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New Delhi: India needs to strengthen checks on transactions involving precious metals and stones like diamond, gold and silver, as a substantial part of the dealing in the sector is conducted in cash, which falls outside the purview of typical monitoring procedures, global anti-money laundering and terror financing watchdog Financial Action Task Force (FATF) said in a report on Thursday.
The report underlined that India has about 175,000 businesses dealing with precious metals and stones but just 9,500 are registered with the Gem and Jewellery Export Promotion Council, which verifies proof of identity.
The ease with which precious metals and stones can be used to move large amounts of funds without leaving an ownership trail combined with the size of the market in India means there are vulnerabilities associated with their use as a tool for money laundering or terrorist financing, the report noted.
In its latest edition of ‘mutual evaluation report’ on anti-money laundering and counter-terrorist financing measures, Paris-headquartered FATF said India has demonstrated its ability to conduct complex financial investigations but needs to focus on concluding the prosecutions.
The global watchdog has placed India in the “regular follow-up” category, the highest ranking. Only a few major countries are in this category. “UK, France and Italy are among the only G20 countries which have been placed in this category apart from India,” said Vivek Aggarwal, Additional Revenue Secretary in the Ministry of Finance.
FATF categorises countries in four groups namely, 'regular follow-up', 'enhanced follow-up', 'grey list' and 'black list'. The major economies like the United States, Japan, China and Germany are in 'enhanced follow-up', positioned below India.
The global watchdog noted that India needs to ensure that measures aimed at preventing the non-profit sector from being abused for terrorist financing are implemented in line with the risk-based approach, including by conducting outreach to non-profit organisations on their terrorist financing risks.
While financial institutions are taking steps to apply enhanced measures to politically exposed persons (PEPs), India needs to address the issue of lack of coverage of domestic PEPs from a technical compliance perspective and ensure reporting entities fully implement these requirements, the report said.
Implementation of preventative measures by the non-financial sector and virtual asset service providers, and supervision of those sectors, is at an early stage. India needs to improve implementation of cash restrictions by dealers in precious metals and stones as a priority given the materiality of the sector, it added.