2026 · GS Paper 3 · Q20 · 15 marks
Discuss counterfeit currency and money laundering as major sources of terror funding in India. State the actions being taken at International level to check these menaces. Highlight the role of Financial Action Task Force (FATF) and methods of compliance by its member states in preventing terror funding. (Answer in 250 words)
In short
Counterfeit notes pushed through Nepal and Bangladesh and laundered funds via hawala and charities are key sources of terror funding in India, checked internationally by UN conventions, the 1267 regime and the Egmont Group. FATF sets 40 Recommendations, grey-lists defaulters and requires risk assessments, due diligence and suspicious transaction reporting.
Model answer
Ghissu Editorial · Verified 4 Oct 2026 · 271 words
Fake Indian currency notes
High-quality notes printed across the border have been pushed through Nepal and Bangladesh to fund militancy and weaken the economy, which NIA tracks through a dedicated terror funding and fake currency cell.
Money laundering
Hawala, trade-based laundering, misused charities and crypto assets move funds to groups in Jammu and Kashmir and to separatist networks.
UN framework
The 1999 Convention for the Suppression of the Financing of Terrorism and Security Council Resolution 1373 (2001) oblige states to criminalise terror financing, and the 1267 regime freezes listed terrorists' assets.
Cooperation
The Egmont Group links financial intelligence units, and India hosted the No Money for Terror ministerial in 2022.
Standard-setter
FATF, founded in 1989, sets 40 Recommendations, runs peer mutual evaluations and grey-lists defaulters, as with Pakistan from 2018 to 2022.
Compliance methods
Members conduct national risk assessments, enforce customer due diligence, report suspicious transactions to units like FIU-IND, apply targeted financial sanctions and regulate non-profits and virtual assets; India's 2024 evaluation placed it in regular follow-up.
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Question from the official UPSC Civil Services (Main) Examination 2026 paper. Answer written by Ghissu's engine and checked against our editorial standards. Found an error? Tell us and we correct it within 48 hours.