Banking and Financial system of the country keep changing at a faster rate. Nothing stands permanently. Until now, Indian entities were allowed to make direct investment in Non-co-operative countries but now RBI has strictly Prohibits Investments In ‘Non-Cooperative Countries’ in Non-cooperative countries that are listed under the non-cooperative list of Financial Action Task Force.
What is Financial Action Task Force?
FATF, Financial Action Task Force established in 1989 is a fully-established inter-governmental policy framing body that is known to set international standards for dealing with money laundering and terrorist financing-like issues of the country.
Why RBI prohibited Indian Entities From Making The Investment In Non-Cooperative Countries?
The Reserve Bank of India put restrictions on Indian entities and asked them not to make direct investment in foreign entities that comes under the list of Non-Cooperative Countries and Territories (NCCT). This list is framed by Financial Action Task Force (FATF).
This step taken by Reserve Bank of India is to align the instructions that come under FEMA Act, Foreign Exchange Management Act following objectives set by Financial Action Task Force.
Till now, no restrictions were imposed on the Indian entitiesThe objective and they were free to take ODI, Overseas Direct Investment without any hassle.
Objective of This Prohibition:
The main objective of this prohibition is preventing the financial system from issues like money laundering. This can be done by implementing measures that can detect, prevent, and punish for money laundering as per standards set by internationally recognized systems.
Know More About FATF, Financial Action Task Force
Financial Action Task Force is an inter-governmental body that frames policies with the help of ministerial mandates. This FATF was established in the year 1989, and there is no looking back since them. This body is working on framing internally recognized standards that can help the nation to prevent, protect, and punish for problems like money laundering.
Main Objective of FATF
The main objective of FATF is to set internationally recognized standards for money laundering, terrorist financing, and other major problems that can directly or indirectly affect International Financial system.
This FATF adopts measures to promote and implement solutions to these problems in one or the other way.
This FATF inter-governmental body started with tackling problems related to money laundering. In the year 2001, its horizon expanded to terrorist attacking and soon the FATF body started implementing measures to prevent terrorist financing as well.
As of now, this body has two regional organizations and 35 members of jury. This includes
- The European Commission
- UK, and
RBI prohibited Indian entities from direct and indirect investments in Non-cooperative countries and territories. The list of such countries can be easily found from the Financial Action Task Force’s list of NCCT, Non-cooperative countries and territories. This rule would punish for money laundering. FATF on the other hand is a governing body that prevents and punishes money laundering and any kind of terrorist attacking on the financial system of the country. This is a great move taken by the central bank of India.