Ahead of FATF Meeting, Report Says India Weaponising Terror Financing, Money Laundering Laws Against NGOs

A shadow report compiled by anonymous civil society actors and forwarded to the FATF finds that India has been indiscriminately targeting NGOs using “unproven” and “frivolous claims”.

Mumbai: Ahead of the Mutual Evaluation Review (MER) scheduled on November 3 to evaluate the anti-money laundering laws and financing of terrorism in India, a shadow report compiled by anonymous civil society actors and forwarded to the FATF by the Global NPO Coalition on FATF shows that India has weaponised its laws to target and stifle non-profit organisations (NPOs) in the country. The MER is an assessment of a country’s measures to combat money laundering and the financing of terrorism and proliferation of weapons of mass destruction. The MER would be followed by a plenary discussion in June 2024.

 

The shadow report, based on interviewing representatives of over 700 NGOs and field experts, finds that the Indian government – without involving or informing the NGOs about the ways of the Financial Action Task Force (FATF) – has been indiscriminately targeting them on “unproven” and “frivolous claims”. The FATF, an intergovernmental organisation established in 1989 by the Group of Seven (G-7) countries, leads a global action to tackle money laundering, terrorist and proliferation financing.

The 46-page shadow report identifies multiple counts on which India is non-compliant with FATF standards and has failed to act upon the recommendations made by the intergovernmental organisation in the 2010 MER of India. In 2010, the MER specifically noted that India had no comprehensive assessment of its financial institutions. In addition, the MER had also recommended India undertake a detailed risk assessment of the NPO sector for terrorist financing. Even 13 years after the recommendation, according to the study, India has not made public whether or not it has carried out any work to identify such risks in the NPO sector. Instead, the report says: “It follows a one-size-fits-all approach that targets the entire NPO sector based on unproven or frivolous claims.”

 

India, in the MER 2010, by its own admission, had said that the risk of terrorist financing among NPOs in India is small. However, in the past decade, more specifically after the Narendra Modi-led BJP government came to power, the number of refused licenses to the NGOs has rocketed from 41 in 2010 to 20,693 NGOs in 2023. This represents an increase of refusals by 50,000%. The refusal of licenses became possible after the scope (to control and prosecute) of The Foreign Contribution (Regulation) Act, 2010 expanded exponentially.

Although set up in 1989, the FATF went through a significant change post-September 11, 2001 twin blast in the US. The FATF revised its recommendations, and nine special recommendations were added to the initial 40. One of them specifically dealt with the NPOs that were “particularly vulnerable to terrorist financing abuse”. In 2008, FATF published a typology report focusing on the funding pattern of terrorist organisations and noted that “charities are attractive to terrorist networks as a means to move funds”. This very generic observation attracted flak from all quarters and it was noted that this specific recommendation without a clear rationale was “a danger to civil society organisations because it enabled governments to bring in repressive laws under the garb of regulating NPOs”. And the fear came true in India.

 

The primary legislation regulating cross-border funding for NPOs in India is the Foreign Contribution (Regulation) Act, 2010. When it was passed, the primary concern highlighted that over half of the NPOs did not declare their foreign contributions. When the FCRA law was first enacted in 1967, the main focus of the Act remained on the prohibition of foreign funds in domestic elections. But ironically, in 2018, political parties were made explicitly exempt from scrutiny of funds they received from abroad through the passage of the Finance Bill 2018, which was passed without debate. This shift, the shadow report says, denotes how the Indian government perceives NPOs. While former Prime Minister Manmohan Singh accused NPOs of blocking the building of a nuclear power plant in India, Modi has gone several steps ahead and accused NPOs of conspiring to remove him from office.

In 2020, the FCRA law was made more stringent by prohibiting organisations from sub-granting to other organisations, and this amendment came into force amidst the COVID-19 pandemic, in which over 5.32 lakh deaths were reported in the country. The researchers of the shadow report, through conversations with a range of international funders, as well as organisations working on the ground in India to address the COVID-19 crisis, have established a consistent pattern of misuse of FATF-inspired laws in the regulation of nonprofits leading to critical supplies being denied to NPOs at a time when human lives were at stake.

One of the officials from an international donor organisation states: “Despite timely intervention by international donor agencies to provide resources, India represented unique challenges when it came to receiving funds. Unfortunately, the challenges were artificially created by the government despite a severe need for relief work.” Contrary to the logistical challenges faced in other countries, in India, the primary hurdle for getting funds to those in need was the Indian government’s misuse of banking institutions. “India’s banking institutions did not release the money to the beneficiary organisations citing security concerns flagged by the government,” the report identifies. These hurdles were faced by many domestic NGOs in spite of recipients having full regulatory clearance, including FCRA certification.

The report, basing its findings on news articles and individual interviews, points out that central agencies like the Enforcement Directorate, the Central Bureau of Investigation and the National Investigating Agency have become “a political tool and is being misused to target opposition leaders and civil society in India”. Among the alarming statistics is the number of cases registered by these agencies and the eventual success (or lack of) in proceeding with them in the courts. For instance, of the over 6,000 cases registered with the ED, only 25 have gone to trial. The number of cases handled by the ED has dramatically increased after the 2010 MER, as India tripled its resources to empower the central agency.

The Prevention of Money Laundering Act, under which the ED registers and investigates cases, underwent an amendment in 2012. Following this amendment, the ED could make use of a specific section 3 of the Act, which covers “all activities relating to concealment, possession, acquisition, or use of the proceeds of crime and projecting or claiming it as untainted property, within the offense of money laundering.”

The report says: “A perfect example of the “unintended consequences of FATF recommendations” is the weaponisation of the ED in India, which is being used as a political tool by the government to target opposition leaders and NPOs who are critical of the government.”

While the ED has actively gone after prominent international NPOs like Amnesty International, religious institutions and churches, and prominent human rights defenders, the report states that it has avoided investigating corporate fraud and serious allegations of stock price manipulation by corporations close to the ruling party such as the Adani Group.

Similar to the FCRA and PMLA laws, the government also brought significant changes to the Unlawful Activities (Prevention) Act in 2012. This too was done following the 2010 MER.

Like the NGOs working on the ground during the COVID-19 pandemic, several child rights, human rights and environmental organisations also faced severe pushback from the government. Many of them, including Amnesty International, were driven out of India in the past years after cases were registered against them and their bank accounts were frozen.

In interviews with 11 sectoral experts, including the leadership and management of leading child rights organisations across multiple states, funders and serving and former bureaucrats involved in the regulation of this sector, the report found that most of them “expressed significant fears of reprisal and therefore demanded anonymity as a condition for participating in this study”.

Starting with NGOs involved in organising protests against the then-proposed Koodankulam nuclear plant as early as 2011 to Greenpeace in recent years, many NGOs have been forced to shut operations in the country under the accusation that “foreign hands” were involved in funding environmental protests in the country.

As their collective demand before the FATF, the shadow report calls upon India to “stop misusing FATF standards to target legitimate NPOs”. The report has also recommended that India be directed to revise restrictive provisions of the FCRA, PMLA and UAPA that violate the mandate of recommendations.

The Global NPO Coalition and Amnesty International have also raised their concerns in a letter sent to FATF president T. Raja Kumar. They have asked the FATF to “Include at least one independent and impartial civil society expert either directly in the team of evaluators or involve them otherwise in the MER process. Such a person will be able to advise the team on the nature of civil society concerns without prejudice and warn evaluators of attempts to obfuscate the situation on the ground.”

“We believe that the upcoming evaluation presents an opportunity for the FATF to denounce any disproportionate, arbitrary, and unnecessary restrictions on India’s NPO sector. The FATF must call on India to respect human rights and their international obligations. By including an independent NPO expert in the evaluation team and ensuring evaluators meet the impacted NPOs, the FATF can ensure its recommendations are being complied with by the Indian government both in letter and in spirit,” the letter states.

The Global NPO Coalition on FATF calls itself a “loose network of diverse nonprofit organisations”. “The Coalition advocates for improvement in the quality and effectiveness of FATF Mutual Evaluations with sustained outreach to the NPO sector… The aim is to mitigate the unintended consequences of countering the financing of terrorism policies on civil society in order that legitimate charitable activity is not disrupted,” the coalition says on its website.