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 entities 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 punished 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 an 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 suspicion that it may involve the proceeds of crime;
Appears to be made in circumstances of unusual or unjustified complexity;
Appears to have no economic rationale or bonafide purpose;
Gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism.

Policy and Procedures for Anti Money Laundering Measures

The policy and procedures as outlined below provide a general background on the subjects of money laundering and terrorist financing, summarize the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India, and provide guidance on the practical implications of the Act. The steps outlined should be implemented by registered intermediaries and their representatives to discourage and identify any money laundering or terrorist financing activities.

The Prevention of Money Laundering Act, 2002 came into effect on 1st July 2005. Necessary Notifications / Rules under the said Act were 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 transactions, the nature and value of which has been prescribed in the Rules under the PMLA. Such transactions include:

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 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 a demat account, or security account maintained by the registered intermediary.

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"

a. Policy for acceptance of clients:

b. Procedure for identifying the clients:

c. Transaction monitoring and reporting:

Client Due Diligence Process

The customer due diligence (“CDD”) measures comprise the following:

a. Obtaining sufficient information in order to identify persons who beneficially own or control securities account.

As an organization providing Research Analyst Services, details of securities account of clients are not shared with us in the process of delivering services and execution services are not part of our service package. Accordingly, identifying the beneficial owner or controlling party of the securities account of the client is the responsibility of the broker handling the security account of the client.

b. Verify the customer’s identity

Since Research Analyst regulation does not envisage on the KYC of the clients, basic KYC detail i.e., PAN card number to establish identity of the client are to be collected from the clients. KYC Status of the clients are to be verified using below link: -https://kra.ndml.in/kra-web/jsps/pos/KYCClientInquiry_NEW.jsp Or,https://www.karvykra.com/UPanSearchGlobalWithPanExempt.aspx

c. Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted

Transaction data is not handled by us as the client doesn't share the such data with us as part of our research service. We provide non-discretionary research recommendation 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 handling the security account of the client.

As part of the client due diligence process, the following 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 you are unable to apply appropriate client’s due diligence measures / collect basic KYC detail i.e., PAN card number.
Ensure that the client is KYC registered.
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 markets. Check whether the client's identity matches with persons debarred/banned by SEBI before opening an account. If they are on that list, do not open the account. The list may be verified using the below links:

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 onboard a client who is present in the list.

b. Procedure for identifying the clients

The client identification procedure is to be carried out at the time of establishing the client relationship, i.e., onboarding the client. Since Research Analyst regulation does not envisage the KYC of the clients, basic KYC detail, i.e., PAN card number of the client, is to be collected to establish the identity of our clients to whom the services are delivered. Failure by the prospective client to provide satisfactory evidence of identity should be noted and reported to higher authority, and services should not be started for the said client.

c. Maintenance of record

All records of the clients are to be maintained for a minimum period of 10 years or in case of any regulatory action until the same is resolved.

d. Audit

Audit of RA activities is to be done by an independent professional as allowed by the regulation. Any observations of the audit are to be taken on a priority basis, and corrective actions are to be initiated.

e. Transaction monitoring and reporting, especially Suspicious Transactions Reporting (STR)

The only transaction encountered while delivering the service is the collection of fees, as we don’t have access to the execution of transaction data of the clients. Accordingly, the fee collection should be through our bank account only. Further, no cash transactions should be allowed for fee payment by the clients.

The nature and value of transactions, as prescribed in the Rules under the PMLA to maintain and record, include:

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 that 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, including credits or debits from any non-monetary account such as a 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 for suspicion. The compliance staff members will have timely access to customer identification data and other CDD information, transaction records, and other relevant information.

The Compliance Officer will carefully go through all the reporting requirements and formats as per the provision of PMLA:

The Principal Officer will be responsible for the timely submission of CTR and STR to FIU-IND.
Utmost confidentiality will be maintained in the filing of CTR and STR to FIU-IND. The reports will be transmitted by speed/registered post/fax at the notified address.
No nil reporting will be made to FIU-IND in case there are no cash/suspicious transactions to be reported.

Reporting to FIU – India

In terms of the PMLA rules, registered intermediaries must 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

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 be 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 research Entity 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.