Author: Kumari Nikita, School of Legal Studies, REVA University, Bangalore
To the Point
The Financial Action Task Force (FATF) has emerged as the preeminent global standard-setter in combating money laundering and terrorist financing, operating through a sophisticated framework of soft law instruments that significantly influence international legal development. As an intergovernmental body established in 1989, FATF has evolved from its original mandate focused on drug money laundering to become the central coordinating mechanism for global anti-money laundering and counter-terrorist financing (AML/CFT) efforts. The organization’s 40 Recommendations constitute the internationally recognized standards that shape national legislation and regulatory frameworks worldwide, demonstrating the profound impact of technocratic governance on contemporary international law.
India’s journey toward FATF compliance exemplifies the transformative power of international standard-setting on domestic legal systems. Since joining FATF as a full member in 2010, India has undertaken comprehensive legal reforms, culminating in the Prevention of Money Laundering Act (PMLA) 2002 and its subsequent amendments. The recent FATF Mutual Evaluation Report 2024 placed India in the prestigious “regular follow-up” category, positioning it among only five G20 countries achieving this distinction, including the United Kingdom, France, Italy, and Russia. This achievement reflects India’s substantial progress in implementing FATF standards while highlighting the complex interplay between international soft law and national hard law enforcement mechanisms.
Use of Legal Jargon
The legal architecture surrounding FATF operates through a sui generis framework that transcends traditional categories of international law. FATF functions as a soft international organization employing soft law instruments to achieve compliance through reputational mechanisms rather than formal treaty obligations. The organization’s mutual evaluation reports (MERs) serve as the primary enforcement mechanism, subjecting member jurisdictions to peer review processes that assess both technical compliance and effectiveness in implementing AML/CFT measures.
Within India’s domestic legal framework, the concept of predicate offences under Section 3 of the PMLA establishes the foundational requirement for money laundering prosecutions, defining the underlying criminal activities that generate proceeds of crime. The doctrine of reverse burden of proof under Section 45 of the PMLA creates a presumption against bail, requiring accused persons to demonstrate their innocence a provision upheld by the Supreme Court in Vijay Madanlal Choudhary v. Union of India. The Enforcement Case Information Report (ECIR) mechanism provides the Enforcement Directorate with investigative powers distinct from traditional police procedures, operating outside the constraints of the Code of Criminal Procedure.
The legal principle of risk-based approach (RBA) mandates that countries identify, assess, and understand money laundering and terrorist financing risks, allocating resources proportionately to mitigate identified threats. This approach represents a departure from rule-based compliance toward dynamic risk assessment methodologies that adapt to evolving criminal typologies.
The Proof
FATF’s influence on international law operates through multiple empirical dimensions that demonstrate its effectiveness as a global regulatory institution. The organization comprises 39 members, including 37 countries and two regional organizations (the European Commission and the Gulf Cooperation Council), with its secretariat located at the OECD headquarters in Paris. The FATF Global Network extends its reach through nine regional bodies, including the Asia/Pacific Group on Money Laundering (APG), under which India operates as a member.
Statistical evidence of FATF’s impact on India’s legal system reveals substantial enforcement activity. Between 2014-2022, the Enforcement Directorate’s actions increased 27-fold compared to the previous decade under UPA rule (2002-2014). The Financial Intelligence Unit-India (FIU-IND), established in November 2004, processes multiple categories of reports: Cash Transaction Reports (CTRs), Suspicious Transaction Reports (STRs), Non-Profit Organisation Transaction Reports (NTRs), Cross Border Wire Transfer Reports (CBWTRs), and Immovable Property Reports (IPRs).
India’s 2024 FATF evaluation demonstrated significant progress in technical compliance, achieving “compliant” or “largely compliant” ratings on 37 of 40 Recommendations, with only partial compliance on non-profit organizations (R.8), politically exposed persons (R.12), and regulation of designated non-financial businesses and professions (R.28). The evaluation recognized India’s successful transition from a cash-based to digital economy through the JAM (Jan Dhan, Aadhaar, Mobile) Trinity, substantially reducing ML/TF risks.
Terror financing cases demonstrate practical implementation of legal frameworks. Since 2006, Central and State Law Enforcement Agencies registered 217 FIRs and filed 132 charge sheets in terror financing cases, including 11 cases investigated by the National Investigation Agency (NIA). The Combating Financing of Terrorism (CFT) Cell, established in the Ministry of Home Affairs in 2011, coordinates between intelligence agencies and law enforcement to address terror funding through an integrated approach.
Abstract
This analysis examines FATF’s role as a transformative force in international law development, specifically focusing on its influence on India’s anti-money laundering and counter-terrorist financing legal framework. FATF operates through soft law mechanisms that achieve compliance through reputational enforcement rather than traditional treaty obligations, representing a paradigmatic shift in international governance toward technocratic standard-setting. The organization’s 40 Recommendations constitute the global AML/CFT standard, implemented through mutual evaluation processes that assess both technical compliance and operational effectiveness.
India’s legal evolution demonstrates the practical impact of FATF standards on domestic jurisprudence. The Prevention of Money Laundering Act 2002, strengthened through multiple amendments, establishes a comprehensive framework for combating financial crimes while empowering the Enforcement Directorate with extensive investigative powers. The 2024 FATF Mutual Evaluation Report’s placement of India in the “regular follow-up” category validates the effectiveness of these reforms while identifying areas requiring continued attention, particularly prosecution timelines and supervision of non-financial sectors.
The analysis reveals that FATF’s soft law approach achieves remarkable global compliance through reputational mechanisms, peer pressure, and graduated sanctions ranging from enhanced monitoring to blacklisting. This model challenges traditional notions of international law enforcement while demonstrating the effectiveness of technocratic governance in addressing transnational security threats.
Case Laws
Vijay Madanlal Choudhary v. Union of India (2022)
This landmark Supreme Court judgment represents the most significant judicial pronouncement on PMLA’s constitutional validity. A three-judge bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari, and Justice C.T. Ravikumar upheld the constitutional validity of Sections 3, 5, 17, 19, 45, and 50 of the PMLA after consolidating over 200 petitions challenging the Act’s provisions.
Key Holdings:
Money laundering under Section 3 PMLA encompasses “every process and activity, direct or indirect, in dealing with the proceeds of crime”
Because ED officials are not considered “police officers” under the Constitution, PMLA procedures are not protected against self-incrimination under Article 20(3).
ECIR disclosure is not mandatory; it constitutes an “internal document” distinct from FIRs
Section 45’s stringent bail conditions requiring accused persons to prove innocence are constitutional
Attachment powers under Section 5 are valid but must be exercised judiciously, with property possession under Section 8(4) reserved for exceptional cases
The judgment significantly expanded ED’s investigative powers while establishing that PMLA proceedings operate independently of the Code of Criminal Procedure, creating a specialized enforcement regime for financial crimes.
P. Chidambaram v. Directorate of Enforcement (2019)
The Supreme Court’s decision granting bail to former Finance Minister P. Chidambaram in the INX Media money laundering case established important precedents regarding bail under PMLA. The Court criticized the Delhi High Court for adjudicating bail applications based on case merits rather than statutory requirements, emphasizing that economic offences like money laundering affect national economic stability and public confidence.
Significant Observations:
Economic offences warrant serious consideration due to their impact on national economy and public trust
Bail conditions must be proportionate and reasonable
The accused’s influence on witnesses remains a relevant consideration for bail determination
Media restrictions and travel limitations constitute permissible bail conditions
Enforcement Directorate v. Aditya Tripathi (2023)
The Supreme Court addressed the relationship between predicate offence completion and PMLA proceedings, clarifying that money laundering investigations can continue even after scheduled offence charge-sheets are filed. Justice M.R. Shah emphasized that PMLA enquiries under Sections 3 and 4 remain independent of predicate offence proceedings, rejecting arguments that charge-sheet filing in scheduled offences automatically entitles accused persons to bail.
Thwaha Fasal and Allan Shuaib v. State (2021)
In this significant UAPA case, the Supreme Court established that mere association with terrorist organizations does not constitute an offence without demonstrating mens rea and intention to further terrorist activities. Justice Ajay Rastogi and Justice Abhay S. Oka clarified that Sections 38 and 39 of UAPA require proof of intention to further terrorist organizational activities, not merely membership or support.
Critical Legal Principle:
“The offence under sub-section (1) of Section 38 of associating or professing to be associated with the terrorist organisation and the offence relating to supporting a terrorist organisation under Section 39 will not be attracted unless the acts specified in both the Sections are done with intention to further the activities of a terrorist organisation”.
Pawan Insaa v. Directorate of Enforcement (2024) Punjab & Haryana High Court
This recent decision addressed the relationship between predicate offence discharge and PMLA proceedings. The High Court held that when an accused is discharged from scheduled offences forming the basis of ECIR, continued PMLA proceedings constitute abuse of process. The ruling made clear that without underlying scheduled offences, money laundering accusations cannot be supported by Section 120-B IPC (criminal conspiracy) alone.
Conclusion
FATF’s evolution from a G-7 initiative addressing drug money laundering to the preeminent global AML/CFT standard-setter demonstrates the transformative potential of soft law in international governance. Through its 40 Recommendations and mutual evaluation processes, FATF has created a sophisticated compliance framework that achieves remarkable global adherence without traditional treaty enforcement mechanisms. The organization’s success lies in its ability to combine technical expertise, peer pressure, and reputational consequences to drive national legal reforms across diverse jurisdictions.
India’s placement in FATF’s “regular follow-up” category represents a significant achievement reflecting comprehensive legal and institutional reforms undertaken over the past decade. The PMLA framework, strengthened through multiple amendments and validated by the Supreme Court in Vijay Madanlal Choudhary, provides robust tools for combating money laundering and terrorist financing while raising important questions about the balance between security imperatives and individual rights. The Enforcement Directorate’s expanded powers, Financial Intelligence Unit’s analytical capabilities, and specialized court procedures create an integrated ecosystem for addressing financial crimes.
However, several challenges require continued attention. FATF identified delays in money laundering and terrorist financing prosecutions as a key area for improvement, suggesting the need for judicial capacity building and procedural streamlining. The supervision of designated non-financial businesses and professions requires enhancement to ensure comprehensive AML/CFT coverage. Additionally, the implementation of risk-based approaches for non-profit organizations must balance security concerns with legitimate charitable activities.
Way Forward:
Judicial Efficiency Enhancement: Establish specialized fast-track courts for money laundering cases with dedicated judges trained in financial crime complexities
Technology Integration: Leverage artificial intelligence and machine learning for suspicious transaction detection and pattern analysis
Capacity Building: Expand training programs for law enforcement, judiciary, and private sector compliance officers
International Cooperation: Strengthen bilateral and multilateral information sharing agreements to combat cross-border financial crimes
Legislative Refinement: Address procedural gaps identified in the upcoming Prevention of Money Laundering (Amendment) Bill 2024, particularly regarding asset restitution mechanisms
India’s FATF compliance journey illustrates the profound impact of international standard-setting on domestic legal systems while highlighting the continuing evolution of global governance mechanisms in addressing transnational security threats.
FAQs
WHAT IS THE LEGAL NATURE OF FATF RECOMMENDATIONS, AND HOW DO THEY INFLUENCE NATIONAL LAW?
FATF Recommendations constitute “soft law” instruments non-binding international standards that lack formal treaty status but achieve compliance through reputational mechanisms and peer pressure. Unlike traditional hard law, these recommendations operate through graduated sanctions including enhanced monitoring, greylisting, and blacklisting, which create significant economic and reputational consequences for non-compliant jurisdictions. Countries implement FATF standards through domestic legislation to avoid these sanctions and maintain access to the global financial system.
HOW DOES INDIA’S PMLA DIFFER FROM ORDINARY CRIMINAL LAW PROCEDURES?
The PMLA establishes a specialized legal framework that operates independently of the Code of Criminal Procedure. Key distinctions include: reverse burden of proof for bail under Section 45, where accused persons must demonstrate innocence; ED officers’ powers to record statements under Section 50 without Article 20(3) protection against self-incrimination; attachment of property during investigation without prior judicial approval; and ECIR (Enforcement Case Information Report) as an internal document not requiring disclosure to accused persons.
WHAT ARE THE PRACTICAL IMPLICATIONS OF INDIA’S “REGULAR FOLLOW-UP” STATUS WITH FATF?
The status facilitates easier access to global financial markets, enhances investor confidence, and supports international expansion of India’s Unified Payments Interface (UPI) system. Regular follow-up status demonstrates the stability and integrity of India’s financial system, reducing compliance costs for Indian institutions in international transactions while avoiding the enhanced due diligence requirements imposed on grey-listed jurisdictions.
WHAT CONSTITUTES A “PREDICATE OFFENCE” UNDER INDIAN MONEY LAUNDERING LAW?
The fundamental criminal acts specified in the PMLA Schedule that result in the proceeds of crime are known as predicate offences. These include violations under a number of laws, such as the Prevention of Corruption Act, the Narcotics Drugs and Psychotropic Substances Act, the Unlawful Activities (Prevention) Act, and sections 43 to 31 of the Indian Penal Code (which were lowered under the new Bharatiya Nyaya Sanhita). The Supreme Court in Vijay Madanlal Choudhary clarified that money laundering charges cannot proceed on notional basis there must be a registered predicate offence with ongoing investigation or trial.
HOW DOES THE FINANCIAL INTELLIGENCE UNIT-INDIA (FIU-IND) FUNCTION IN THE AML/CFT FRAMEWORK?
FIU-IND operates as an independent body under the Economic Intelligence Council headed by the finance minister, serving as the central repository for financial intelligence. It receives and analyzes various reports: Cash Transaction Reports (CTRs), Suspicious Transaction Reports (STRs), Cross Border Wire Transfer Reports (CBWTRs), Non-Profit Organisation Transaction Reports (NTRs), and Immovable Property Reports (IPRs). The unit has a sanctioned strength of 75 officers drawn from various regulatory and enforcement agencies, and possesses punitive powers including fine imposition for PMLA violations.
WHAT ARE THE CURRENT CHALLENGES IN INDIA’S TERROR FINANCING PROSECUTION FRAMEWORK?
FATF identified prosecution delays as a key concern requiring attention. Challenges include: complex evidentiary requirements spanning multiple jurisdictions; coordination difficulties between various agencies (ED, NIA, state police, intelligence agencies); resource constraints in specialized courts; and the sophisticated nature of modern terror financing networks using cryptocurrency, hawala, and legitimate business fronts. The establishment of the CFT Cell in the Ministry of Home Affairs and Terror Funding and Fake Currency Cell in NIA represents institutional responses to these challenges.
References
Financial Action Task Force, About FATF, available at https://www.fatf-gafi.org/en/home.html (establishing FATF as global money laundering and terrorist financing watchdog)
2 FATF, The FATF Recommendations, February 2012 (updated June 2025), available at https://www.fatf-gafi.org/en/publications/Fatfrecom mendations/Fatf-recommendations.html 3 Department of Revenue, Ministry of Finance, Prevention of Money Laundering Act Overview, Government of India, available at https://dor.gov.in/preventionofmoneylaundering/ove rview
4LexisNexis Risk Solutions, FATF findings on India’s AML/CFT compliance, November 14, 2024, available at https://risk.lexisnexis.com/insights-resources/article /fatf-new-findings-aml-cft-compliance-india 5
https://papers.ssrn.com/sol3/papers.cfm?abstrac t_id=3010776
https://www.fatf-gafi.org/content/dam/fatf-gafi/mer /Executive-Summary MER%20India%202024.pdf.coredownload.inline.p
df 7
mla_2002.html https://www.scobserver.in/reports/challenges-to-the -prevention-of-money-laundering-act-pmla-judgem ent-summary/https://taxguru.in/wp-content/uploads/2024/04/Paw an-Insaa-Vs-Directorate-of-Enforcement-Punjab-an d-Haryana-HC.pdf
10https://taxguru.in/wp-content/uploads/202 wan-Insaa-Vs-Directorate-of-Enforcement nd-Haryana-HC.pdf
11 https://www.drishtiias.com/pdf/1666962529.pdf
12https://timesofindia.indiatimes.com/blogs/truth-lie s-and-politics/a-landmark-verdict-validating-powers -of-enforcement-directorate-under-pmla-part-i/13
https://en.wikipedia.org/wiki/Financial_Intelligence Unit%E2%80%94India 14
https://risk.lexisnexis.com/insights-resources/article /fatf-new-findings-aml-cft-compliance-india
15 Press Information Bureau, Government of India, FATF adopts Mutual Evaluation Report of India in its June 2024 plenary, June 28, 2024, PRID: 2029297,
https://www.pib.gov.in/PressReleaseIframePage.asp x?PRID=2029297
16 International Monetary Fund, Anti-Money Laundering and Combating the Financing of Terrorism, March 2023, available at https://www.imf.org/en/Topics/Financial-Integrity/a mlcft
17 FATF, “The 40 Recommendations, published October 2004,” Financial Action Task Force, https://www.fatfgafi.org/en/publications/Fatfrecom mendations/The40recommendationspublishedoctob er2004.html
18 Papers.ssrn.com, “Soft Law, Soft International Organizations and Technical Regulation of Public Security and Financial Integrity,” Posted August 1, 2017,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id =3010776
19 FATF, “The FATF Recommendations,” Financial Action Task Force, November 7, 2024, https://www.fatf-gafi.org/en/publications/Fatfrecom mendations/Fatf-recommendations.html
20 Wikipedia, “Prevention of Money Laundering Act, 2002,” Wikipedia, April 25, 2008,
21 https://en.wikipedia.org/wiki/Prevention_of_Money _Laundering_Act,_2002
21 Times of India, “A landmark verdict validating powers of Enforcement Directorate under PMLA Part I,” July 31, 2022, https://timesofindia.indiatimes.com/blogs/truth-lies-and-politics/a-landmark-verdict-validating-powers-of-enforcement-directorate-under-pmla-part-i/22 FATF, “India’s measures to combat money laundering and terrorist financing,” Mutual Evaluation Report of India 2024, September 19, 2024, https://www.fatf-gafi.org/en/publications/Mutualeva
luations/India-MER-2024.html
23 FATF, “Black and grey lists,” Financial Action Task Force, accessed June 27, 2025, https://www.fatf-gafi.org/en/countries/black-and-gr ey-lists.html 24 Alshamsi, Reem, “The Role of Extrinsic Motivation in Securing Actors’ Compliance with the International Anti-Money Laundering/Counterterrorist Financing Regime,” Global Governance, Vol. 29 (2023): 295-321, https://brill.com/downloadpdf/view/journals/gg/29/3/article-p295_3.pdf
25 Vijay Madanlal Choudhary v. Union of India (2022) SCC OnLine SC 929 26
https://digiscr.sci.gov.in/view_judgment?id=MzA1 Mjk%3D
27https://www.verdictum.in/court-updates/supreme-court/constitutional-validity-of-certain-provisions-o f-pmla-upheld-1381356 28
https://www.scobserver.in/cases/review-of-the-scs-vijay-madanlal-judgement/29https://nja.gov.in/Concluded_Programmes/2022-2
3/P-1345_PPTS/1.Developments%20in%20Crimin al%20Law.pdf
30 P. Chidambaram v. Directorate of Enforcement, (2019) 9 SCC 24: AIR 2019 SC 4198 31
31 https://m.thewire.in/article/law/supreme-court-p-chi dambaram-inx-media-bail
32 Directorate of Enforcement v. Aditya Tripathi, 2023 SCC OnLine SC 619 (Supreme Court of India, decided on 12 May 2023) 33https://www.scconline.com/blog/post/2024/07/15/1 andmark-judgments-on-pmla-by-supreme-court-and -high-courts-2023-2/34 Thwaha Fasal v. Union of India, 2021 SCC OnLine SC 1000 (Supreme Court of India, decided on 28 October 2021) 35
https://m.thewire.in/article/law/uapa-supreme-court-excerpts-allan-shuaib-thwaha-fasal 36 Pawan Insaa v. Directorate of Enforcement, 2024:PHHC:049512, CRM-M No.6378 of 2023 (Punjab & Haryana High Court, pronounced on 10 April 2024) 37 https://www.fiumauritius.org/fiu/?page_id=2282
38
https://papers.ssrn.com/sol3/papers.cfm?abstrac
t_id=5000223
39
https://www.imf.org/en/Topics/Financial-Integrity/a mlcft 40
https://www.elibrary.imf.org/display/book/9781 589067738/ch015.xml 41
https://dor.gov.in/preventionofmoneylaundering /overview
42https://www.mondaq.com/india/money-laundering /1268722/sc-upholds-constitutionality-of-provisions -of-prevention-of-money-laundering-act-2002 43
https://utkarsh.com/current-affairs/india-put-in-the-r egular-followup-category-by-fatf 44https://www.hindustantimes.com/india-news/govt-may-amend-pmla-introduce-restitution-of-attached-properties-clause-101718826250979.html 45
https://fiuindia.gov.in/pdfs/downloads/Brochur es%20on%20FIU.pdf 46https://www.theweek.in/news/india/2024/06/28/fat f-places-india-in-regular-follow-up-category-after-a donting-mutual-evaluation-report html
47
https://www.idsa.in/system/files/jds/jds_8_3_2014_ VivekChadha.pdf
