Cracking down on black money has been the centerpiece of Prime Minister Narendra Modi’s campaign. There is now an opportunity for India to take the lead on a global platform to combat money laundering and tax evasion – and for Modi to take his campaign promise forward.
On 30 June, the Financial Action Task Force (FATF), an international body established in 1989 to set standards and promote implementation of legal and regulatory measures to combat financial threats such as money laundering, will conclude its 2017-2018 term.
As such, the torch of leadership for the next term, starting 1 July, passed from Argentina to the United States for the FATF presidency and from the United States to China for the corresponding vice-presidency.
While the United States and China are about to start their terms, and although the decision to choose the next FATF vice-president will not be until the February 2019 plenary session, it is never too early for a country like India to start making the case for its candidacy. Modi should use the next nine months to make a case for India to be the FATF vice-president for the 2019-2020 term.
Leading FATF will help further the narrative of India as an emerging power, a vision Prime Minister Modi and his team have charted. The United States as well as most western European nations are supportive of India becoming a global power because they share similar values and beliefs as liberal democracies – namely those related to the rule of law, freedom of speech and religion, and commitment to free trade and a capitalistic society. Even as they reserve judgment on India’s grand strategic aspirations, China and Russia do, at least, support India taking a more active role in international affairs, specifically in the United Nations. As a consensus, the international community has lauded India for its leading international role in fighting climate change. Thus, India taking on the responsibility to maintain the integrity of the global financial system in a high-profile leadership position would only enhance its global image and help it fulfil its aspirations as a “leading power”.
Moreover, if India were to become the FATF vice-president, it would have possibly three years within FATF leadership, given the recent rule change at the June 2017 plenary session. These three years in leadership would allow India to shape the direction of the organisation’s anti-money laundering and counter-terrorist financing (AML/CTF) efforts. India could use the platform to share its experience in dealing with hawalas/hundis and other forms of informal banking and discuss ways to reduce the inherent AML/CTF risks within this system, which has adapted to the post-9/11 enforcement of legislative and judiciary actions.
FATF implicitly recognised the importance of the issue to India in its 2013 publication titled “The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing” and included many hypothetical examples of hawala transactions with links to India.
Despite still needing to improve its domestic AML/CTF regime, India can point to its responsible behaviour as the de facto AML/CTF leader of South Asia. Specifically, it has chaired regional AML/CTF bodies, as it did for the Asia/Pacific Group from 2010 to 2012 and the Eurasian Group from 2013 to 2015, and has shared its best practices and expertise with other developing countries seeking advice and technical assistance. For example, India was a part of a high-level mission to Bhutan in 2011 that discussed the country’s implementation of AML/CTF measures and provided technical assistance for setting up the country’s financial intelligence unit.
However, if this tactic is not persuasive enough, India could engage in the same geopolitical posturing that China is rumoured to have done to gain the FATF vice-presidency. In its quest to gain the FATF vice-presidency, some believe that China had dropped its objection to the US proposal to place Pakistan on FATF’s grey list in exchange for support from India and the US. India could act as a counterbalance to any potential unduly influence from China during its presidency.
Already trying to get a permanent seat on the United Nations Security Council and admission into the Nuclear Suppliers Group, India today, under Modi, desires to gain a greater voice in multilateral organisations and expand its foreign policy vision. Even with domestic and economic challenges rightfully questioning the feasibility of such internationalism, India has acted as a responsible member of the international system and should be rewarded for its behaviour. The FATF position is one way through which India can contribute to upholding existing global norms while advancing its strategic interests.