UPSC CURRENT AFFAIRS – 11th July 2025
India’s Role in FATF’s latest report on terrorist financing risks
Why in News?
India played a key role in the FATF’s July 2025 report which, for the first time, officially recognised state sponsorship as a method of terrorist financing, aligning with India’s longstanding concerns about Pakistan.
Introduction
- The Financial Action Task Force (FATF) released its landmark report titled “Comprehensive Update on Terrorist Financing Risks”, which, for the first time, officially recognised state sponsorship as a significant method of funding terrorism. India played a key role in this global initiative.
India’s Contribution to the FATF Report:
- India was one of the key contributors to the FATF project.
- The initiative was co-led by the United Nations Security Council Counter-Terrorism Committee Executive Directorate (UNCTED) and France.
- India’s involvement helped bring attention to the long-standing issue of state-sponsored terrorism, especially emanating from Pakistan.
Key Highlights of the FATF Report:
- State Sponsorship Recognised:
- For the first time, FATF has acknowledged that states themselves can finance terrorism.
- While not developing a specific typology, FATF clearly noted that state financing of terrorism violates FATF Standards, the International Convention for the Suppression of the Financing of Terrorism, and UNSC Resolution 1373 (2001).
- Undermines International Peace and Security:
- The report recognised state-sponsored terrorism as a long-standing threat to international peace, regional stability, and financial systems.
- Impact on Financial Institutions:
- Countries are expected to incorporate this finding into their National Risk Assessments (NRAs).
- For example, the United States’ 2024 NRA had already flagged threats from Pakistan-based terrorist outfits.
- Operational Challenges:
- The cost of doing business with Pakistan is expected to rise due to increased due diligence and compliance burdens for financial institutions globally.
India’s National Risk Assessment (2022):
- India’s 2022 NRA on Money Laundering and Terror Financing flagged state-sponsored terrorism, specifically from Pakistan, as a major national security concern.
- Based on this, Indian financial institutions, including banks, have been instructed to apply enhanced due diligence on any transaction involving Pakistan.
Modus Operandi of State-Sponsored Terrorism (as per the FATF report):
- Oil Smuggling:
- Illicit oil trade from Iran to Pakistan is cited as a potential source of terror financing.
- Sham Non-Profit Organisations (NPOs):
- Pakistan-based terror outfits like Jaish-e-Mohammed (JeM) and Lashkar-e-Taiba (LeT) are exploiting fake NPOs to:
- Raise funds
- Store and move illicit money
- Disguise operations under the garb of charitable activities
- These groups have also misused humanitarian assistance programmes.
- Pakistan-based terror outfits like Jaish-e-Mohammed (JeM) and Lashkar-e-Taiba (LeT) are exploiting fake NPOs to:
- Digital Platforms:
- The report highlights the emerging misuse of online gaming platforms for:
- Propaganda
- Radicalisation
- Recruitment
- The report highlights the emerging misuse of online gaming platforms for:
- Fundraising for terror-related activities
Significance of the Report:
- Strengthens India’s long-standing diplomatic and security position against Pakistan’s state-sponsored terrorism.
- Reinforces the global framework for counter-terror financing through FATF standards and international cooperation.
- Encourages member states to improve their regulatory and enforcement measures, especially in monitoring:
- NPOs
- Digital transactions
- Cross-border financial flows
Way Forward:
- Stricter enforcement of FATF recommendations at national and international levels.
- Enhance global cooperation for intelligence sharing and tracking state-linked terror networks.
- Monitor new avenues of terror financing, especially in the digital economy.
- Countries must update their NRAs and banking risk frameworks to reflect the risks associated with state-sponsored actors.
Conclusion:
- India’s leadership and inputs in the FATF’s recent report signify its growing influence in global counter-terrorism efforts.
- By formally recognising state-sponsored terrorism as a systemic threat, the FATF has set a new global precedent that aligns with India’s long-standing concerns and provides a stronger legal and diplomatic framework for international action against countries that aid and abet terrorism.
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- Encourage a more competitive and efficient export environment
- Promote value addition in key sectors like leather
For Tamil Nadu
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For Trade Policy
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