FATF Flags Terror Financing Lacunae In Indian NGO Sector

The Non-Profit Organisation sector in India is 'burdened' with laws and procedures to mitigate terror financing through them but the authorities have not undertaken a 'focused outreach' to make them understand the risks involved in this domain, the Financial Action Task Force said Thursday.

The global body that works to stop money laundering and terror financing across the world has come down heavily on India as far as dealing with this sector is concerned.

"Although India has identified 7,500 NPOs as high risk, India has not demonstrated that its supervision or monitoring of NPOs is done in a risk-based manner, targeted at these NPOs at risk of terrorist financing abuse," the Financial Action Task Force report on India's mutual evaluation said.

It said while India supervises its NPO sector for 'general transparency and good governance' purposes, it does not adequately do so based on the risk of terrorist financing abuse, or in a way that targets the subset identified.

"Based on discussion with NPOs, the assessment team (of the FATF that came to India) was concerned that NPOs are burdened with laws and procedures with the stated intention of mitigating terrorist financing abuse of NPOs, among other purposes, but the authorities do not focus on outreach on the NPOs that are vulnerable," the report said.

It added NPOs were 'not consulted' to develop and refine best practices to address the terrorist financing risks and vulnerabilities in the sector.

India, on its part, said it will adopt a 'nuanced' approach to deal with 'at risk' NPOs.

Additional secretary (Revenue) in the Union Finance Ministry Vivek Aggarwal told reporters that the scope for NPOs being misused is very less in India because there is a cap on cash donations.

"We were trying to make a case that regulatory framework is good enough... Their case is that since the NPO sector is very big, we should have good risk-based metrics... For India, it should be a risk-based regulation and not stifling regulation... We don't see a case for further tightening. We see a case for a more nuanced approach to identify at-risk NPOs," the officer said.

He further said that efforts of India are towards having a better outreach with the NPOs to encourage them to maintain their accounts, and donors list so that the chances of getting abused are minimised.

The report said that NPOs were not able to use foreign funds through third party implementers and this 'negatively impacted' the operating models of some of them.

The NPOs in India are required to be registered with multiple government authorities and comply with different regulations depending on their structure as well as size and sources of funds.

Those receiving foreign funding ad supposed to be registered under the provisions of the Foreign Contribution Regulation Act.

Many such organisations whose FCRA licence was cancelled by the Union government had accused the government of high handedness and dishing out unfair treatment to them.

"The Income Tax Department and state charity commissioners do not work with NPOs to develop and refine best practices to address terrorist financing risk and vulnerabilities to protect them from terrorist financing abuse.

Limited evidence exists that the donor community is being educated on potential vulnerabilities of NPO to terrorist financing abuse," the report said.

It said whatever outreach programmes were conducted for this sector, the objective was to encourage them to conduct financial transactions through banking channels.

"While there is ongoing engagement with NPOs, this is not sufficiently coordinated amongst the different government authorities and more specific TF (terrorist financing) risks relating to NPOs are not adequately communicated," the report said as it lauded India's overall regime and processes against the financial crimes of terrorist financing and money laundering.

The report said the outreach for this sector should be conducted in a more 'focused, coordinated and risk-based manner' by the relevant competent authorities, ensuring NPOs at risk of terrorist financing abuse, enhance their understanding of these (TF) risks, including the sources, channels and end-use enhanced measures in relation to them.

The report said India conducted an NPO risk assessment (which is a restricted document) in March, 2023 where terrorist financing threats and vulnerabilities faced by this sector in six different theatres were examined.

The report also said that India was 'significantly affected' by the COVID-19 pandemic between 2020-2023 that had a risk impact of online scams and extortion taking place, it also affected the efficiency of the government and judicial systems similar to other countries.

"Further information in the impact of COVID-19 pandemic has not been provided, although this is considered in relevant sections of this report," the report said.