India’s Non-Profit Regulations Implemented Without Adequate Consultation, with Negative Impact on NPO Operations

PUBLISHED: SEPTEMBER 2024

On September 19, 2024, the Financial Action Task Force (FATF), an intergovernmental organization tasked with combating money laundering and terrorist financing (TF) worldwide, released its Mutual Evaluation Report (MER) on India. Although India achieved a high level of technical compliance overall, FATF notes that India needs to better comply with FATF Recommendation 8 on non-profit organizations (NPOs).

In particular, FATF raises concerns that India has not adopted a risk-based, targeted approach to the sector. Instead, it has burdened NPOs “with laws and procedures with the stated intention of mitigating TF abuse of NPOs … but the authorities do not focus outreach on the NPOs that are vulnerable.”

FATF notes that laws like the Foreign Contribution (Regulation) Act (FCRA, amended 2020), “were implemented without adequate consultation with NPOs, impacting their activity or operating models.” The FCRA has limited NPO abilities to use foreign funds for important “good works” (e.g. social services, public health and humanitarian programs), particularly “through third party implementers,” which has “negatively impacted the operating models of some NPOs.”

In addition to these findings around over-regulation of the NPO sector, the FATF India MER noted the following:

• Measures related to preventing the NPO sector from being abused for TF are not calibrated to the subset of NPOs identified as at risk for TF abuse.
• While there is ongoing engagement with NPOs, this is not sufficiently coordinated amongst the different government authorities. The government has not adequately communicated to NPOs about specific TF risks. Additionally:


• India did not conduct outreach with NPOs on the conclusions of its National Risk Assessment.
• The government identified 7,500 NPOs as high risk; however, it did not effectively demonstrate that this determination was based on TF risk, versus risk of general financial irregularities. It also did not prioritize or target outreach to these groups.
• India’s NPO registration and compliance requirements are complex, and not always risk-based or implemented based on consultations with NPOs to avoid negatively impacting their work.
• NPOs are unable to focus as much attention undertaking “good works,” because they are overwhelmed navigating constant changes in burdensome laws and registration processes, without guidance from authorities, and without any evident progress towards reducing TF risk.
• Consequently, India has not demonstrated that its supervision or monitoring of NPOs is done in a risk-based manner, directed at the subset of NPOs actually vulnerable to TF abuse, versus the sector at large.

Based on its findings, FATF deemed India only partially compliant with Recommendation 8 on NPOs. FATF recommends that India take a risk-based and educative approach with non-profit organisations.

India should ensure that any measures aimed at preventing the non-profit sector from being abused for terrorist financing are targeted and calibrated to the subset of the NPO sector that is demonstrably at risk, and conduct additional outreach to NPOs, e.g., via a more consultative approach.

Indian government officials have responded, noting that they will adopt a more ‘nuanced’ approach, with risk-based, rather than ‘stifling,’ regulation.

For the full FATF India MER, please click here:

https://www.fatf-gafi.org/content/dam/fatf-gafi/mer/India-MER-2024.pdf.coredownload.inline.pdf

https://www.fatf-gafi.org/en/publications/Mutualevaluations/India-MER-2024.html

Additional news coverage is available here:

https://m.thewire.in/article/government/fatf-report-critiques-indias-approach-to-regulation-of-ngos