CDS (II) 2024 General Knowledge · Question 42 of 120

Correct — C, A global money laundering and terrorist financing watchdog. The Financial Action Task Force is an inter-governmental body, not an Indian one. It was set up in 1989 at the G7 summit in Paris to combat money laundering, and its mandate was widened after September 2001 to cover the financing of terrorism and later the financing of proliferation. It works by issuing standards — the Forty Recommendations — and by assessing whether countries have put them into effect, publishing lists of jurisdictions under increased monitoring, popularly called the grey list, and of high-risk jurisdictions calling for counter-measures, the black list. Its secretariat is housed at the OECD in Paris, though it is a separate body. India has been a full member since 2010. It is neither a wing of the Central Economic Intelligence Bureau nor a division of the Enforcement Directorate, and it is not a United Nations agency.

• (a)A wing under the Central Economic Intelligence Bureau — The Central Economic Intelligence Bureau is an Indian agency under the Department of Revenue that coordinates economic intelligence; the FATF is an inter-governmental standard-setter and sits outside any national administration.
• (b)A division of Enforcement Directorate — The Directorate of Enforcement is India's own investigation agency under the Department of Revenue, enforcing the Prevention of Money Laundering Act and FEMA. It applies domestic law and is not a limb of the FATF.
• (d)A UN Anti-Corruption Agency — The FATF was created by the G7, not by the United Nations, and has no UN parentage. The UN body on corruption work is the UN Office on Drugs and Crime, which services the UN Convention against Corruption.

The FATF works through peer pressure rather than treaty obligation. Member and associated countries undergo mutual evaluations against the Forty Recommendations, and countries with strategic deficiencies are placed under increased monitoring until they complete an agreed action plan. Grey listing is not a sanction, but it raises the perceived risk of doing business with a jurisdiction and so raises the cost of its external finance, which is what gives the process its bite.

The distractors are built out of Indian agencies with adjacent functions, and the way through is to notice that the stem does not say 'in India'. Whenever a body is described only by function, ask whether the function is national or international; money laundering standards are set internationally, and enforcement of them is national. Keep the pairing straight: the FATF sets the standard, and in India the Prevention of Money Laundering Act, 2002 and the Directorate of Enforcement do the enforcing. Pakistan's spell on the grey list from June 2018 to October 2022 is the example most often cited to show what listing means in practice.

• The FATF was established in 1989 at the G7 summit in Paris; its mandate was extended to terrorist financing after 2001.
• Its standards are the Forty Recommendations, and countries are assessed against them through mutual evaluations.
• Jurisdictions under increased monitoring form the grey list; high-risk jurisdictions calling for counter-measures form the black list.
• The FATF secretariat is housed at the OECD headquarters in Paris, but the FATF is a separate body.
• India became a full member of the FATF in 2010; in India the Prevention of Money Laundering Act, 2002 is enforced by the Directorate of Enforcement.

• Reading the FATF as a United Nations body; it was created by the G7 and only its secretariat is hosted by the OECD.
• Confusing the standard-setter with the enforcer — the FATF does not investigate or prosecute anyone.
• Treating grey listing as a legal sanction; it is a monitoring status whose effect is on market perception.

As a one-line identification of an international body, with domestic agencies of similar function placed as distractors.

• practice — not a real PYQ

  The Financial Action Task Force was established in 1989 on the initiative of which one of the following?

  • (a)The United Nations General Assembly
  • (b)The Group of Seven (G7)
  • (c)The International Monetary Fund
  • (d)The World Trade Organization

  Answer(b) The Group of Seven (G7) — at the Paris summit of 1989, initially to combat money laundering.

• practice — not a real PYQ

  In India, the Prevention of Money Laundering Act, 2002 is enforced by which one of the following agencies?

  • (a)Central Bureau of Investigation
  • (b)Directorate of Enforcement
  • (c)Intelligence Bureau
  • (d)National Investigation Agency

  Answer(b) Directorate of Enforcement — a specialised financial investigation agency under the Department of Revenue.