India must step up its efforts to prosecute financial fraud and money laundering cases, according to a new report released by the Financial Action Task Force (FATF) on Thursday.

The FATF flagged several areas that require urgent attention, particularly limiting the widespread use of cash transactions in vulnerable sectors.

The global anti-money laundering watchdog praised India for its broad compliance with anti-money laundering and counter-terrorist financing (CFT) regulations.

The FATF, established in 1989 to combat illicit financial activities, assessed India as “moderately” effective in investigating and prosecuting money laundering. Despite this, India performed well overall, complying with 37 out of 40 key parameters evaluated by the task force. The report placed particular emphasis on India’s efforts to recover assets from financial criminals.

According to the FATF, India’s Enforcement Directorate seized assets worth more than $10.4 billion from suspected offenders in the past five years.

However, the watchdog flagged that less than $5 million of that has been confiscated through successful convictions. This discrepancy points to inefficiencies in India’s judicial process, the FATF report said.

FATF called for an overhaul in the prosecution process, which has been slowed down by the large backlog of cases.

The three areas in which there is partial compliance include bank scrutiny of political figures’ source of wealth, oversight of the finances of non-profit organisations and non-financial businesses and professionals.

“There is some ambiguity in the requirement for some financial institutions to take reasonable measures to establish the source of wealth and the source of funds of customers and beneficial owners identified as foreign politically exposed persons,” the report said.

A significant portion of the report focused on India’s precious metals and stones sector, where cash transactions remain a major challenge for regulators.