The Financial Action Task Force (FATF) has urged India to tighten controls over its precious metals and stones sectors amid concerns over cash transactions eluding financial monitoring.
According to the FATF’s latest report, only 9,500 out of 175,000 precious metals and stones dealers are registered with the Gem and Jewellery Export Promotion Council (GJEPC), highlighting the significant money laundering and terrorist financing risks. GJEPC membership is mandatory only for businesses involved in gold and diamond trading.
“The ease with which precious metals and stones can be used to move large amounts of money without tracing ownership, coupled with the size of the market in India, means there is a significant vulnerability,” the report said.
India is the world’s second-largest consumer of gold, the largest importer and leading exporter of gold jewellery. Its gems and jewellery sector, including diamond polishing and manufacturing, contributes around 7% to the country’s GDP.
The report noted that India’s cash transaction limit for businesses, set at over Rs 2 lakh ($2,392), is stricter than the FATF’s anti-money laundering and combating terrorist financing threshold. However, dealers in precious metals and stones are regulated through a combination of tax, registration, hallmarking and import-export requirements rather than a single unified strategy. The watchdog also questioned the effectiveness of the penalty provisions.
The requirement for only Bureau of Indian Standards (BIS)-registered dealers to hallmark and sell precious jewellery was introduced only in April 2023, the report said.
Entrepreneurs involved in gold and diamond trading must register with the GJEPC and obtain a unique taxable (GST) registration number. Recently, the GJEPC removed 84 applicants and rejected 44 renewal applications due to verification issues, while 224 entrepreneurs were sanctioned for GST violations.
The report highlights the need for a more detailed action plan with clear priorities and measures to address money-laundering risks from human trafficking, smuggling and the precious metals and stones sector.
The findings are based on an on-site review of the Indian financial system conducted in November 2023. The review found progress made since then in implementing terrorist financing monitoring, but noted that the latest guidelines for virtual asset providers are yet to be fully assessed.
India, a FATF member, has been placed in the “regular monitoring” category and is expected to report to the FATF plenary three years from this report. The anti-money laundering watchdog places countries with inadequate measures to combat terrorist financing and money laundering on a “grey” or “black” list, which could affect their international borrowing.
Hélène Tarin, Editor-in-Chief of the Asian Bureau, Rough&Polished
