In a recent plenary meeting held in Singapore, the Financial Action Task Force (FATF) acknowledged India's significant strides in achieving a ‘high level’ of compliance with its Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime.
However, concerns were raised regarding India's approach to non-governmental organizations (NGOs) and their regulation under the Foreign Contributions Regulation Act (FCRA).
The Mutual Evaluation Report (MER) of India, discussed during the FATF meeting, highlighted India's robust technical compliance with 40 FATF recommendations, placing it in the 'regular follow-up' category, a status shared by only a handful of G20 countries.
Despite this achievement, the FATF emphasized areas needing improvement, particularly in conducting case-by-case risk assessments in non-financial sectors and addressing delays in prosecuting financial offenders.
India's stringent measures under the FCRA, enacted to prevent foreign funds from being used for activities detrimental to national interests, have drawn scrutiny. The FATF expressed concern that India's crackdown on NGOs might not align fully with a "risk-based approach," which requires tailored assessments of each organization's potential for terrorism financing. This approach aims to prevent misuse while safeguarding legitimate NGO activities crucial for social development.
Since India's first MER in 2010, where it was found partially compliant with several recommendations, the country has amended laws like the FCRA multiple times. Amendments under the current government have strengthened scrutiny over NGOs receiving foreign donations, leading to cancellations of registrations for various prominent organizations, including branches of international NGOs and local think tanks.
Critics argue that these measures, while aimed at compliance with FATF standards, may stifle legitimate civil society activities. The Global NPO Coalition on FATF released a shadow report alleging that India's rejection rate of NGO applications for foreign donations exceeded 56% since 2010, suggesting a lack of systematic risk identification among NGOs. The report also referenced FATF documents indicating that civil society groups, particularly in human rights fields, pose minimal risk of contributing to terrorism financing.
In response to international concerns, FATF has revised its guidelines to emphasize a balanced, proportionate approach that respects countries' human rights obligations. The revised Recommendation 8 underscores the need for focused and risk-based measures that do not unduly hinder legitimate NGO operations. This approach aims to prevent overreach in regulatory practices while maintaining effective controls against financial crime.
The Indian government, in its official response following the FATF plenary, touted the country's progress and compliance achievements. However, it did not directly address FATF's specific concerns regarding NGO regulations, focusing instead on broader successes in enhancing financial integrity and security measures.