India has played a central role in shaping the Financial Action Task Force’s (FATF) 2025 report  titled “Comprehensive Update on Terrorist Financing Risks” on global terrorist financing risks. 

The report, for the first time, explicitly acknowledges state-sponsored terrorism as a serious financing threat — a long-standing concern for India.

• The project was co-led by France and the UN Security Council’s Counter-Terrorism Committee Executive Directorate.

National Risk Assessment (NRA) 2022

• India’s 2022 NRA on Money Laundering and Terror Financing identified state-sponsored terrorism from Pakistan as a major national security concern.

• As a result, banks and financial institutions in India are required to:
  • Conduct enhanced due diligence on transactions related to Pakistan.
  • Follow stricter KYC (Know Your Customer) norms.

FATF’s Warnings on Digital Tools in Terror Financing

The report raises serious concerns about the increasing misuse of digital platforms, including:

• E-commerce platforms and online marketplaces (EPOMs) for buying and selling materials used in terror operations.
• Use of fraudulent buyer and seller identities and trade-based money laundering, such as over/under invoicing, to shift value and funds covertly.
• Widespread use of VPNs and other anonymising tools to evade detection during financial transactions or communication.

Global Impact of the FATF Report

• The FATF report carries greater weight than individual country risk assessments (like the U.S. NRA).
• It sets the tone for future NRAs by mandating recognition of state involvement in terror financing.
• The U.S. 2024 NRA had already cited Pakistan-based terror groups as a threat — now this recognition gains global legitimacy.
• Countries will be obligated to factor in state-sponsored threats in their financial compliance and anti-terror policies.

Significance for India and Beyond

• The recognition of state sponsorship by FATF legitimises India’s longstanding diplomatic position.
• It also increases scrutiny on Pakistan’s financial systems, raising the cost of doing business for Pakistani entities internationally.
• The highlighted cases serve as a call to action for governments and tech companies to:
  • Tighten oversight on digital transactions.
  • Enforce stricter KYC norms for e-commerce and payment platforms.
  • Collaborate globally to detect and prevent emerging forms of terror financing.

Financial Action Task Force (FATF) 

• Establishment: Formed in 1989 during the G7 Summit in Paris to combat money laundering; mandate later expanded to terrorist financing and proliferation.
• Membership: Comprises 38 countries (India joined in 2010); Russia’s membership is currently suspended.
• FATF-Style Regional Bodies (FSRBs): 9 regional bodies support the implementation of FATF standards globally.
• Core Objectives:
  • Set international standards to counter money laundering, terrorist financing, and related threats.
  • Promote national and international policy development in financial crime prevention.
• Decision Making: The FATF Plenary is the decision making body of the FATF. It meets three times per year.
• Grey & Black Lists:
• • Grey List: Countries under increased monitoring due to strategic deficiencies (e.g., Pakistan previously).
  • Black List: High-risk jurisdictions (e.g., North Korea, Iran, Myanmar) that face calls for counter-measures, The Countries in this list is known as Non-Cooperative Countries or Territories (NCCTs).

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