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.
Approach · directive: “discuss / state / highlight”
What it asks · Discuss counterfeit currency and money laundering as channels of terror finance in India, the international measures against them, FATF's role and how member states comply.
The question has 3 parts — answer each
- Discuss counterfeit currency and money laundering as major sources of terror funding in India
- State the actions being taken at the international level to check these menaces
- Highlight the role of FATF and the methods of compliance by its member states in preventing terror funding
Open with · Terror groups need money for recruitment, weapons and propaganda; choking finance is as important as neutralising cadres.
Cover
- Counterfeit currency: high-quality fake notes printed abroad and pushed through porous borders fund terror and weaken the economy.
- Money laundering: hawala, cash smuggling, misuse of charities and NGOs, shell companies, trade-based laundering, narco-terror links, crypto-assets.
- India's response: UAPA, PMLA, NIA's terror-funding cell, FICN coordination group, FIU-India, cooperation with neighbours.
- International: UN Convention for the Suppression of the Financing of Terrorism (1999), UNSC Resolutions 1373 and 2462, Egmont Group, 'No Money for Terror' (Delhi, 2022).
- FATF (1989): 40 Recommendations, peer mutual evaluations, grey and black lists that press non-compliant states such as Pakistan.
- Compliance methods: national risk assessments, criminalising terror financing, targeted financial sanctions, beneficial ownership, KYC and suspicious transaction reports, regulating virtual assets.
- India's 2024 mutual evaluation placed it in 'regular follow-up'; faster prosecutions and oversight of non-profits remain priorities.
Close with · Financial intelligence, international cooperation and swift prosecution together can cut the money lifelines of terror.
Add value (verified)
- 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.”
Question: UPSC's CS (Main) 2026, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 30 Sept 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer · 270 words (UPSC limit 250) · Minimalist IAS
Terror groups need money for recruitment, weapons and propaganda; choking that money is as important as neutralising cadres.
Counterfeit currency and money laundering
- Counterfeit currency: high-quality fake Indian currency notes printed abroad and pushed through porous borders finance terror while eroding trust in the currency.
- Money laundering: hawala transfers, cash smuggling, misuse of charities and NGOs, shell companies, trade-based laundering, narco-terror networks and, increasingly, crypto-assets.
- India's response: UAPA and PMLA, NIA's terror-funding cell, the FICN coordination group, FIU-India's financial intelligence and cooperation with neighbours.
International action
- The UN Convention for the Suppression of the Financing of Terrorism (1999); UNSC Resolutions 1373 (2001) and 2462 (2019), which oblige states to criminalise and prevent terror finance; the Egmont Group of financial intelligence units; the 'No Money for Terror' ministerial conference hosted in Delhi in 2022.
FATF's role
- Set up in 1989, FATF sets the global standard through its 40 Recommendations, assesses countries through peer mutual evaluations, and uses its grey and black lists to press non-compliant states, Pakistan being the prominent example.
Methods of compliance by member states
- Prevention: national risk assessments; criminalising terror financing as a standalone offence; beneficial-ownership transparency; KYC, record-keeping and suspicious transaction reports by banks and other reporting entities; regulation of virtual asset service providers.
- Enforcement: targeted financial sanctions that freeze designated persons' assets without delay; supervision of non-profits vulnerable to abuse; cross-border cooperation and extradition.
- India: the 2024 mutual evaluation placed it in 'regular follow-up', a category shared with only four other G20 countries; faster prosecutions and oversight of non-profits remain priorities.
Financial intelligence, international cooperation and swift prosecution together can cut the money lifelines of terror.
Written by Minimalist IAS from facts checked at source (how we verify). UPSC publishes no model answers: compare your structure and coverage with this, then write your own.