PREVENTION OFMONEY
LAUNDERING ACT-2002
(PMLA)
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Abbreviations
PMLA – Prevention of Money Laundering Act, 2002
FIU-IND – Financial Intelligence Unit - India
AML – Anti Money Laundering
STR – Suspicious Transactions Report
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BACKGROUND
PMLA brought into force w.e.f. 1st July, 2005 by an act
of Parliament
Financial Intelligence Unit- India (FIU-IND) is the
authority to implement the provisions of the Act
FIU-IND obtains data from various intermediaries,
processes the same and if necessary passes it on to the
agency such as police, I-tax for investigation
Act applicable to banking companies, financial
institutions and all the intermediaries associated with
the security market and are registered with SEBI under
section 12 of SEBI act, 1992
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BACKGROUND ..
The application of AML measures by market
intermediaries has been emphasized by International
Regulatory agencies as a key element in combating
money laundering.
Financial Action Task Force (FATF) is the agency who
evaluate the member countries and certify whether
they are compliant or not
India has been confirmed as one of the country that is
compliant with AML regulations during December 2010
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WHAT IS MONEY LAUNDERING
• Moving illegally acquired cash through financial
systems so that it appears to be legally acquired
• The 3 stages of money laundering are detailed below:
Placement: The physical disposal of cash proceeds
derived from illegal activity
Layering: Separating illicit proceeds from their
source by creating complex layers of transactions
Integration: Creating an impression of apparent
legitimacy to such wealth
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ANTI MONEY LAUNDERING MEASURES -
COMPLIANCE REQUIREMENTS
SEBI MASTER CIRCULAR CIR/ISD/AML/3/2010 DT. 31.12.2010
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Appointment of Principal Officer
• Identify a Principal Officer
• Should be in senior position and able to function
with independence and authority and have access to
top management
• Intimate- Name, Contact address, phone number
and e-mail address to:
Addl. Director,
Financial Intelligence Unit- India,
Ministry of Finance, 6th fl. ,
Hotel Samrat,
Chanakya Puri, New Delhi- 110021
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Principal Officer’s Responsibilities
• Ensure compliance with PMLA
• Evolve internal mechanism to ensure proper process
flow to scrutinise and identify potentially suspicious
transactions and timely reporting
• Respond promptly to any request for information by
FIU, regulators, statutory authorities and CDSL
• Ensure awareness of PMLA provisions among all the
staff
• Adopt written procedures (internal policy) and send
a hard/soft copy to FIU-IND
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Internal Policies, Procedures & Controls
• Internal policy document shall cover
Policy for acceptance of clients
Procedure for identifying the clients
Transactions monitoring
Reporting suspicious transactions
• Periodical Review of Policy
Policy should set out the process and periodicity
for review of policy
Review should be by an official other than the one
who originally prepared the policy
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POLICY FOR ACCEPTANCE OF CLIENTS
• No account is opened in fictitious/ benami names
• Categorise clients into low, medium and high risk on the
basis of perceived risk
• This requires knowledge about client’s nature of business,
location, social and financial status etc.
• Circumstances in which client is permitted to act on behalf of
another person to be verified
• Revisit CDD process when there are suspicions of money
laundering or financing of terrorism
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POLICY FOR ACCEPTANCE OF CLIENTS
• Checks and balances to ensure that identity of the client
does not match with any person having known criminal
background or is not a banned entity
• Indicative lists of websites for verification are
www.watchoutinvestors.com, www.worldcheck.com etc
• Revisit CDD process when there are suspicions of money
laundering or financing of terrorism
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CLIENTS OF SPECIAL CATEGORY (CSC)
• CSC are to be treated as high risk clients
• Non Residents, trusts, charities, Cos having close family
shareholdings, non face to face clients etc are CSCs
• Politically Exposed Persons (PEP) are those who are
entrusted with prominent public functions in a foreign
country such as heads of states or governments, senior
government/ military/ judicial officials etc.
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CLIENTS OF SPECIAL CATEGORY (CSC)
• Enhanced due diligence for high risk clients and PEPs
• Prior approval of senior management for establishing
business relationship with PEP
• Timely access to client identification data and CDD
information and txn records
• Clients of high risk countries such as those having unusual
banking secrecy, active in narcotics production etc are
subjected to enhanced scrutiny of txns and due diligence
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CLIENT IDENTIFICATION PROCEDURE
• Obtain sufficient info to identify persons who beneficially
own or control the securities account
• Identify natural person who ultimately control legal person
• Verify customer’s identity using reliable, independent
source documents, data or information
• Conduct on going due-diligence and scrutiny of txns and
account through out the course of business relationship
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Suspicious Transactions
• Transactions that give rise to a reasonable
ground of suspicion that it may involve proceeds
of crime or may involve financing of the activities
relating to terrorism
• Appears to be made in circumstances of unusual
or unjustified complexity
• Appears to have no economic rationale or
bonafide purpose
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Suspicious Transactions
• STR to be filed within 7 working days from the
date of detection to FIU-IND
• Report all attempted and abandoned txns of
suspicious nature also
• Ensure continuity of txns and maintain
confidentiality
• Prohibited from disclosing (tipping off) that STR
is filed
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Suspicious Transactions
• STR can be in physical or electronic format
• Electronic format can be downloaded from FIU
website www.fiuindia.gov.in
• STR to be reported directly to FIU-IND
• Intimate count of STR to CDSL before 7th of
subsequent month
• ‘NIL’ report need not be sent
• Records of reporting to be maintained
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Record Keeping and Retention of Records
• DPs should take all reasonable care to store Hard
copy of all relevant documents.
• Records are to be maintained in such a way that
retrieval should be possible within a short time
• Proper back-up of softcopy should be maintained and
the restoration and retrieval of data should be
possible within a short time.
• Backed up media should be periodically checked to
ensure data integrity
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Record Keeping (continued . . .)
• Retention of records in case of account opening form
should be 10 years from the time of closing of the
account
• Retention of records in case of transaction
instructions should be 10 years from the date of the
transaction
• In case of records relating to ongoing investigations
or transactions of suspicious nature the record to be
retained till it is confirmed that the case has been
closed
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Hiring of employees
• Set-up Policy for recruitment of staff to ensure
adequate screening to ensure high standards
• Ensure that the staff being appointed do not have
suspicious background or doubtful integrity and are
suitable and competent to perform their duties
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Training
• Training on AML and CFT should be given to all the
new staff
• On going employee training programme to be carried
out so that staff are adequately trained.
• Educate clients by preparing AML and CFT specific
literature/ pamphlets etc.
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CDSL Support
• Alerts every fortnight
• Alerts based on various parameters
• Alerts sent through billing folder
• DPs to identify suspicious txns in the light of financial
status and nature of business of the client
• Maintain a Register and record the action taken
• Monitor other transactions also
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Designated Individuals/ Entities
• Implementation of UN Security Council Resolutions/
EU Common Position and Regulations
• Consolidated List of Individuals and entities subject to
sanction measures and UNSC Resolutions 1267 and
1822 on Taliban/ Al-Qaida
• In case any account /asset of designated
entities/individuals is found, details to be conveyed
through CDSL to SEBI for further action
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• For further assistance, kindly contact:
Mr. Krishnamurthty Iyer
Asst Vice President & Principal Officer
Central Depository Services (India) Ltd.
17th Floor, P J Tower, Dalal Street
Fort, Mumbai – 400 001
Tel: (022) 22728687
Fax: (022) 2272-3199
e-mail :
[email protected] Web-site: www.cdslindia.com
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Thank you !
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