Reserve Bank today prohibited Indian entities from making direct investments in any entity located in ‘non co-operative countries and territories’, as identified by the inter-governmental body FATF. The Financial Action Task Force (FATF) currently comprises two regional organisations and 35 member jurisdictions, including India, US, UK, China and the European Commission.
The prohibition on investment is “in order to align” instructions under FEMA 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.
“…on a review, it has been decided to prohibit an Indian party from making direct investment in an overseas entity located in the countries identified by the FATF as ‘non co-operative countries and territories’…,” the RBI said. Direct investment in an overseas entity (set up or acquired abroad directly as JV/WOS or indirectly as step down subsidiary) has been prohibited.
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FATF was established in 1989. 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 the integrity of the international financial system.