Discuss counterfeit currency and money laundering as major sources of terror funding in India. State the actions being taken at International level to check these menaces. Highlight the role of Financial Action Task Force (FATF) and methods of compliance by its member states in preventing terror funding.
15 marks · answer in 250 words · directive: Discuss / Highlight
The core of a good answer
Fake Indian currency notes and laundered money, moved through hawala, trade-based schemes, shell entities and now digital channels, finance terrorism and destabilise the economy; international action rests on UN conventions and resolutions, intelligence sharing and above all FATF standards, which members implement through criminalisation, financial intelligence units, customer due diligence, targeted sanctions and peer review, where India was placed in regular follow-up in June 2024.
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What the question asks
Three parts: explain how counterfeit currency and money laundering fund terror in India, state international actions, and highlight FATF’s role and how members comply. Include India’s own legal framework where it shows compliance.
Answer outline
Introduction
Terrorism needs money for recruitment, weapons and logistics. In India, fake currency smuggled across borders and laundered funds have been recurring sources, which is why counter-terror financing is now central to counter-terrorism.
Counterfeit currency
- Fake Indian Currency Notes (FICN) are smuggled through porous borders and used to fund terror and damage the economy.
- Counterfeit Rs 500 notes detected rose over 37% in 2024-25 from 85,711 pieces in 2023-24 (RBI 2024-25 annual report data, as presented by the RBI Governor to a parliamentary panel).
- Counterfeit currency is a scheduled offence that the NIA can investigate (added by the 2019 amendment to the NIA Act).
Money laundering
- Hawala, trade-based laundering (over or under invoicing), shell companies, misuse of non-profits, cash couriers, and now crypto-assets and online payment channels.
- Proceeds of narcotics, smuggling and extortion feed terror groups.
- India’s framework: PMLA 2002, UAPA 1967, FIU-IND (a member of the Egmont Group) for suspicious transaction reports, ED and NIA.
International actions
- UN: International Convention for the Suppression of the Financing of Terrorism (1999); UNSC Resolution 1373 (2001); UNSC sanctions lists.
- Egmont Group of FIUs for intelligence exchange; Interpol and bilateral cooperation.
- No Money for Terror ministerial conferences: Paris 2018, Melbourne 2019 and New Delhi (18 and 19 November 2022, about 75 countries and bodies).
Role of FATF
- Set up in 1989 at the G7 summit in Paris; mandate extended to terror financing after 9/11 with special recommendations (October 2001), merged into the 40 Recommendations in February 2012.
- Sets standards, conducts mutual evaluations on technical compliance and effectiveness, and lists jurisdictions: call for action (Iran, Myanmar, DPRK as of February 2025) and jurisdictions under increased monitoring (grey list).
- Listing raises costs of finance for a country, creating strong pressure to act.
Methods of compliance by members
- Criminalise money laundering and terror financing; implement targeted financial sanctions without delay.
- Risk-based approach: national risk assessment, customer due diligence, beneficial ownership registers, record keeping.
- Suspicious transaction reporting to a financial intelligence unit; supervision of banks, money transfer services, virtual asset providers and non-profits.
- International cooperation: mutual legal assistance, extradition, asset freezing and confiscation.
- India’s mutual evaluation was adopted at the June 2024 plenary in Singapore and India was placed in the regular follow-up category, a distinction shared by only four other G20 countries.
Conclusion
Choking terror finance is as important as fighting terrorists. India’s strong FATF rating gives it standing to press for action against states that shelter terror financiers, while closing gaps in prosecutions, crypto-assets and FICN detection at home.
Examples and data to cite
- FATF plenary, Singapore, 26 to 28 June 2024: adopted India’s Mutual Evaluation Report; India in regular follow-up, one of five G20 countries in that category.
- Third No Money for Terror Ministerial Conference, New Delhi, 18 and 19 November 2022.
- RBI annual report data for 2024-25 (reported by The Tribune): counterfeit Rs 500 notes up over 37%; total counterfeits about 2.18 lakh pieces versus 2.23 lakh in 2023-24.
Facts to remember
- FATF founded 1989 in Paris on the G7’s initiative.
- Eight special recommendations on terrorist financing were issued in October 2001; a ninth was added later.
- FATF Recommendations were consolidated in February 2012.
- PMLA, 2002 and UAPA, 1967 are India’s core laws on money laundering and terror financing.
- FATF’s black list is the 'call for action' list; the grey list covers jurisdictions under increased monitoring.
Where it sits in the syllabus
- GS3: Communication networks, cyber security, money laundering
Challenges to internal security through communication networks, role of media and social networking sites in internal security challenges, basics of cyber security; money-laundering and its prevention.
- GS3: Border security, organised crime and terrorism
Security challenges and their management in border areas; linkages of organized crime with terrorism.