust anti-money laundering efforts earned praise from FATF, highlighting its commitment to financial integrity and growth amid global challenges.

Hi, {{name}}

More from HT

FATF insights: ED role in fight against financial crimes

India's robust anti-money laundering efforts earned praise from FATF, highlighting its commitment to financial integrity and growth amid global challenges.

Get breaking alerts directly from the newsroom