[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
1. The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used,
intentionally or unintentionally, by criminal elements for money laundering or terrorist
financing activities.
2. The PMLA came into effect from 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. The PMLA has been further amended
vide notification dated March 6, 2009 and inter alia provides that violating the prohibitions
on manipulative and deceptive devices, insider trading and substantial acquisition of
securities or control as prescribed in Section 12 A read with Section 24 of the Securities and
Exchange Board of India Act, 1992 (SEBI Act) will now be treated as a scheduled offence
under schedule B of the PMLA.
3. KYC procedures also enable banks/FIs to know/understand their customers and their
financial dealings better and manage their risks prudently.
4. For the purpose of KYC Norms, a ‘Customer’ is defined as a person who is engaged in a
financial transaction or activity with a reporting entity and includes a person on whose
behalf the person who is engaged in the transaction or activity, is acting.
5. “Designated Director" means a person designated by the reporting entity (bank, financial
institution, etc.) to ensure overall compliance with the obligations imposed under chapter IV
of the PML Act.
6. In terms of PML Act a ‘person’ includes: (i) an individual, (ii) a Hindu undivided family, (iii) a
company, (iv) a firm, (v) an association of persons or a body of individuals, whether
incorporated or not, (vi) every artificial juridical person, not falling within any one of the
above persons (i to v), and (vii) any agency, office or branch owned or controlled by any of
the above persons (i to vi).
7. “Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the
arrangement thereof and includes- (i) opening of an account; (ii) deposits, withdrawal,
exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment
order or other instruments or by electronic or other non-physical means; (iii) the use of a
safety deposit box or any other form of safe deposit; (iv) entering into any fiduciary
relationship; (v) any payment made or received in whole or in part of any contractual or
other legal obligation; or (vi) establishing or creating a legal person or legal arrangement.
8. Banks/FIs should frame their KYC policies incorporating the following four key elements: (i)
Customer Acceptance Policy (CAP); (ii) Customer Identification Procedures (CIP); (iii)
Monitoring of Transactions; and (iv) Risk Management.
9. Documents and other information to be collected from different categories of customers
depending on perceived risk and the requirements of PML Act, 2002 and
instructions/guidelines issued by Reserve Bank from time to time.
10. Customer Identification Procedure (CIP) : Customer identification means undertaking client
due diligence measures while commencing an account-based relationship including
identifying and verifying the customer and the beneficial owner on the basis of one of the
OVDs
11. Customer Due Diligence requirements (CDD) while opening accounts
12. introduction is not necessary for opening of accounts under PML Act and Rules or the
Reserve Bank’s extant instructions, banks/FIs should not insist on introduction for opening of
bank accounts.
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
13. Small Accounts If an individual customer does not possess either any of the OVDs or the
documents applicable in respect of simplified procedure (as detailed at paragraph 2.3
above), then ‘Small Accounts’ may be opened for such an individual. A ‘Small Account'
means a savings account in which the aggregate of all credits in a financial year does not
exceed rupees one lakh; the aggregate of all withdrawals and transfers in a month does
not exceed rupees ten thousand and the balance at any point of time does not exceed
rupees fifty thousand. A ‘small account’ maybe opened on the basis of a self-attested
photograph and affixation of signature or thumb print.
14. a small account shall be opened only at Core Banking Solution (CBS) linked branches or in a
branch where it is possible to manually monitor and ensure that foreign remittances are not
credited to the account and that the stipulated monthly and annual limits on aggregate of
transactions and balance requirements in such accounts are not breached, before a
transaction is allowed to take place;
15. a small account shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months if the holder of such an account provides
evidence before the banking company of having applied for any of the officially valid
documents within twelve months of the opening of the said account, with the entire
relaxation provisions to be reviewed in respect of the said account after twenty four
months.
16. Where a customer categorised as low risk expresses inability to complete the
documentation requirements on account of any reason that the bank considers to be
genuine, and where it is essential not to interrupt the normal conduct of business, the bank
may complete the verification of identity within a period of six months from the date of
establishment of the relationship.
17. Procedure to be followed in respect of foreign students : Banks should follow the following
procedure for foreign students studying in India: 1) Banks may open a Non Resident
Ordinary (NRO) bank account of a foreign student on the basis of his/her passport (with visa
& immigration endorsement) bearing the proof of identity and address in the home country
together with a photograph and a letter offering admission from the educational institution
in India. 2) Banks should obtain a declaration about the local address within a period of 30
days of opening the account and verify the said local address. 3) During the 30 days period,
the account should be operated with a condition of allowing foreign remittances not
exceeding USD 1,000 or equivalent into the account and a cap of monthly withdrawal to Rs.
50,000/-, pending verification of address. 4) The account would be treated as a normal NRO
account, and will be operated in terms of instructions contained in the Reserve Bank of
India’s instructions on Non-Resident Ordinary Rupee (NRO) Account. Students with Pakistani
and Bangladesh nationality will need prior approval of the Reserve Bank for opening the
account.
18. Where the customer is a company, one certified copy each of the following documents are
required for customer identification: (a) Certificate of incorporation; (b) Memorandum and
Articles of Association; (c) A resolution from the Board of Directors and power of attorney
granted to its managers, officers or employees to transact on its behalf and (d) An officially
valid document in respect of managers, officers or employees holding an attorney to
transact on its behalf.
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
19. Where the customer is a partnership firm, one certified copy of the following documents is
required for customer identification: (a) registration certificate; (b) partnership deed and (c)
an officially valid document in respect of the person holding an attorney to transact on its
behalf.
20. Where the customer is a trust, one certified copy of the following documents is required for
customer identification: (a) registration certificate; (b) trust deed and (c) an officially valid
document in respect of the person holding a power of attorney to transact on its behalf.
21. Where the customer is an unincorporated association or a body of individuals, one certified
copy of the following documents is required for customer identification: (a) resolution of the
managing body of such association or body of individuals; (b) power of attorney granted to
transact on its behalf; (c) an officially valid document in respect of the person holding an
attorney to transact on its behalf and (d) such information as may be required by the
bank/FI to collectively establish the legal existence of such an association or body of
individuals.
22. Proprietary concerns: (1) For proprietary concerns, in addition to the OVD applicable to the
individual (proprietor), any two of the following documents in the name of the proprietary
concern are required to be submitted: (a) Registration certificate (b) Certificate/licence
issued by the municipal authorities under Shop and Establishment Act. (c) Sales and income
tax returns. (d) CST/VAT certificate. (e) Certificate/registration document issued by Sales
Tax/Service Tax/Professional Tax authorities. (f) Licence/certificate of practice issued in the
name of the proprietary concern by any professional body incorporated under a statute. (g)
Complete Income Tax Return (not just the acknowledgement) in the name of the sole
proprietor where the firm's income is reflected, duly authenticated/acknowledged by the
Income Tax authorities. (h) Utility bills such as electricity, water, and landline telephone bills.
23. When the client accounts are opened by professional intermediaries: When the bank has
knowledge or reason to believe that the client account opened by a professional
intermediary is on behalf of a single client, that client must be identified. Banks may hold
'pooled' accounts managed by professional intermediaries on behalf of entities like mutual
funds, pension funds or other types of funds. Banks, however, should not open accounts of
such professional intermediaries who are bound by any client confidentiality that prohibits
disclosure of the client details to the banks.
24. Where funds held by the intermediaries are not co-mingled at the bank and there are 'subaccounts',
each of them attributable to a beneficial owner, all the beneficial owners must be
identified. Where such funds are co-mingled at the bank, the bank should still look into the
beneficial owners. Where the banks rely on the 'customer due diligence' (CDD) done by an
intermediary, they should satisfy themselves that the intermediary is a regulated and
supervised entity and has adequate systems in place to comply with the KYC requirements of
the customers. It should be understood that the ultimate responsibility for knowing the
customer lies with the bank.
25. Beneficial ownership :When a bank/FI identifies a customer for opening an account, it
should identify the beneficial owner(s) and take all reasonable steps in terms of Rule 9(3) of
the PML Rules to verify his identity, as per guidelines provided below:
(a) Where the client is a company, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical person, has/have a
controlling ownership interest or who exercises control through other means.
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
Explanation- For the purpose of this sub-clause- 1. “Controlling ownership interest” means
ownership of/entitlement to more than 25 per cent of the shares or capital or profits of the
company. 2. “Control” shall include the right to appoint majority of the directors or to
control the management or policy decisions including by virtue of their shareholding or
management rights or shareholders agreements or voting agreements.
(b) Where the client is a partnership firm, the beneficial owner is the natural person(s),
who, whether acting alone or together, or through one or more juridical person, has/have
ownership of/entitlement to more than 15 per cent of capital or profits of the partnership.
(c) Where the client is an unincorporated association or body of individuals, the beneficial
owner is the natural person(s), who, whether acting alone or together, or through one or
more juridical person, has/have ownership of/entitlement to more than 15 per cent of the
property or capital or profits of the unincorporated association or body of individuals.
(d) Where no natural person is identified under (a), (b) or (c) above, the beneficial owner is
the relevant natural person who holds the position of senior managing official.
(e) Where the client is a trust, the identification of beneficial owner(s) shall include
identification of the author of the trust, the trustee, the beneficiaries with 15% or more
interest in the trust and any other natural person. exercising ultimate effective control over
the trust through a chain of control or ownership.
(f) Where the client or the owner of the controlling interest is a company listed on a stock
exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the
identity of any shareholder or beneficial owner of such companies.
26. KYC exercise should be done at least every two years for high risk customers, every eight
years for medium risk customers and every ten years for low risk customers. Such KYC
exercise may include all measures for confirming the identity and address and other
particulars of the customer that the bank/FI may consider reasonable and necessary based
on the risk profile of the customer, taking into account whether and when client due
diligence measures were last undertaken and the adequacy of data obtained.
27. Freezing and closure of accounts :
(i) In case of non-compliance of KYC requirements by the customers despite repeated
reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-compliant
accounts in a phased manner.
(ii) During the course of such partial freezing, the account holders can revive their accounts
by submitting the KYC documents as per instructions in force.
(iii) While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial
freezing’ is exercised after giving due notice of three months initially to the customers to
comply with KYC requirements to be followed by a reminder giving a further period of three
months.
(iv) Thereafter, banks/FIs may impose ‘partial freezing’ by allowing all credits and
disallowing all debits with the freedom to close the accounts.
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
(v) If the accounts are still KYC non-compliant after six months of imposing initial ‘partial
freezing’ banks/FIs should disallow all debits and credits from/to the accounts thereby,
rendering them inoperative.
(vi) Further, it would always be open to the bank/FI to close the account of such customers
after issuing due notice to the customer explaining the reasons for taking such a decision.
Such decisions, however, need to be taken at a reasonably senior level. In the circumstances
when a bank/FI believes that it would no longer be satisfied about the true identity of the
account holder, the bank/FI should file a Suspicious Transaction Report (STR) with Financial
Intelligence Unit – India (FIU-IND) under Department of Revenue, Ministry of Finance,
Government of India.
28. At-par cheque facility availed by co-operative banks : Some commercial banks have
arrangements with co-operative banks under which the latter open current accounts with
the commercial banks and use the cheque book facility to issue ‘at par’ cheques to their
constituents and walk-in- customers for effecting their remittances and payments. Since the
‘at par’ cheque facility offered by commercial banks to co-operative banks is in the nature of
correspondent banking arrangement, banks should monitor and review such arrangements
to assess the risks including credit risk and reputational risk arising there from. For this
purpose, banks should retain the right to verify the records maintained by the client
cooperative banks/ societies for compliance with the extant instructions on KYC and AML
under such arrangements.
29. In this regard, Urban Cooperative Banks (UCBs) are advised to utilize the ‘at par’ cheque
facility only for the following purposes:
(i) For their own use.
(ii) For their account holders who are KYC complaint provided that all transactions of
Rs.50,000/- or more should be strictly by debit to the customer’s account.
(iii) For walk-in customers against cash for less than Rs.50,000/- per individual. In order to
utilise the ‘at par’ cheque facility in the above manner, UCBs should maintain the following:
(i) Records pertaining to issuance of ‘at par’ cheques covering inter alia applicant’s name and
account number, beneficiary’s details and date of issuance of the ‘at par’ cheque. (ii)
Sufficient balances/drawing arrangements with the commercial bank extending such facility
for purpose of honouring such instruments. UCBs should also ensure that all ‘at par’ cheques
issued by them are crossed ‘account payee’ irrespective of the amount involved.
30. Simplified norms for Self Help Groups (SHGs) : KYC verification of all the members of SHG
need not be done while opening the savings bank account of the SHG and KYC verification of
all the office bearers would suffice. As regards KYC verification at the time of credit linking of
SHGs, no separate KYC verification of the members or office bearers is necessary
31. Walk-in Customer : In case of transactions carried out by a non-account based customer,
that is a walk in customer, where the amount of transaction is equal to or exceeds Rs.
50,000/-, whether conducted as a single transaction or several transactions that appear to
be connected, the customer's identity and address should be verified. If a bank has reason
to believe that a customer is intentionally structuring a transaction into a series of
transactions below the threshold of Rs.50,000/- the bank should verify the identity and
address of the customer and also consider filing a Suspicious Transactions Report (STR) to
Financial Intelligence Unit – India (FIU-IND). In terms of Clause (b) (ii) of sub-Rule (1) of Rule
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
9 of the PML Rules, 2005 banks and financial institutions are required to verify the identity
of the customers for all international money transfer operations.
32. Issue of Demand Drafts, etc, for more than Rs.50,000/- : Banks should ensure that any
remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode
and issue of travellers’ cheques for value of Rs.50,000/- and above is effected by debit to the
customer’s account or against cheques and not against cash payment. Banks should not
make payment of cheques/drafts/pay orders/banker’s cheques if they are presented beyond
the period of three months from the date of such instrument.
33. Unique Customer Identification Code : A Unique Customer Identification Code (UCIC) will
help banks to identify the customers, avoid multiple identities, track the facilities availed,
monitor financial transactions in a holistic manner and enable banks to have a better
approach to risk profiling of customers. Banks have been advised to allot UCIC while entering
into new relationships with individual customers as also the existing customers.
34. Banks/FIs should put in place a system of periodical review of risk categorization of accounts
and the need for applying enhanced due diligence measures. Such review of risk
categorisation of customers should be carried out at a periodicity of not less than once in six
months.
35. Banks should closely monitor the transactions in accounts of marketing firms, especially
accounts of Multi-level Marketing (MLM) Companies. Banks should analyse data in cases
where a large number of cheque books are sought by the company, there are multiple small
deposits (generally in cash) across the country in one bank account and where a large
number of cheques are issued bearing similar amounts/dates. Where such features are
noticed by the bank and in case they find such unusual operations in their accounts, the
matter should be immediately reported to Reserve Bank and other appropriate authorities
such as FIU-IND.
36. Banks/FIs should exercise ongoing due diligence with respect to the business relationship
with every client and closely examine the transactions in order to ensure that they are
consistent with their knowledge about the clients, their business and risk profile and where
necessary, the source of funds.
37. The Board of Directors should ensure that an effective AML/CFT programme is in place by
establishing appropriate procedures and ensuring their effective implementation. It should
cover proper management oversight, systems and controls, segregation of duties, training of
staff and other related matters.
38. Customers who are likely to pose a higher than average risk should be categorised as
medium or high risk depending on the background, nature and location of activity, country
of origin, sources of funds, customer profile, etc. Customers requiring very high level of
monitoring, e.g., those involved in cash intensive business, Politically Exposed Persons (PEPs)
of foreign origin, may, if considered necessary, be categorised as high risk.
39. Correspondent banking is the provision of banking services by one bank (the “correspondent
bank”) to another bank (the “respondent bank”). These services may include cash/funds
management, international wire transfers, drawing arrangements for demand drafts and
mail transfers, payable-through-accounts, cheques clearing etc.
40. In case of payable-through-accounts, the correspondent bank should be satisfied that the
respondent bank has verified the identity of the customers having direct access to the
accounts and is undertaking ongoing 'due diligence' on them. The correspondent bank
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
should ensure that the respondent bank is able to provide the relevant customer
identification data immediately on request.
41. Banks should ensure that their respondent banks have KYC/AML policies and procedures in
place and apply enhanced 'due diligence' procedures for transactions carried out through
the correspondent accounts. Banks should not enter into a correspondent relationship with
a “shell bank” (i.e., a bank which is incorporated in a country where it has no physical
presence and is not affiliated to any regulated financial group). The correspondent bank
should not permit its accounts to be used by shell banks.
42. Wire Transfer : Banks/FIs use wire transfers as an expeditious method for transferring funds
between bank accounts. Wire transfers include transactions occurring within the national
boundaries of a country or from one country to another. As wire transfers do not involve
actual movement of currency, they are considered as rapid and secure method for
transferring value from one location to another.
43. (a) The salient features of a wire transfer transaction are as under: (i) Wire transfer is a
transaction carried out on behalf of an originator person (both natural and legal) through a
bank by electronic means with a view to making an amount of money available to a
beneficiary person at a bank. The originator and the beneficiary could be the same person.
(ii) Domestic wire transfer means any wire transfer where the originator and receiver are
located in the same country. It may also include a chain of wire transfers that takes place
entirely within the borders of a single country even though the system used to effect the
wire transfer may be located in another country. (iii) Cross-border transfer means any wire
transfer where the originator and the beneficiary bank or financial institutions are located in
different countries. It may include any chain of wire transfers that has at least one crossborder
element. (iv) The originator is the account holder, or where there is no account, the
person (natural or legal) that places the order with the bank to perform the wire transfer.
44. Accordingly, banks/FIs must ensure that all wire transfers are accompanied by the following
information: 1. Cross-border wire transfers 2. Domestic wire transfers
45. Cross-border wire transfers (i) All cross-border wire transfers must be accompanied by
accurate and meaningful originator information. (ii) Information accompanying cross-border
wire transfers must contain the name and address of the originator and where an account
exists, the number of that account. In the absence of an account, a unique reference
number, as prevalent in the country concerned, must be included. (iii) Where several
individual transfers from a single originator are bundled in a batch file for transmission to
beneficiaries in another country, they may be exempted from including full originator
information, provided they include the originator’s account number or unique reference
number as at (ii) above.
46. Domestic wire transfers (i) Information accompanying all domestic wire transfers of
Rs.50000/- (Rupees Fifty Thousand) and above must include complete originator information
i.e. name, address and account number etc., unless full originator information can be made
available to the beneficiary bank by other means. (ii) If a bank has reason to believe that a
customer is intentionally structuring wire transfer to below Rs.50,000/- (Rupees Fifty
Thousand) to several beneficiaries in order to avoid reporting or monitoring, the bank must
insist on complete customer identification before effecting the transfer. In case of noncooperation
from the customer, efforts should be made to establish his identity and
Suspicious Transaction Report (STR) should be made to FIU-IND. (iii) When a credit or debit
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
card is used to effect money transfer, necessary information as at (i) above should be
included in the message.
47. ) Role of Ordering, Intermediary and Beneficiary banks
(i) Ordering Bank : An ordering bank is the one that originates a wire transfer as per the
order placed by its customer. The ordering bank must ensure that qualifying wire transfers
contain complete originator information. The bank must also verify and preserve the
information at least for a period of five years.
(ii) Intermediary bank : For both cross-border and domestic wire transfers, a bank processing
an intermediary element of a chain of wire transfers must ensure that all originator
information accompanying a wire transfer is retained with the transfer. Where technical
limitations prevent full originator information accompanying a cross-border wire transfer
from remaining with a related domestic wire transfer, a record must be kept at least for five
years (as required under Prevention of Money Laundering Act, 2002) by the receiving
intermediary bank of all the information received from the ordering bank.
(iii) Beneficiary bank :A beneficiary bank should have effective risk-based procedures in
place to identify wire transfers lacking complete originator information. The lack of complete
originator information may be considered as a factor in assessing whether a wire transfer or
related transactions are suspicious and whether they should be reported to the Financial
Intelligence Unit-India. The beneficiary bank should also take up the matter with the
ordering bank if a transaction is not accompanied by detailed information of the fund
remitter. If the ordering bank fails to furnish information on the remitter, the beneficiary
bank should consider restricting or even terminating its business relationship with the
ordering bank.
48. Maintenance of records of transactions : Banks/FIs should introduce a system of maintaining
proper record of transactions prescribed under Rule 3 of Prevention of Money Laundering
(Maintenance of Records) Rules, 2005 (PML Rules, 2005), as mentioned below:
(i) All cash transactions of the value of more than Rupees Ten Lakh or its equivalent in
foreign currency.
(ii)Series of all cash transactions individually valued below Rupees Ten Lakh, or its equivalent
in foreign currency which are that have taken place within a month and the monthly
aggregate which exceeds rupees ten lakhs or its equivalent in foreign currency. It is clarified
that for determining ‘integrally connected transactions’ ‘all accounts of the same customer’
should be taken into account.
(iii) All transactions involving receipts by non-profit organisations of value more than rupees
ten lakh or its equivalent in foreign currency [Ref: Government of India Notification dated
November 12, 2009- Rule 3,subrule (1) clause (BA) of PML Rules]
(iv) All cash transactions ; where forged or counterfeit currency notes or bank notes have
been used as genuine and where any forgery of a valuable security or a document has taken
place facilitating the transaction and
(v) All suspicious transactions, whether or not in cash, made as mentioned in the Rules.
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
49. Banks/FIs are required to maintain all necessary information in respect of transactions
prescribed under PML Rule 3 so as to permit reconstruction of individual transaction,
including the following information: (i) the nature of the transactions; (ii) the amount of the
transaction and the currency in which it was denominated; (iii) the date on which the
transaction was conducted; and (iv) the parties to the transaction.
50. In terms of PML Amendment Act 2012, banks/FIs should maintain for at least five years
from the date of transaction between the bank/FI and the client, all necessary records of
transactions, both domestic or international, which will permit reconstruction of individual
transactions (including the amounts and types of currency involved, if any) so as to provide,
if necessary, evidence for prosecution of persons involved in criminal activity.
51. Banks/FIs should ensure that records pertaining to the identification of the customers and
their 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 at least five years after the business relationship is
ended as required under Rule 10 of the Rules ibid. The identification of records and
transaction data should be made available to the competent authorities upon request.
52. Banks/FIs may maintain records of the identity of their clients, and records in respect of
transactions referred to in Rule 3 in hard or soft format.
53. Combating Financing of Terrorism : The United Nations periodically circulates the following
two lists of individuals and entities, suspected of having terrorist links, and as approved by
its Security Council (UNSC).
(a) The “Al-Qaida Sanctions List”, includes names of individuals and entities associated with
the Al-Qaida.
(b) The “1988 Sanctions List”, consisting of individuals (Section A of the consolidated list) and
entities.
54. The United Nations Security Council Resolutions (UNSCRs), received from Government of
India, are circulated by the Reserve Bank to all banks and FIs. Banks/FIs are required to
update the lists and take them into account for implementation of Section 51A of the
Unlawful Activities (Prevention) (UAPA) Act, 1967, discussed below. Banks/FIs should ensure
that they do not have any account in the name of individuals/entities appearing in the above
lists. Details of accounts resembling any of the individuals/entities in the list should be
reported to FIUIND.
55. Freezing of Assets under Section 51A of Unlawful Activities (Prevention) Act, 1967 :
(a) The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended by the
Unlawful Activities (Prevention) Amendment Act, 2008. Government has issued an Order
dated August 27, 2009 (Annex II of this circular) detailing the procedure for implementation
of Section 51A of the Unlawful Activities (Prevention) Act, 1967 for prevention of, and for
coping with terrorist activities.
56. In terms of Section 51A, the Central Government is empowered to freeze, seize or attach
funds and other financial assets or economic resources held by, on behalf of or at the
direction of the individuals or entities listed in the Schedule to the Order, or any other
person engaged in or suspected to be engaged in terrorism and prohibit any individual or
entity from making any funds, financial assets or economic resources or related services
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
available for the benefit of the individuals or entities listed in the Schedule to the Order or
any other person engaged in or suspected to be engaged in terrorism.
57. Jurisdictions that do not or insufficiently apply the FATF Recommendations:
(a) Banks/FIs are required to take into account risks arising from the deficiencies in AML/CFT
regime of the jurisdictions included in the FATF Statement. In addition to FATF Statements
circulated by Reserve Bank of India from time to time, banks/FIs should also consider
publicly available information for identifying countries, which do not or insufficiently apply
the FATF Recommendations. It is clarified that banks/FIs should also give special attention to
business relationships and transactions with persons (including legal persons and other
financial institutions) from or in countries that do not or insufficiently apply the FATF
Recommendations and jurisdictions included in FATF Statements. (b) Banks/FIs should
examine the background and purpose of transactions with persons (including legal persons
and other financial institutions) from jurisdictions included in FATF Statements and countries
that do not or insufficiently apply the FATF Recommendations. Further, if the transactions
have no apparent economic or visible lawful purpose, the background and purpose of such
transactions should, as far as possible be examined, and written findings together with all
documents should be retained and made available to Reserve Bank/other relevant
authorities, on request.
58. In terms of the Rule 3 of the PML (Maintenance of Records) Rules, 2005, banks/FIs are
required to furnish information relating to cash transactions, cash transactions integrally
connected to each other, and all transactions involving receipts by non-profit organisations
(NPO means any entity or organisation that is registered as a trust or a society under the
Societies Registration Act, 1860 or any similar State legislation or a company registered
(erstwhile Section 25 of Companies Act, 1956 ) under Section 8 of the Companies Act, 2013),
cash transactions ;where forged or counterfeit currency notes or bank notes have been used
as genuine, cross border wire transfer, etc. to the Director, Financial Intelligence Unit-India
(FIU-IND).
59. FIU-IND has released a comprehensive reporting format guide to describe the specifications
of prescribed reports to FIU-IND. FIU-IND has also developed a Report Generation Utility and
Report Validation Utility to assist reporting entities in the preparation of prescribed reports.
The Office Memorandum issued on Reporting Formats under Project FINnet dated 31st
March, 2011 by FIU containing all relevant details are available on FIU’s website. Banks/FIs
should carefully go through all the reporting formats prescribed by FIU-IND.
60. FIU-IND have placed on their website editable electronic utilities to file electronic Cash
Transactions Report (CTR)/ Suspicious Transactions Report (STR) to enable banks/FIs which
are yet to install/adopt suitable technological tools for extracting CTR/STR from their live
transaction data base. It is, therefore, advised that in cases of those banks/FIs, where all the
branches are not fully computerized, the Principal Officer of the bank/FI should cull out the
transaction details from branches which are not yet computerized and suitably arrange to
feed the data into an electronic file with the help of the editable electronic utilities of
CTR/STR as have been made available by FIU-IND on their website http://fiuindia.gov.in.
61. In terms of Rule 8, while furnishing information to the Director, FIU-IND, delay of each day in
not reporting a transaction or delay of each day in rectifying a misrepresented transaction
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
beyond the time limit as specified in the Rule shall constitute a separate violation. Banks/FIs
are advised to take note of the timeliness of the reporting requirements.
62. Reports to be furnished to FIU-IND :
1) Cash Transaction Report (CTR)
2) Suspicious Transaction Reports (STR)
3) Non-Profit Organisation
4) Cross-border Wire Transfer
63. The CTR for each month should be submitted to FIU-IND by 15th of the succeeding month.
Cash transaction reporting by branches to their controlling offices should, therefore,
invariably be submitted on monthly basis and banks/FIs should ensure to submit CTR for
every month to FIU-IND within the prescribed time schedule.
64. All cash transactions, where forged or counterfeit Indian currency notes have been used as
genuine should be reported by the Principal Officer of the bank to FIU-IND in the specified
format(Counterfeit Currency Report – CCR), by 15thday of the next month. These cash
transactions should also include transactions where forgery of valuable security or
documents has taken place and may be reported to FIU-IND in plain text form.
65. While filing CTR, details of individual transactions below Rupees Fifty thousand need not be
furnished. CTR should contain only the transactions carried out by the bank on behalf of
their clients/customers excluding transactions between the internal accounts of the bank.
66. A summary of cash transaction reports for the bank as a whole should be compiled by the
Principal Officer of the bank every month in physical form as per the format specified. The
summary should be signed by the Principal Officer and submitted to FIU-IND. In case of CTRs
compiled centrally by banks for the branches having Core Banking Solution (CBS) at their
central data centre, banks may generate centralised CTRs in respect of the branches under
core banking solution at one point for onward transmission to FIU-IND, provided the CTR is
to be generated in the format prescribed by FIU-IND.
67. A copy of the monthly CTR submitted to FIU-India in respect of the branches should be
available at the branches for production to auditors/inspectors, when asked for; and
instruction on ‘Maintenance of records of transactions’; and ‘Preservation of records’
should be scrupulously followed by the branches. However, in respect of branches not under
CBS, the monthly CTR should continue to be compiled and forwarded by the branch to the
Principal Officer for onward transmission to FIU-IND.
68. It is likely that in some cases transactions are abandoned/aborted by customers on being
asked to give some details or to provide documents. It is clarified that banks/FIs should
report all such attempted transactions in STRs, even if not completed by the customers,
irrespective of the amount of the transaction.
69. The STR should be furnished within seven days of arriving at a conclusion that any
transaction, whether cash or non-cash, or a series of transactions integrally connected are of
suspicious nature. The Principal Officer should record his reasons for treating any
transaction or a series of transactions as suspicious. It should be ensured that there is no
undue delay in arriving at such a conclusion once a suspicious transaction report is received
from a branch or any other office. Such report should be made available to the competent
authorities on request.
70. Banks/FIs should not put any restrictions on operations in the accounts where an STR has
been filed. Banks/FIs and their employees should keep the fact of furnishing of STR strictly
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
confidential, as required under PML Rules. It should be ensured that there is no tipping off
to the customer at any level.
71. The report of all transactions involving receipts by non- profit organizations of value more
than rupees ten lakh or its equivalent in foreign currency should be submitted every month
to the Director, FIU-IND by 15th of the succeeding month in the prescribed format.
72. Cross-border Wire Transfer Report (CWTR) is required to be filed with FIU-IND by 15th of
succeeding month for all cross border wire transfers of the value of more than five lakh
rupees or its equivalent in foreign currency where either the origin or destination of fund is
in India.
73. Banks/FIs may nominate a Director on their Boards as “designated Director”, as required
under provisions of the Prevention of Money Laundering (Maintenance of Records) Rules,
2005 (Rules), to ensure compliance with the obligations under the Act and Rules. The name,
designation and address of the Designated Director may be communicated to the FIU-IND.
UCBs/ State Cooperative Banks / Central Cooperative Banks can also designate a person who
holds the position of senior management or equivalent as a 'Designated Director'. However,
in no case, the Principal Officer should be nominated as the 'Designated Director'.
74. Principal Officer: Banks/FIs may appoint a senior officer as Principal Officer (PO). The PO
should be independent and report directly to the senior management or to the Board of
Directors. The PO shall be responsible for ensuring compliance, monitoring transactions, and
sharing and reporting information as required under the law/regulations. The name,
designation and address of the Principal Officer may be communicated to the FIU-IND.
75. The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended and notified on
31.12.2008, which, inter-alia, inserted Section 51A to the Act. Section 51A reads as under:-
"51A. For the prevention of, and for coping with terrorist activities, the Central Government
shall have power to – (a) freeze, seize or attach funds and other financial assets or economic
resources held by, on behalf of or at the direction of the individuals or entities Listed in the
Schedule to the Order, or any other person engaged in or suspected to be engaged in
terrorism; (b) prohibit any individual or entity from making any funds, financial assets or
economic resources or related services available for the benefit of the individuals or entities
Listed in the Schedule to the Order or any other person engaged in or suspected to be
engaged in terrorism; (c) prevent the entry into or the transit through India of individuals
Listed in the Schedule to the Order or any other person engaged in or suspected to be
engaged in terrorism.
76. The Unlawful Activities (Prevention) Act define "Order" as under:- "Order" means the
Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions)
Order, 2007, as may be amended from time to time. In order to expeditiously and
effectively implement the provisions of Section 51A, the following procedures shall be
followed:-
77. Appointment and Communication of details of UAPA nodal officers
As regards appointment and communication of details of UAPA nodal officers -
(i) The UAPA nodal officer for IS-I division would be the Joint Secretary (IS.I), Ministry of
Home Affairs. His contact details are 01123092736(Tel), 011-23092569(Fax) and e-mail. (ii)
The Ministry of External Affairs, Department of Economic Affairs, Foreigners Division of
MHA, FIU-IND; and RBI, SEBI, IRDA (hereinafter referred to as Regulators) shall appoint a
UAPA nodal officer and communicate the name and contact details to the IS-I Division in
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
MHA. (iii) The States and UTs should appoint a UAPA nodal officer preferably of the rank of
the Principal Secretary/Secretary, Home Department and communicate the name and
contact details to the IS-I Division in MHA. (iv) The IS-I Division in MHA would maintain the
consolidated list of all UAPA nodal officers and forward the list to all other UAPA nodal
officers. (v) The RBI, SEBI, IRDA should forward the consolidated list of UAPA nodal officers
to the banks, stock exchanges/depositories, intermediaries regulated by SEBI and insurance
companies respectively. (vi) The consolidated list of the UAPA nodal officers should be
circulated to the nodal officer of IS-I Division of MHA in July every year and on every change.
Joint Secretary(IS-I), being the nodal officer of IS-I Division of MHA, shall cause the amended
list of UAPA nodal officers to be circulated to the nodal officers of Ministry of External
Affairs, Department of Economic Affairs, Foreigners Division of MHA, RBI, SEBI, IRDA and
FIU-IND.
78. Regarding funds, financial assets or economic resources or related services held in the form
of bank accounts, stocks or insurance policies etc.
(i) Maintain updated designated lists in electronic form and run a check on the given
parameters on a regular basis to verify whether individuals or entities listed in the schedule
to the Order (referred to as designated individuals/entities) are holding any funds, financial
assets or economic resources or related services held in the form of bank accounts, stocks or
insurance policies etc. with them.
(ii) In case, the particulars of any of their customers match with the particulars of
designated individuals/entities, the banks, stock exchanges/ depositories, intermediaries
regulated by SEBI and insurance companies 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, stocks or
insurance policies etc.
(iii) The banks, stock exchanges/ depositories, intermediaries regulated by SEBI and
insurance companies shall also send by post a copy of the communication mentioned in (ii)
above to the UAPA nodal officer of the state/ UT where the account is held and Regulators
and FIU-IND, as the case may be.
(iv) In case, the match of any of the customers with the particulars of designated
individuals/entities is beyond doubt, the banks stock exchanges / depositories,
intermediaries regulated by SEBI and insurance companies would prevent designated
persons from conducting financial transactions, under intimation to Joint Secretary (IS.I),
Ministry of Home Affairs.
(v) The banks, stock exchanges/depositories, intermediaries regulated by SEBI and insurance
companies shall file a Suspicious Transaction Report (STR) with FIU-IND covering all
transactions in the accounts
79. In case, the results of the verification indicate that the properties are owned by or held for
the benefit of the designated individuals/entities, an order to freeze these assets under
section 51A of the UAPA would be issued within 24 hours of such verification and conveyed
electronically to the concerned bank branch, depository, branch of insurance company
branch under intimation to respective Regulators and FIU-IND.
80. In case, the designated individuals/entities are holding financial assets or economic
resources of the nature of immovable property and if any match with the designated
individuals/entities is found, the UAPA nodal officer of the State/UT would cause
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
communication of the complete particulars of such individual/entity along with complete
details of the financial assets or economic resources of the nature of immovable property to
the Joint Secretary (IS.I), Ministry of Home Affairs, immediately within 24 hours.
81. The UAPA nodal officer of the State/UT may cause such inquiry to be conducted by the State
Police so as to ensure that the particulars sent by the Registrar performing the work of
registering immovable properties are indeed of these designated individuals/entities. This
verification would be completed within a maximum of 5 working days and should be
conveyed within 24 hours of the verification, if it matches with the particulars of the
designated individual/entity to Joint Secretary(IS-I), Ministry of Home Affairs at the Fax
telephone numbers and also on the e-mail id given below.
82. In case, the results of the verification indicate that the particulars match with those of
designated individuals/entities, an order under Section 51A of the UAPA would be issued
within 24 hours, by the nodal officer of IS-I Division of MHA and conveyed to the concerned
Registrar performing the work of registering immovable properties and to FIU-IND under
intimation to the concerned UAPA nodal officer of the State/UT.
83. Implementation of requests received from foreign countries under U.N. Security Council
Resolution 1373 of 2001. : U.N. Security Council Resolution 1373 obligates countries to
freeze without delay the funds or other assets of persons who commit, or attempt to
commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of
entities owned or controlled directly or indirectly by such persons; and of persons and
entities acting on behalf of, or at the direction of such persons and entities, including funds
or other assets derived or generated from property owned or controlled, directly or
indirectly, by such persons and associated persons and entities. Each individual country has
the authority to designate the persons and entities that should have their funds or other
assets frozen. Additionally, to ensure that effective cooperation is developed among
countries, countries should examine and give effect to, if appropriate, the actions initiated
under the freezing mechanisms of other countries.
To give effect to the requests of foreign countries under U.N. Security Council Resolution
1373, the Ministry of External Affairs shall examine the requests made by the foreign
countries and forward it electronically, with their comments, to the UAPA nodal officer for
IS-I Division for freezing of funds or other assets. The UAPA nodal officer of IS-I Division of
MHA, shall cause the request to be examined, within 5 working days so as to satisfy itself
that on the basis of applicable legal principles, the requested designation is supported by
reasonable grounds, or a reasonable basis, to suspect or believe that the proposed
designee is a terrorist, one who finances terrorism or a terrorist organization, and upon his
satisfaction, request would be electronically forwarded to the nodal officers in Regulators.
FIU-IND and to the nodal officers of the States/UTs. The proposed designee, as mentioned
above would be treated as designated individuals/entities. The freezing orders shall take
place without prior notice to the designated persons involved.
84. Procedure for unfreezing of funds, financial assets or economic resources or related services
of individuals/entities inadvertently affected by the freezing mechanism upon verification
that the person or entity is not a designated person
Any individual or entity, if it has evidence to prove that the freezing of funds,
financial assets or economic resources or related services, owned/held by them has
been inadvertently frozen, they shall move an application giving the requisite
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
evidence, in writing, to the concerned bank, stock exchanges/depositories,
intermediaries regulated by SEBI, insurance companies, Registrar of Immovable
Properties and the State/UT nodal officers.
The banks stock exchanges/depositories, intermediaries regulated by SEBI,
insurance companies, Registrar of Immovable Properties and the State/UT nodal
officers shall inform and forward a copy of the application together with full details
of the asset frozen given by any individual or entity informing of the funds,
financial assets or economic resources or related services have been frozen
inadvertently, to the nodal officer of IS-I Division of MHA as per the contact details
within two working days.
The Joint Secretary (IS-I), MHA, being the nodal officer for (IS-I) Division of MHA,
shall cause such verification as may be required on the basis of the evidence
furnished by the individual/entity and if he is satisfied, he shall pass an order,
within 15 working days, unfreezing the funds, financial assets or economic
resources or related services, owned/held by such applicant under intimation to
the concerned bank, stock exchanges/depositories, intermediaries regulated by
SEBI, insurance company and the nodal officers of States/UTs. However, if it is not
possible for any reason to pass an order unfreezing the assets within fifteen
working days, the nodal officer of IS-I Division shall inform the applicant.
85. Communication of Orders under section 51A of Unlawful Activities (Prevention) Act.: All
Orders under section 51A of Unlawful Activities (Prevention) Act, relating to funds, financial
assets or economic resources or related services, would be communicated to all banks,
depositories/stock exchanges, intermediaries regulated by SEBI, insurance companies
through respective Regulators, and to all the Registrars performing the work of registering
immovable properties, through the State/UT nodal officer by IS-I Division of MHA.
86. Regarding prevention of entry into or transit through India :As regards prevention of entry
into or transit through India of the designated individuals, the Foreigners Division of MHA,
shall forward the designated lists to the immigration authorities and security agencies with a
request to prevent the entry into or the transit through India. The order shall take place
without prior notice to the designated individuals/entities. The immigration authorities shall
ensure strict compliance of the Orders and also communicate the details of entry or transit
through India of the designated individuals as prevented by them to the Foreigners' Division
of MHA.
87. Procedure for communication of compliance of action taken under Section 51A :
The nodal officers of IS-I Division and Foreigners Division of MHA shall furnish the details of
funds, financial assets or economic resources or related services of designated
individuals/entities frozen by an order, and details of the individuals whose entry into India
or transit through India was prevented, respectively, to the Ministry of External Affairs for
onward communication to the United Nations.
88. Clients of special category (CSC): Such clients include the followingi.
Non resident clients
ii. High net-worth clients,
iii. Trust, Charities, Non-Governmental Organizations (NGOs) and organizations receiving
donations
iv. Companies having close family shareholdings or beneficial ownership
[KYC AND AML : A GIST FOR CERTIFICATE EXAM PURPOSE]
v. Politically Exposed Persons (PEP) are individuals who are or have been entrusted with
prominent public functions in a foreign country, e.g., Heads of States or of Governments,
senior politicians, senior government/judicial/military officers, senior executives of
state-owned corporations, important political party officials, etc.
vi. Companies offering foreign exchange offerings
vii. Clients in high risk countries where existence / effectiveness of money laundering
controls is suspect, where there is unusual banking secrecy, countries active in
narcotics production, countries where corruption (as per Transparency International
Corruption Perception Index) is highly prevalent, countries against which government
sanctions are applied, countries reputed to be any of the following – Havens/ sponsors
of international terrorism, offshore financial centers, tax havens, countries where fraud is
highly prevalent. While dealing with clients in high risk countries where the
existence/effectiveness of money laundering control is suspect, intermediaries apart from
being guided by the Financial Action Task Force (FATF) statements that identify countries
that do not or insufficiently apply the FATF Recommendations, published by the FATF on
its website (www.fatf- gafi.org), shall also independently access and consider other publicly
available information.
viii. Non face to face clients
ix. Clients with dubious reputation as per public information available etc. The above
mentioned list is only illustrative and the intermediary shall exercise independent judgment
to ascertain whether any other set of clients shall be classified as CSC or not.
