(Bloomberg) -- India must tighten checks on transactions involving precious metals and stones as several of these deals are conducted in cash and fall outside the purview of typical monitoring procedures, according to a global anti-money-laundering watchdog.
The South Asian nation, one of the world’s biggest importers of gold and an important processor and exporter of diamond jewelry, has about 175,000 businesses in this sector, but only some 9,500 are registered with the Gem and Jewellery Export Promotion Council that verifies proof of identity, the Financial Action Task Force said in its report Thursday.
“As a result of tax law provisions relating to cash threshold prohibition, the Dealers in Precious Metals and Stones (DPMS) sector falls outside the scope of preventive measures,” the FATF said. “There are doubts on the dissuasiveness of the penalty provisions.”
The findings follow a review of India’s financial system through a site visit in November 2023. The report concluded that while several changes — for instance mechanisms to monitor compliance with terrorist-financing rules — are starting to help, other guidelines including for the supervision of virtual asset service providers have been too recent to evaluate. FATF placed India in the ‘regular follow-up’ category.
The FATF places countries with weak terrorist financing and money laundering provisions on their ‘gray’ or ‘black’ list, which can restrict a country’s international borrowing capabilities. ‘Enhanced follow-up’ is a classification for countries that need major improvements, followed by ‘regular follow-up’ that allows countries to self-report.
India’s government in a briefing said just four nations among the Group of 20 are classified as ‘regular follow-up.’
The FATF task force that visited India also sought to understand the impact of India’s laws on non-profit organizations, Bloomberg News reported at the time. Some NGOs say Prime Minister Narendra Modi’s government has misused counter-terrorism laws over the years to target them.
The FATF said “it has not been demonstrated that the manner and frequency of the regular monitoring conducted, particularly by the Income Tax Department, is linked to the risk of terrorist-financiang abuse, or targets non-profit organizations most vulnerable to terrorist-financing abuse.”
(Updated with review details and government response in fifth and sixth paragraphs)
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