RBI stops investments to ‘non-cooperative countries’

• Reserve Bank has prohibited Indian entities from making direct investments in any entity located in ‘non co-operative countries and territories’, as identified by the inter-governmental body FATF.
• The prohibition on investment is “in order to align” instructions under FEMA with the objectives of the FATF. At present, there is no restriction on an Indian entity with regard to the countries where it can undertake Overseas Direct Investment.

What are non-cooperative countries?

• In 2000 the Financial Action Task Force on Money Laundering (FATF) engaged in a process of identifying countries and territories having inadequate rules and practices that impede international co-operation in the fight against money laundering. These countries or territories are designated as NCCTs. The FATF promulgates in its revised 40 Recommendations that financial institutions should give special attention to business relationships and transactions with persons, including companies and financial institutions from countries or jurisdictions which do not or insufficiently apply its recommendations.
• The principal objective of the Non-Cooperative Countries and Territories (NCCT) Initiative was to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centres adopt and implement measures for the prevention, detection and punishment of money laundering according to internationally recognised standards.

About FATF:

• The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The Task Force is therefore a "policy-making body" which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
• Since its creation the FATF has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals. It established a series of Recommendations in 1990, revised in 1996 and in 2003 to ensure that they remain up to date and relevant to the evolving threat of money laundering, that set out the basic framework for anti-money laundering efforts and are intended to be of universal application.
• The FATF monitors members' progress in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In performing these activities, the FATF collaborates with other international bodies involved in combating money laundering and the financing of terrorism.
• The FATF does not have a tightly defined constitution or an unlimited life span. The Task Force periodically reviews its mission. The FATF has been in existence since 1989. The current mandate of the FATF (for 2004-2012) was subject to a mid-term review and was approved and revised at a Ministerial meeting in April 2008. For more information on the FATF’s role, please see the FATF's standards.

By: Vishal