The Reserve Bank of India (RBI) has prohibited Indian entities from making direct investments in any entity located in Non-Cooperative Countries and Territories (NCCT) as identified by Financial Action Task Force (FATF).
The prohibition is for aligning instructions under FEMA (Foreign Exchange Management Act) with the objectives of the FATF. At present, there is no restriction on an Indian entity with regard to the countries where it can undertake Overseas Direct Investment (ODI).
The NCCT initiatives principal objective is to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centres adopt and implement measures for the detection, prevention and punishment of money laundering according to internationally recognised standards.
About Financial Action Task Force (FATF)
- FATF is an inter‐governmental policy making body established in 1989 with ministerial mandate to establish international standards for combating money laundering and terrorist financing.
- Its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to integrity of international financial system.
- Initially it was only dealing with developing policies to combat money laundering. But in 2001 its purpose was expanded to act against terrorism financing.
- Currently, it comprises two regional organisations and 35 member jurisdictions, including India, UK, US, China and the European Commission.