GS Paper III 2026 · Q20
15 marks · 250 words Cyber security, media & money-laundering X-Ray · Core #39भारत में आतंकवाद के वित्तपोषण के प्रमुख स्रोतों के रूप में नकली मुद्रा और धन शोधन मनी लाउन्ड्रिंग पर चर्चा कीजिए। इन खतरों को रोकने के लिए अंतर्राष्ट्रीय स्तर पर की जा रही कार्रवाइयों का विवरण प्रस्तुत कीजिए। आतंकी वित्तपोषण को रोकने में वित्तीय कार्रवाई कार्यबल (फायनान्शीयाल एक्शन टास्क फोर्स) (एफ ए टी एफ) की भूमिका और इसके सदस्य देशों द्वारा अपनाये जा रहे अनुपालन के तरीकों पर प्रकाश डालिए।
Read this question in English
Discuss counterfeit currency and money laundering as major sources of terror funding in India. State the actions being taken at International level to check these menaces. Highlight the role of Financial Action Task Force (FATF) and methods of compliance by its member states in preventing terror funding.
🧭 How to think about this question · directive: “discuss / state / highlight”
Decode the demand
- Three directives, three parts: 'discuss' the two funding channels with reasons and India's exposure; 'state' the international actions (a list, not an argument); 'highlight' FATF's role and how members comply. Each needs its own heading.
- The issue in one line: terror runs on money, and fake notes plus laundered cash are the two pipes that India must choke along with the world.
- The trap: writing a general essay on terrorism, or treating FATF as just 'the grey list'. The examiner wants the mechanics: how the money moves, which UN resolution binds whom, which FATF tools press states, and what compliance looks like in a bank or a ministry.
- Carry data: India's 2024 FATF rating, Pakistan's exit from monitoring, one UN convention and two resolutions, the 40 Recommendations.
Think in a structure
- Open with why finance matters to terror, then the paradox: India rated well by FATF yet both channels stay live.
- Channels as dimensions: fake notes, hawala, charities and shells, narco and crypto; a flowchart of laundering shows you understand the process, not just the names.
- International actions as a list, FATF as standard-setter plus peer pressure, compliance as a table of method, state action and India's instrument.
- End from India's seat: five measures a Home or Finance ministry officer can act on, then close on the UN resolution that made terror finance every state's duty.
Facts checked at source (4)· open
- FATF's 2024 Mutual Evaluation placed India in the 'regular follow-up' category, shared by only four other G20 countries.PIB — FATF adopts India's Mutual Evaluation Report (28 June 2024) ↗“places India in the ‘regular follow-up’ category, a distinction shared by only four other G20 countries.”
- FATF Plenary, October 2022: Pakistan completed 34 action items under plans set in June 2018 and June 2021 and is no longer subject to increased monitoring.FATF — Outcomes of the FATF Plenary, 20-21 October 2022: jurisdictions no longer under increased monitoring ↗“Pakistan has strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies that the FATF identified in June 2018 and June 2021, the latter of which was completed in advance of the deadlines, encompassing 34 action items in total.”
- FATF's 2024 Mutual Evaluation recognised India's mitigation of ML/TF risks, including laundering of proceeds of corruption, fraud and organised crime, and its shift from a cash-based to a digital economy.PIB — FATF Mutual Evaluation Report places India in 'regular follow-up' (Ministry of Finance, June 2024) ↗“Mitigating the risks arising from ML/TF, including the laundering of proceeds from corruption, fraud, and organised crime. Effective measures implemented by India to transition from a cash-based to a digital economy to reduce ML/TF risks.”
- FATF credited the JAM trinity and stringent cash-transaction regulations for raising financial inclusion and digital transactions, cutting ML/TF risk.PIB — FATF Mutual Evaluation Report on India (June 2024) ↗“Implementation of the JAM (Jan Dhan, Aadhaar, Mobile) Trinity, along with stringent regulations on cash transactions, has led to a significant increase in financial inclusion and digital”
Question: UPSC's CS (Main) 2026, GS Paper III — paper ↗. Guidance: Minimalist IAS, checked 8 Nov 2026 (how we verify). ·
Model answer· 589words · Minimalist IAS
Terror needs money for recruits, weapons and propaganda, so choking finance is as decisive as neutralising cadres. FATF's 2024 evaluation placed India in 'regular follow-up', a category shared by only four other G20 countries, yet fake notes and laundering keep the funding lines alive.
Counterfeit currency and money laundering as sources of terror funding
- Counterfeit currency: high-quality fake Indian currency notes printed abroad enter through porous borders, paying operatives while eroding trust in the rupee.
- Entry points cluster along the Bangladesh and Nepal frontiers; the FICN Coordination Group pools BSF, NIA and state inputs.
- Law treats it as terror: UAPA counts damage to monetary stability through high-quality counterfeit currency as a terrorist act, not mere forgery.
- Hawala and cash couriers: value moves on trust without records, so funds reach cadres untraced and outside bank supervision.
- Misuse of charities and shell firms: donations and front companies disguise terror money as welfare or trade.
- Narco-terror and crypto-assets: heroin dropped by drones across the Punjab border and virtual assets fund networks beyond banks.
- Risks FATF flagged: India's 2024 evaluation listed laundering of proceeds of corruption, fraud and organised crime among its main threats.
- Predicate crime (drugs, fake notes, fraud)
- Placement in banks or hawala
- Layering through shell firms
- Integration as clean money
- Terror spending
Actions at the international level
- UN convention: the International Convention for the Suppression of the Financing of Terrorism (1999) obliges states to criminalise terror finance.
- UNSC resolutions: Resolution 1373 (2001) mandates asset freezes and created the Counter-Terrorism Committee; Resolution 2462 (2019) reinforced it after FATF review.
- Sanctions regime: the 1267 Committee lists Al-Qaeda and ISIL-linked persons for asset freezes and travel bans.
- Intelligence networks: the Egmont Group links financial intelligence units; FIU-India exchanges data through it.
- Political platforms: the 'No Money for Terror' ministerial conference hosted in Delhi in 2022; G20 and BRICS counter-terror working groups.
Role of FATF
- Standard-setter since 1989: its 40 Recommendations are the global rulebook against laundering and terror finance; India joined in 2010.
- Peer pressure: mutual evaluations grade technical compliance and effectiveness; grey and black lists raise borrowing costs for laggards.
- Pakistan left increased monitoring in October 2022 only after completing 34 action items from plans set in 2018 and 2021.
Methods of compliance by member states
| Method | What states do | India's instrument |
|---|---|---|
| Criminalise | Terror finance as a standalone offence | UAPA, PMLA |
| Prevent | KYC, suspicious transaction reports, beneficial ownership | FIU-India, company registers |
| Freeze | Targeted financial sanctions without delay | UAPA designations, MHA orders |
| Supervise | Risk-based oversight of banks, crypto, non-profits | RBI, SEBI, FCRA |
- National risk assessment: states map their own threats first, then allocate supervision by risk.
- Cash to digital: FATF credited India's JAM trinity and cash-transaction limits for shrinking the untraceable economy.
- Cross-border cooperation: mutual legal assistance treaties and extradition; courts must back the regime.
- Supreme Court in Vijay Madanlal Choudhary (2022) upheld PMLA's attachment and arrest powers.
Way forward for India
- Convert cases to convictions: dedicated PMLA courts and time-bound trials, closing the prosecution gap FATF noted.
- Regulate virtual assets: keep exchanges as PMLA reporting entities and enforce the travel rule on transfers.
- Risk-based non-profit oversight: target only charities exposed to abuse, protecting genuine civil society.
- Harden the note and the border: new security features, BSF-NIA data sharing through the FICN Coordination Group.
- Regional diplomacy: press FATF-style peer review within BIMSTEC and SCO so neighbours cannot host printing presses.
UNSC Resolution 1373 made terror finance every state's duty; India's task is to turn its 'regular follow-up' standing into convictions and frozen networks, so that no note, fake or laundered, buys a bullet.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 8 Nov 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
