Provisions of Prevention of Money Laundering Act, 2002
Prevention of Money Laundering Act, 2002 (PMLA) forms the core of legal framework put in place by India to combat money laundering and related crimes. PMLA and the Rules notified there under came into force from 1st July, 2005. Under PMLA, all the entries registered with SEBI are required to furnish information of all the suspicious transactions whether or not made in cash to FIU-IND. Under Section 3 of PMLA, projecting of crime as untainted property is an offence of money laundering liable to be punishment under section 4 of the PMLA.
Money Laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with as apparently legal source.
Financial Intelligence Unit-India (FIU-IND) is the central national agency of India responsible for receiving, processing, analyzing and disseminating information of suspect financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in combating money laundering and related crimes.
Section 2 (1) (g) of PMLA Rules defines suspicious transaction whether or not made in cash which, to a person acting in good faith:
- Gives rise to a reasonable ground of suspicious that it may involve the proceeds of crime: or
- Appears to be made in circumstances of unusual or unjustified complexity; or
- Appears to have no economic rationale or bonafied purpose; or
- Gives rise to a reasonable ground of suspicious that it may involve facing of the activities relating to terrorism
Provisions of Prevention of Money Laundering Act, 2002
The policy and procedures as outlined below provides a general background on the subjects of money laundering and terrorist financing summarizes the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India and provides guidance on the practical implications of the Act. The same also sets out the steps that a registered intermediary and any of its representatives, should implement to discourage and identify any money laundering or terrorist financing activities.
The Prevention of Money Laundering Act, 2002 has come into effect from 1st July 2005. Necessary Notifications / Rules under the said Act have been published in the Gazette of India on 1st July 2005 by the Department of Revenue, Ministry of Finance, Government of India.
As per the provisions of the Act, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing finance institution and a non-banking financial company) and intermediary (which Includes a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992) shall have to maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules under the PMLA. Such transactions include:
- All series of cash transactions integrally connected to each other which have been valued below Rs 10 lakhs or its equivalent in foreign currency where such series of transactions take place within one calendar month.
- All suspicious transactions whether or not made in cash and including, inter-alia, credits or debits into from any non-monetary account such as demat account, security account maintained by the registered intermediary.
The objective of the policy is to –
- To have a proper Client Due Diligence Process thru KYC process before registering clients.
- To monitor/maintain records of all cash transactions of the value of more than Rs.10 lacs.
- To maintain records of all series of integrally connected cash transactions within one calendar month.
- To monitor and report suspicious transactions.
- To discourage and identify money laundering or terrorist financing activities.
- To take adequate and appropriate measures to follow the spirit of the PMLA.
We should adopt written procedures to implement the anti-money laundering provisions as envisaged under the Anti Money Laundering Act, 2002. Such procedures should include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process’:
- Policy for acceptance of clients
- Procedure for identifying the clients
- Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR)
Client Due Diligence Process
The customer due diligence (“CDD”) measures comprise the following:
The KYC information to be collected in the specified format ‘KYC Details’ which contains all information required as per SEBI KYC requirements including ‘In Person Verification’ (IPV). In addition, the information about FATCA declaration also to be collected. All original PAN Cards/ Address Proof/ Aadhar Cards to be signed and self-attested copies to be taken. For NRIs, additional details and copies of Passport / PIO Card/ OCI Card and their address in overseas country along with their Tax Identification No. in that country to be collected.
Investment adviser shall not take a client on-board where Investment adviser is unable to apply appropriate customer due diligence measures i.e. it is unable to verify the identity and / or obtain documents required due to non-cooperation of the customer or non-reliability of the data / information furnished to Investment adviser.
Transaction data is not handled by us as the client doesn’t share the such data with us as part of our Advisory services. We provide non-discretionary advisory service, execution of which is on the discretion of the client, and execution is handled by client themselves. Client don’t share any executional or transactional data with us. Accordingly, identifying the beneficial owner or controlling party of the securities account of the client is the responsibility of the broker or distributor handling the security account of the client.
As part of client due diligence process below guidelines are to be adhered to-
A. Policy for acceptance of clients
Following safeguards are to be followed while accepting the clients:
- No account is opened in a fictitious / benami name or on an anonymous basis.
- Ensure that an account is not opened where the you are unable to apply appropriate client’s due diligence measures / collect basic KYC documents.
- Ensure that the client identification documents are not found to be forged.
- The client should not be permitted to act on behalf of another person / entity for service delivery
- Do not accept clients with identity matching with banned person/ entity as per SEBI/ Stock Exchanges in capital market: -check whether the client ‘s identity matched with persons debarred/ banned by SEBI before opening of account. If you find them in that list then do no open the account. List may be verified using below link-
- Conduct Risk assessment which takes into account any country specific information using the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions. Do not on-board a client who is present in the list. These can be accessed at the URL
B. Procedure for identifying the clients
The client identification procedure to be carried out at the time of establishing the client relationship i.e., onboarding the client using KYC procedure as detailed above.
Failure by prospective client to provide satisfactory evidence of identity should be noted and reported to the higher authority and service should not be started for the said client.
C. Maintenance of record
Investment Adviser shall have a system of maintaining proper record of all transactions including records of all transactions prescribed under Rule 3 of the Rules, as mentioned below:
- all cash transactions of the value of more than Rupees Ten Lakh or its equivalent in foreign currency.
- all series of cash transactions integrally connected to each other which have been valued below Rupees Ten Lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds Rupees Ten Lakh;
- Investment Adviser shall maintain and preserve the records of all transactions referred to above for a period of 5 years as required by PMLA & SEBI Act.
- Investment Adviser shall ensure that records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN, card, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved for 5 years as would be required under the PMLA and SEBI Act even after the business relationship is ended.
D. Audit
Audit of IA activities to be done by an independent professional as allowed by the regulation. Any observations of audit to be taken on priority basis and corrective actions to be initiated.
E. Transaction monitoring and reporting, especially Suspicious Transactions Reporting (STR)
The nature and value of transactions, which has been prescribed in the Rules under the PMLA to maintain and record includes:
- All cash transactions of the value of more than Rs 10 lacs or its equivalent in foreign currency.
- All series of cash transactions integrally connected to each other which have been valued below Rs 10 lakhs or its equivalent in foreign currency where such series of transactions take place within one calendar month.
- All suspicious transactions whether or not made in cash and including, inter-alia, credits or debits into from any non-monetary account such as demat account, security account maintained by the registered intermediary.
Any suspicious transactions will be immediately notified to the Compliance Officer. The notifications may be done in the form of a detailed report with specific references to the clients, transactions and the nature/reason of suspicion. The compliance staff members will have timely access to customer identification data and other CDD information, transaction records and other relevant information.
Compliance Officer will carefully go through all the reporting requirements and formats as per the provision of PMLA
a. The Principal Officer will be responsible for timely submission of CTR and STR to FIU-IND
b. Utmost confidentially will be maintained in filling of CTR and STR to FIU- IND. The reports will be transmitted by speed/registered post/fax at the notified address.
c. No nil reporting will be made to FIU-IND in case there are no cash/suspicious transaction to be reported.
Reporting to FIU – India
In terms of the PMLA rules, PO will report information relating to cash and suspicious transactions to The Director, Financial Intelligence Unit India (FIU – IND) at the following address:
Director, FIU – IND
Financial Intelligence Unit India 6th
floor, Hotel Samrat Chanakyapuri
New Delhi – 110021
Role of staff
Principal Officer
The Principal Officer is responsible for the following:
- Communicating the policy on prevention of Money laundering to the employees.
- Receiving reports from employees for any suspicious dealing noticed by them.
- Clarification of any queries from employees on this matter.
- Ensuring that the employees dealing with the clients/prospective clients are aware of the guidelines and are advised to follow the same strictly.
- Report any suspicious transactions to appropriate authorities.
- Handle compliance function and to ensure compliance with the policies, procedures, and controls relating to the prevention of ML and TF
- Evaluate the process in case any gaps are identified
On-Boarding Staff
Principal Officer
For staff members dealing with customers or handling customer-facing processes, it is essential to be sensitive to the AML requirements and obligations
- Primary responsibility of compliance is on the on-boarding staff since they deal face-to-face with customers.
- On-boarding staff to carry out KYC process/ customer due diligence process / any further checks required as per our process during new business and renewal
- Default on carrying out obligation under AML law can attract action as per set company policies
- If you come to know of any suspicious activity, you have to bring that to our notice
Communication of policy
Copy of above policy is to be provided to all the management and relevant staff that handle account information, securities transactions, money and client records etc. whether in branches, departments or subsidiaries; An internal session on awareness of the above policy is to b conducted on a yearly basis in 1st week of April to spread awareness of the same among all the relevant person(s).
Compliance with relevant statutory and regulatory requirements;
It is to be ensured that the activities are in compliance with all the relevant statutory and regulatory requirements.
Co-operation with the relevant law enforcement authorities, including the timely disclosure of information;
As and when sought appropriate information’s of the clients as maintained are to be shared with the relevant law enforcement authorities and timely disclosures of the information’s to be made as per the requirement.
Review of Policy and Procedures
Management of the Investment Adviser is to review the policies and procedures on the prevention of ML and TF to ensure their effectiveness as and when there is change in regulatory guidelines with respect to prevention of ML and TF.
Management of the Investment Adviser is to review the policies and procedures on the prevention of ML and TF to ensure their effectiveness as and when there is change in regulatory guidelines with respect to prevention of ML and TF.
