Trust/Nominee or Fiduciary Accounts
There exists the possibility that trust/nominee or fiduciary accounts can be used to
circumvent the customer identification procedures. The branches should determine whether
the customer is acting on behalf of another person as trustee/nominee or any other
intermediary. If so, branches shall insist on receipt of satisfactory evidence of the identity of
the intermediaries and of the persons on whose behalf they are acting, as also obtain details
of the nature of the trust or other arrangements in place. While opening an account for a
trust, branches should take reasonable precautions to verify the identity of the trustees and
the settlors of trust (including any person settling assets into the trust), grantors, protectors,
beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the
case of a 'foundation', steps should be taken to verify the founder managers/ directors and
the beneficiaries, if defined.
Accounts of companies and firms
Branches need to be vigilant against business entities being used by individuals as a ‘front’ for
maintaining accounts with banks. Branches should examine the control structure of the entity,
determine the source of funds and identify the natural persons who have a controlling
interest and who comprise the management. These requirements may be moderated
according to the risk perception e.g. in the case of a public company it will not be necessary to
identify all the shareholders. But at least promoters, directors and its executives need to be
identified adequately.
Client accounts opened by professional intermediaries
When the branch 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.
Branches may hold 'pooled' accounts managed by professional intermediaries on behalf of
entities like mutual funds, pension funds or other types of funds. Branches should also
maintain 'pooled' accounts managed by lawyers/chartered accountants or stockbrokers for
funds held 'on deposit' or 'in escrow' for a range of clients. Where funds held by the
intermediaries are not co-mingled at the branch and there are 'sub-accounts', each of them
attributable to a beneficial owner, all the beneficial owners must be identified. Where such
accounts are co-mingled at the branch, the branch should still look through to the beneficial
owners. Where the bank rely on the 'customer due diligence' (CDD) done by an intermediary, it
shall satisfy itself that the intermediary is regulated and supervised and has adequate
systems in place to comply with the KYC requirements.
Accounts of Politically Exposed Persons(PEPs) resident outside India
Politically exposed persons 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. Branches should gather sufficient
information on any person/customer of this category intending to establish a relationship and
check all the information available on the person in the public domain. Branches should verify
the identify of the person and seek information about the sources of funds before accepting
the PEP as a customer. The branches should seek prior approval of their concerned Zonal
Heads for opening an account in the name of PEP.
Accounts of non-face-to-face customers
With the introduction of telephone and electronic banking, increasingly accounts are being
opened by banks for customers without the need for the customer to visit the bank branch. In
the case of non-face-to-face customers, apart from applying the usual customer identification
procedures, there must be specific and adequate procedures to mitigate the higher risk
involved. Certification of all the documents presented shall be insisted upon and, if necessary,
additional documents may be called for. In such cases, branches may also require the first
payment to be effected through the customer's account if any with another bank which, in
turn, adheres to similar KYC standards. In the case of cross-border customers, there is the
additional difficulty of matching the customer with the documentation and the branches might
have to rely on third party certification/introduction. In such cases, it must be ensured that
the third party is a regulated and supervised entity and has adequate KYC systems in place.
Correspondent Banking
a) 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. The bank while
entering into any kind of correspondent banking arrangement shall gather sufficient
information to understand fully the nature of the business of the correspondent/respondent
bank. Information on the other bank’s management, major business activities, level of
AML/CFT compliance, purpose of opening the account, identity of any third party entities that
will use the correspondent banking services, and regulatory/supervisory framework in the
correspondent's/respondent’s country shall be of special relevance. Similarly, the bank shall
also ascertain from publicly available information whether the other bank has been subject to
any money laundering or terrorist financing investigation or regulatory action. Such
relationships shall be established only with the prior approval of the Board. The Board may in
the alternative delegate powers in this regard to a committee headed by the Chairman/CEO of
the bank and lay down clear parameters for approving such relationships. Proposals
approved by the Committee should invariably be put up to the Board at its next meeting for
post facto approval. The responsibilities of each bank with whom correspondent banking
relationship is established should be clearly documented. In the 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 bank shall also ensure that the respondent bank is able to provide
the relevant customer identification data immediately on request.
b) Bank shall not enter into a correspondent relationship with a 'shell bank'. A Shell bank is a
bank which is incorporated in a country where it has no physical presence and is unaffiliated
to any regulated financial group. “Shell banks” are not permitted to operate in India. Bank
shall also guard against establishing relationships with respondent foreign financial
institutions that permit their accounts to be used by “shell banks”. The Bank shall move
cautiously while continuing relationships with respondent banks located in countries with poor
KYC standards and countries identified as 'non-cooperative' in the fight against money
laundering policies and procedures in place and apply enhanced 'due diligence' procedures for
transactions carried out through the correspondent accounts
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