On February 25, 2011, the Financial Action Task Force issued a statement naming Iran, Uzbekistan, Pakistan, Turkmenistan, and Sao Tome and Principe as jurisdictions with strategic deficiencies in anti-money laundering controls. Within weeks, the RBI had converted that statement into a circular addressed to every urban cooperative bank in the country with authorised dealer status, instructing each one to consider the risks arising from those deficiencies. The same circular went, in parallel versions, to scheduled commercial banks, regional rural banks, NBFCs, and payment system operators. This has been happening, twice a year, every year, since 2009 -- and the machinery shows no sign of stopping. Why? Because India's standing as a FATF member depends on demonstrating that its banks actually screen against the list.
What is the FATF relay chain, and why does it exist?
The Financial Action Task Force does not regulate banks. It publishes Recommendations and periodic Statements identifying jurisdictions with strategic AML/CFT deficiencies, and it expects member countries to translate those statements into domestic action. India, which was an observer from 2006 and became a full FATF member in 2010, has built an elaborate relay mechanism to do exactly that. The RBI's November 2004 KYC overhaul (Know Your Customer (KYC) Guidelines – Anti Money L) made the architecture explicit from the start:
"These 'Know Your Customer' guidelines have been revisited in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT). These standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities."
That 2004 circular established the pattern: FATF issues guidance, India incorporates it into regulation, the RBI transmits it to every entity type. The relay has produced over 300 FATF-related circulars in the notification database -- from the 2009 framework circular for authorised persons RBI/2009-10/235 through to the 2025 entity-specific KYC Directions for commercial banks (Reserve Bank of India (Commercial Banks – Know You). Why so many? Because the RBI issues separate circulars for each entity type -- scheduled commercial banks, cooperative banks, RRBs, NBFCs, payment system operators -- so a single FATF statement generates four to seven parallel transmissions.
What triggers a FATF statement, and which countries are on the lists right now?
FATF operates two lists. The first, "High-Risk Jurisdictions subject to a Call for Action," identifies countries where FATF calls for countermeasures. The second, "Jurisdictions under Increased Monitoring," names countries with strategic deficiencies that have committed to action plans. The RBI's February 2026 press release (Financial Action Task Force (FATF) High risk and o) -- the most recent in the relay -- names the current high-risk jurisdictions:
"The Financial Action Task Force (FATF) vide public document 'High-Risk Jurisdictions subject to a Call for Action' -- 13 February 2026, has called on its members and other jurisdictions to refer to the statement on Democratic People's Republic of Korea (DPRK) and Iran adopted in February 2020 which remains in effect. Further, Myanmar was added to the list of High-Risk Jurisdictions subject to a Call for Action in the October 2022 FATF plenary."
The increased monitoring list is considerably longer. As of February 2026, it includes Algeria, Angola, Bolivia, Bulgaria, Cameroon, Democratic Republic of the Congo, Haiti, Kenya, Kuwait, Lebanon, Monaco, Namibia, Nepal, Papua New Guinea, South Sudan, Syria, Venezuela, Vietnam, and Yemen. Why does this matter for Indian banks? Because any transaction with a counterparty in these jurisdictions triggers enhanced due diligence obligations under the KYC Master Direction.
How does the relay chain actually work inside the banking system?
The mechanism is straightforward in theory and relentless in practice. The April 2011 circular for authorised dealers RBI/2010-11/468 illustrates the template that has been used for over a decade:
"Financial Action Task Force (FATF) has issued a further Statement on October 22, 2010... It may be observed that the statement divides the strategic AML/CFT deficient jurisdictions into two groups: (a) Jurisdictions subject to FATF call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdiction: Iran (b) Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the FATF to address key deficiencies as of October 2010. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction: Democratic People's Republic of Korea (DPRK)."
Each relay circular references the previous one, creating a chain that stretches back to 2009. The January 2014 circular for payment system operators RBI/2013-14/431 (since withdrawn) shows the pattern holding five years later, referencing its predecessor and enclosing the latest FATF statement. Why the explicit chaining? Because if a bank receives an updated FATF statement, it needs to know which previous statement it supersedes -- and it needs an audit trail showing that it has acted on every iteration.
The RBI has also issued 27 FATF-specific press releases since 2016, each one published within days of a FATF plenary session. The June 2019 press release (Financial Action Task Force (FATF) Public Statemen) named Pakistan, Sri Lanka, and nine other jurisdictions as having strategic deficiencies. The October 2025 press release (Financial Action Task Force (FATF) High risk and o) continued the pattern. This is not optional communication -- it is the public-facing arm of a compliance obligation that runs continuously.
What about UNSC sanctions -- the other relay chain?
Running parallel to the FATF chain is a second, faster relay: the transmission of UN Security Council sanctions lists under Resolutions 1267/1989/2253 (ISIL, Da'esh, Al-Qaida) and 1988 (Taliban). The RBI has issued over 700 circulars in this chain -- roughly twice the volume of the FATF relay. Why so many? Because every addition, deletion, or amendment to the UNSC consolidated list triggers a separate circular to each entity type.
The September 2009 circular RBI/2009-10/166 established the framework under Section 51A of the Unlawful Activities (Prevention) Act, 1967:
"The banks shall immediately, not later than 24 hours from the time of finding out such customer, inform full particulars of the funds, financial assets or economic resources or related services held in the form of bank accounts, held by such customer on their books to the Joint Secretary (IS.I), Ministry of Home Affairs."
That 24-hour window is non-negotiable. The February 2016 UNSC update circular RBI/2015-16/323, issued to all scheduled commercial banks, RRBs, NBFCs, cooperative banks, and payment system operators simultaneously, shows the relay still running seven years later with the same operational instructions: scan all existing accounts, ensure no new account is opened for designated persons, file STRs where warranted. Why does this chain never stop? Because India is a UNSC member, and Resolution 1267 obligations are binding under international law -- they are not recommendations.
How does the FATF chain connect to the KYC Master Direction?
The FATF relay does not exist in isolation. It feeds directly into the KYC Master Direction for commercial banks (Reserve Bank of India (Commercial Banks – Know You), which embeds FATF compliance into the permanent regulatory architecture. The 2025 Directions make three things mandatory for every commercial bank in India.
First, on correspondent banking, the Direction requires banks to exercise caution with jurisdictions that FATF has flagged:
"The bank shall be cautious of correspondent banking relationships with institutions located in jurisdictions which have strategic deficiencies or have not made sufficient progress in implementation of FATF Recommendations."
Second, on countermeasures, banks must act when called upon: "The bank shall undertake countermeasures when called upon so to do by any international or intergovernmental organisation of which India is a member and which is accepted by the Central Government." Why is this wording significant? Because it gives the FATF statement the force of domestic regulation -- a bank that ignores a FATF call for countermeasures is violating the KYC Master Direction, not merely failing to follow international guidance.
Third, on enhanced due diligence, banks must apply measures proportionate to risk for business with persons from FATF-flagged jurisdictions and retain written findings for inspection. The chain runs from Paris (FATF plenary) to Mumbai (RBI circular) to every branch in every district of India.
What happens beyond KYC -- how does FATF affect investment and ownership?
The FATF chain has consequences that extend well beyond transaction screening. The RBI bars investors from FATF non-compliant jurisdictions from acquiring significant influence in Indian financial institutions. The June 2021 circular on payment system operators RBI/2021-22/55 states the rule plainly:
"New investors from or through non-compliant FATF jurisdictions, whether in existing PSOs or in entities seeking authorisation as PSOs, are not permitted to acquire, directly or indirectly, 'significant influence' as defined in the applicable accounting standards in the concerned PSO."
The same 20 percent voting power cap applies to NBFCs (Reserve Bank of India (Non-Banking Financial Compa) and to banking companies (Guidelines on Acquisition and Holding of Shares or). Even the International Trade Settlement in Rupees circular (International Trade Settlement in Indian Rupees (I) requires that banks opening Special Rupee Vostro Accounts ensure "the correspondent bank is not from a country or jurisdiction in the updated FATF Public Statement on High Risk & Non Co-operative Jurisdictions on which FATF has called for counter measures." Why embed FATF compliance in trade settlement rules? Because the rupee settlement mechanism was designed partly to facilitate trade with sanctions-adjacent economies, making FATF screening doubly important.
Does the RBI actually penalise banks for non-compliance?
It does, and regularly. The KYC Master Direction is the regulatory hook, and the RBI uses it. In March 2026 (RBI imposes monetary penalty on Central Bank of In), the RBI imposed a penalty of Rs 63.60 lakh on Central Bank of India for non-compliance with KYC directions. In September 2024 (RBI imposes monetary penalty on Axis Bank Limited), Axis Bank was penalised Rs 1.91 crore for violations that included KYC non-compliance. Punjab National Bank (Reserve Bank of India imposes monetary penalty on) was fined Rs 1.32 crore in July 2024, and Union Bank of India (RBI imposes monetary penalty on Union Bank of Indi) was fined Rs 1.06 crore in August 2024 -- both for KYC failures. IndusInd Bank (RBI imposes monetary penalty on IndusInd Bank Ltd) was penalised Rs 1 crore in June 2022, and HDFC Bank (Reserve Bank of India imposes monetary penalty on) Rs 10 million in June 2019.
These penalties cite the KYC Direction -- the same Direction that embeds FATF compliance obligations. Why does this matter? Because every FATF relay circular feeds into the Master Direction that forms the basis for enforcement action. The chain is not theoretical; it has financial teeth.
Why will this chain keep running?
India's last full FATF mutual evaluation was conducted in 2009-2010. The next evaluation cycle is expected, and the stakes are substantial. A poor mutual evaluation could trigger "increased monitoring" for India itself -- the same grey list that India's banks are required to screen against. That would restrict Indian financial institutions' access to global correspondent banking networks and raise the cost of cross-border transactions across the economy.
This is why the relay chain will not stop. Every six months, FATF will issue an updated statement. Within days, the RBI will publish a press release. Within weeks, circulars will reach every regulated entity in India. Banks will update their screening systems, compliance officers will acknowledge receipt, and the chain will add another link.
The FATF relay is not a single regulation. It is an ongoing transmission mechanism -- from an intergovernmental body in Paris, through the Reserve Bank of India, to every bank branch, NBFC office, and payment system operator in the country. It has been running since 2004, it has generated hundreds of circulars and dozens of press releases, and it connects directly to the KYC Master Direction that the RBI enforces with monetary penalties. For a deeper look at the UNSC sanctions side of this chain, see Counter-Terrorism Financing & UNSC Sanctions: The RBI Compliance Chain. For the full FATF deficient jurisdictions relay history, see FATF Compliance: Deficient Jurisdictions and the Relay Chain.
Last updated: April 2026