Know Your Customer (KYC) Norms/Anti-Money Laundering (AML)
Measures/Combating of Financing of Terrorism (CFT)/Obligations of banks under
PMLA, 2002
The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC
procedures also enable banks to know/understand their customers and their financial dealings
better which in turn help them manage their risks prudently.
1.2. Definition of Customer
For the purpose of KYC policy, a ‘Customer’ is defined as:
c a person or entity that maintains an account and/or has a business relationship with the
bank;
d one on whose behalf the account is maintained (i.e. the beneficial owner). [Ref:
Government of India Notification dated February 12, 2010 - Rule 9, sub-rule (1A) of
PMLA Rules - 'Beneficial Owner' means the natural person who ultimately owns or
controls a client and or the person on whose behalf a transaction is being conducted,
and includes a person who exercise ultimate effective control over a juridical person]
e beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
.
f any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.
3 Guidelines
4 1.General
(c) Banks should keep in mind that the information collected from the customer for
the purpose of opening of account is to be treated as confidential and details thereof
are not to be divulged for cross selling or any other like purposes. Banks should,
therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not intrusive, and is in
conformity with the guidelines issued in this regard. Any other information from the
customer should be sought separately with his/her consent and after opening the
account
31. 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 Rupees fifty thousand and above is effected by debit to the customer’s account or
against cheques and not against cash payment
32. With effect from April 1, 2012, banks should not make payment of cheques/drafts/pay
orders/banker’s cheques bearing that date or any subsequent date, if they are
presented beyond the period of three months from the date of such instrument.
33. Banks should ensure that the provisions of Foreign Contribution (Regulation) Act,
2010, wherever applicable, are strictly adhered to.
2.2. KYC Policy
Banks should frame their KYC policies incorporating the following four key elements:
4 Customer Acceptance Policy;
5 Customer Identification Procedures;
.
6 Monitoring of Transactions; and
iv)Risk Management.
2.3. Customer Acceptance Policy (CAP)
3 Every bank should develop a clear Customer Acceptance Policy laying down explicit criteria
for acceptance of customers. The Customer Acceptance Policy must ensure that explicit
guidelines are in place on the following aspects of customer relationship in the bank.
(bi) No account is opened in anonymous or fictitious/benami name.
[Ref: Government of India Notification dated June 16, 2010 Rule 9, sub-rule (1C) -
Banks should not allow the opening of or keep any
anonymous account or accounts in fictitious name or account on behalf of other
persons whose identity has not been disclosed or cannot be verified].
5 Parameters of risk perception are clearly defined in terms of the nature of business
activity, location of customer and his clients, mode of payments, volume of turnover,
social and financial status etc. to enable categorisation of customers into low, medium
and high risk (banks may choose any suitable nomenclature viz. level I, level II and level
III). Customers requiring very high level of monitoring, e.g. Politically Exposed Persons
(PEPs) may, if considered necessary, be categorised even higher;
iii)Documentation requirements and other information to be collected in respect of different
categories of customers depending on perceived risk and keeping in mind the
requirements of PML Act, 2002 and instructions/guidelines issued by Reserve Bank
from time to time;
iv)Not to open an account where the bank is unable to apply appropriate customer due
diligence measures, i.e., bank is unable to verify the identity and /or obtain documents
required as per the risk categorisation due to non-cooperation of the customer or nonreliability
of the data/information furnished to the bank. Bank may also consider closing
an existing account under similar circumstances. It is, however, necessary to have
suitable built in safeguards to avoid harassment of the customer. For example, decision
by a bank to close an account should be taken at a reasonably high level after giving
due notice to the customer explaining the reasons for such a decision.
.
32.Circumstances, in which a customer is permitted to act on behalf of another
person/entity, should be clearly spelt out in conformity with the established law and
practice of banking as there could be occasions when an account is operated by a
mandate holder or where an account is opened by an intermediary in fiduciary capacity
and
(v) Necessary checks before opening a new account so as to ensure that the identity of the
customer does not match with any person with known criminal background or with
banned entities such as individual terrorists or terrorist organisations etc.
34. Banks should prepare a profile for each new customer based on risk categorisation. The
customer profile may contain information relating to customer’s identity, social/financial status,
nature of business activity, information about his clients’ business and their location etc. The
nature and extent of due diligence will depend on the risk perceived by the bank. However,
while preparing customer profile banks should take care to seek only such information from
the customer, which is relevant to the risk category and is not intrusive. The customer profile
is a confidential document and details contained therein should not be divulged for cross
selling or any other purposes.
35. For the purpose of risk categorisation, individuals (other than High Net Worth) and entities
whose identities and sources of wealth can be easily identified and transactions in whose
accounts by and large conform to the known profile, may be categorised as low risk.
Illustrative examples of low risk
customers could be salaried employees whose salary structures are well
defined, people belonging to lower economic strata of the society whose accounts show
small balances and low turnover, Government Departments and Government owned
companies, regulators and statutory bodies etc. In such cases, the policy may require that
only the basic requirements of verifying the identity and location of the customer are to be
met. Customers that are likely to pose a higher than average risk to the bank should be
categorised as medium or high risk depending on customer's background, nature and
location of activity, country of origin, sources of funds and his client profile, etc. Banks should
apply enhanced due diligence measures based on the risk assessment, thereby requiring
intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of
funds are not clear. In view of the risks involved in cash intensive businesses, accounts of
.
10
bullion dealers (including sub-dealers) & jewelers should also be categorized by banks as
'high risk' requiring enhanced due diligence. Other examples of customers requiring higher
due diligence include (a) nonresident customers;
42. high net worth individuals; (c) trusts, charities, NGOs and organizations receiving
donations; (d) companies having close family shareholding or beneficial ownership; (e) firms
with 'sleeping partners';
(f) politically exposed persons (PEPs) of foreign origin, customers who are close relatives of
PEPs and accounts of which a PEP is the ultimate beneficial owner; (g) non-face to face
customers and (h) those with dubious reputation as per public information available etc.
However, NPOs/NGOs promoted by United Nations or its agencies may be classified as low
risk customers.
48. In addition to what has been indicated above, banks/FIs should take steps to identify and
assess their ML/TF risk for customers, countries and geographical areas as also for products/
services/ transactions/delivery channels. Banks/FIs should have policies, controls and
procedures, duly approved by their boards, in place to effectively manage and mitigate their
risk adopting a risk-based approach. As a corollary, banks would be required to adopt
enhanced measures for products, services and customers with a medium or high risk rating.
In this regard, banks may use for guidance in their own risk assessment, a Report on
Parameters for Risk-Based Transaction Monitoring (RBTM) dated March 30, 2011 which was
issued by Indian Banks' Association as a supplement to their guidance note on Know Your
Customer (KYC) norms / Anti-Money Laundering (AML) standards issued in July 2009. The
IBA guidance also provides an indicative list of high risk customers, products, services and
geographies.
49. It is important to bear in mind that the adoption of customer acceptance policy and its
implementation should not become too restrictive and must not result in denial of banking
services to general public, especially to those, who are financially or socially disadvantaged.
.
11
2.4. Customer Identification Procedure (CIP)
50. The policy approved by the Board of banks should clearly spell out the Customer
Identification Procedure to be carried out at different stages, i.e., while establishing a banking
relationship; carrying out a financial transaction or when the bank has a doubt about the
authenticity/veracity or the adequacy of the previously obtained customer identification data.
Customer identification means identifying the customer and verifying his/her identity by using
reliable, independent source documents, data or information. Banks need to obtain sufficient
information necessary to establish, to their satisfaction, the identity of each new customer,
whether regular or occasional, and the purpose of the intended nature of banking relationship.
Being satisfied means that the bank must be able to satisfy the competent authorities that
due diligence was observed based on the risk profile of the customer in compliance with the
extant guidelines in place. Such risk-based approach is considered necessary to avoid
disproportionate cost to banks and a burdensome regime for the customers. Besides risk
perception, the nature of information/documents required would also depend on the type of
customer (individual, corporate etc.). For customers that are natural persons, the banks
should obtain sufficient identification data to verify the identity of the customer, his
address/location, and also his recent photograph. For customers that are legal persons or
entities, the bank should (i) verify the legal status of the legal person/entity through proper
and relevant documents;
(i) verify that any person purporting to act on behalf of the legal person/entity is so
authorised and identify and verify the identity of that person; (iii)
understand the ownership and control structure of the customer and determine who are the
natural persons who ultimately control the legal person.
(viii) Banks may seek ‘mandatory’ information required for KYC purpose which the customer is
obliged to give while opening an account or during periodic updation. Other ‘optional’
customer details/additional information, if required may be obtained separately after the
account is opened only with the explicit
.
12
consent of the customer. The customer has a right to know what is the information required
for KYC that she/he is obliged to give, and what is the additional information sought by the
bank that is optional. Further, it is reiterated that banks should keep in mind that the
information (both ‘mandatory’ – before opening the account as well as ‘optional’- after
opening the account with the explicit consent of the customer) collected from the customer is
to be treated as confidential and details thereof are not to be divulged for cross selling or any
other like purposes.
59. Customer identification requirements in respect of a few typical cases, especially, legal
persons requiring an extra element of caution are given in paragraph 2.5 below for guidance
of banks. Banks may, however, frame their own internal guidelines based on their experience
of dealing with such persons/entities, normal bankers’ prudence and the legal requirements
as per established practices. If the bank decides to accept such accounts in terms of the
Customer Acceptance Policy, the bank should take reasonable measures to identify the
beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it
knows who the beneficial owner(s) is/are [Ref: Government of India Notification dated June
16, 2010 - Rule 9 sub-rule (1A) of PML Rules].
d) In this connection, a reference may be made to the circular DBOD.AML.BC. No.
71/14.01.001/2012-13 dated January 18, 2013 wherein the procedure for determination of
Beneficial Ownership, as advised by Government of India has been specified.
63. The increasing complexity and volume of financial transactions necessitate that customers do
not have multiple identities within a bank, across the banking system and across the financial
system. This can be achieved by introducing a unique identification code for each customer.
The Unique Customer Identification Code (UCIC) will help banks to identify customers, track
the facilities availed, monitor financial transactions in a holistic manner and enable banks to
have a better approach to risk profiling of customers. It would also smoothen banking
operations for the customers. While some
.
banks already use UCIC for their customers by providing them a relationship number, etc.,
other banks have not adopted this practice. Banks were therefore, advised to initiate steps for
allotting UCIC to all their customers while entering into any new relationships for individual
customers to begin with. Existing individual customers were required to be allotted UCIC by
end-May 2013. However, in view of difficulties expressed by some banks in implementing
UCIC for their customers, for various reasons, and keeping in view the constraints, the time
for completing the process of allotting UCIC to existing customers was extended up to March
31, 2014. In this regard a further extension upto December 31, 2014 has been allowed.
Banks have been advised to expedite the procedure and complete the work of allotting UCIC
to all the existing individual customers, within the stipulated timeframe. They may chalk out a
plan for completing the work and furnish the monthly progress report to their Board.
Considering the fact that a period of two years has been allotted for completion of the task,
no further extension in this regard would be considered. Further, it is reiterated that UCIC
should be allotted to all customers while entering into new relationships.
72. When there are suspicions of money laundering or financing of the activities relating to
terrorism or where there are doubts about the adequacy or veracity of previously obtained
customer identification data, banks should review the due diligence measures including
verifying again the identity of the client and obtaining information on the purpose and
intended nature of the business relationship. [Ref: Government of India Notification dated
June 16, 2010- Rule 9 sub-rule (1D) of PML Rules].
73. It has been observed that some close relatives, e.g. wife, son, daughter and parents, etc.
who live with their husband, father/mother and son, as the case may be, are finding it difficult
to open account in some banks as the utility bills required for address verification are not in
their name. It is clarified, that in such cases, banks can obtain an identity document and a
utility bill of the relative with whom the prospective customer is living along with a declaration
from the relative that the said person (prospective customer) wanting to open
an account is a relative and is staying with him/her. Banks can use any supplementary
evidence such as a letter received through post for further verification of the address. While
issuing operational instructions to the branches on the subject, banks should keep in mind
the spirit of instructions issued by the Reserve Bank and avoid undue hardships to individuals
who are, otherwise, classified as low risk customers.
83. Norms for furnishing proof of address have been relaxed to allow submitting only one
documentary proof of address (either current or permanent) while opening a bank account or
while undergoing periodic updation. In case the address mentioned as per ‘proof of address’
undergoes a change, fresh proof of address may be submitted to the branch within a period
.
of six months. In case the proof of address furnished by the customer is not the local address
or address where the customer is currently residing, the bank may take a declaration of the
local address on which all correspondence will be made by the bank with the customer. No
proof is required to be submitted for such address for correspondence/local address. This
address may be verified by the bank through ‘positive confirmation’ such as acknowledgment
of receipt of (i) letter, cheque books, ATM cards; (ii) telephonic conversation;
(i) visits; etc. In the event of change in this address due to relocation or any
other reason, customers may intimate the new address for correspondence to the bank within
two weeks of such a change.
83. Some banks insist on opening of fresh accounts by customers when customers approach
them for transferring their account from one branch of the bank to another branch of the
same bank. Banks are advised that KYC once done by one branch of the bank should be
valid for transfer of the account within the bank as long as full KYC has been done for the
concerned account. The customer should be allowed to transfer his account from one branch
to another branch without restrictions.Banks may transfer existing accounts at the transferor
branch to the transferee branch without insisting on fresh proof of address and on the basis
of a self-declaration from the account holder about his/her current address.
87. Banks should carry out periodical updation of KYC information of every customer, which may
include the following:
Full KYC exercise may 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. Full
KYC may include all measures for confirming identity and address and other particulars
of the customer that the bank may consider reasonable and necessary based on the
risk profile of the customer.
Positive confirmation (obtaining KYC related updates through e-mail/ letter/
telephonic conversation/ forms/ interviews/ visits, etc.), may be completed at least
every two years for medium risk and at least every three years for low risk
individuals and entities.
Fresh photographs to be obtained from minor customer on becoming major.
The time limits prescribed above would apply from the date of opening of the account/
last verification of KYC.
.
88. An indicative list of the nature and type of documents/information that may be may be relied
upon for customer identification is given in Annex-I to this Master Circular.
89. If the address on the document submitted for identity proof by the prospective customer is
same as that declared by him/her in the account opening form, the document may be
accepted as a valid proof of both identity and address.
90. A rent agreement indicating the address of the customer duly registered with State
Government or similar registration authority may also be accepted as a proof of address.
n) It has been brought to our notice that the said indicative list furnished in Annex - I, is being
treated by some banks as an exhaustive list as a result of which a section of public is being
denied access to banking services. Banks are, therefore, advised to take a review of their
extant internal instructions in this regard.
2.5. Customer Identification Requirements – Indicative Guidelines
90. Walk-in Customers
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 rupees fifty thousand, whether conducted
as a single transaction or several transactions that appear to be connected, the customer's
identity and address should be verified. However, 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 transaction report (STR) to FIU-IND.
NOTE: In terms of Clause (b) (ii) of sub-Rule (1) of Rule 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
b) Salaried Employees
.
In case of salaried employees, it is clarified that with a view to containing the risk of fraud, banks
should rely on certificate/letter of identity and/or address issued only from corporate and other
entities of repute and should be aware of the competent authority designated by the concerned
employer to issue such certificate/letter. Further, in addition to the certificate/letter issued by the
employer, banks should insist on at least one of the officially valid documents as provided in the
Prevention of Money Laundering Rules (viz. passport, driving licence, PAN Card, Voter’s Identity
card, etc.) or utility bills for KYC purposes for opening bank accounts of salaried employees of
corporate and other entities.
c) Trust/Nominee or Fiduciary Accounts
There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent
the customer identification procedures. Banks should determine whether the customer is acting
on behalf of another person as trustee/nominee or any other intermediary. If so, banks should
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, banks 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.
d) Accounts of companies and firms
Banks need to be vigilant against business entities being used by individuals as a ‘front’ for
maintaining accounts with banks. Banks 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.
iii Client accounts opened by professional intermediaries
v. 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 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 bank and there are 'sub-accounts', 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 through to 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 regulated and
supervised and has adequate systems in place to comply
with the KYC requirements. It should be understood that the ultimate responsibility for
knowing the customer lies with the bank.
ix. Under the extant AML/CFT framework, therefore, it is not possible for professional
intermediaries like Lawyers and Chartered Accountants, etc. who are bound by any
client confidentiality that prohibits disclosure of the client details, to hold an account on
behalf of their clients. It is reiterated that banks should not allow opening and/or holding
of an account on behalf of a client/s by professional intermediaries, like Lawyers and
Chartered Accountants, etc., who are unable to disclose true identity of the owner of the
account/funds due to any professional obligation of customer confidentiality. Further,
any professional intermediary who is under any obligation that inhibits bank's ability to
know and verify the true identity of the client on whose behalf the account is held or
beneficial ownership of the account or understand true nature and purpose of
transaction/s, should not be allowed to open an account on behalf of a client.
h) Accounts of Politically Exposed Persons (PEPs) resident outside India
i) 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. Banks
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. Banks should verify the identity of the person and seek information
about the sources of funds before accepting the PEP as a customer. The decision to
open an account for a PEP should be taken at a senior level which should be clearly
spelt out in Customer Acceptance Policy. Banks should also subject such accounts to
enhanced monitoring on an ongoing basis. The above norms may also
.
be applied to the accounts of the family members or close relatives of PEPs.
iii) In the event of an existing customer or the beneficial owner of an existing account,
subsequently becoming a PEP, banks should obtain senior management approval to
continue the business relationship and subject the account to the CDD measures as
applicable to the customers of PEP category including enhanced monitoring on an
ongoing basis. These instructions are also applicable to accounts where a PEP is the
ultimate beneficial owner.
iv) Further, banks should have appropriate ongoing risk management procedures for
identifying and applying enhanced CDD to PEPs, customers who are close relatives of
PEPs, and accounts of which a PEP is the ultimate beneficial owner.
h) 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 should be insisted upon and, if necessary, additional
documents may be called for. In such cases, banks may also require the first payment to be
effected through the customer's account 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 bank may 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.
h) Accounts of proprietary concerns
Apart from following the extant guidelines on customer identification procedure as applicable to
the proprietor, banks should call for and verify the following documents before opening of
accounts in the name of a proprietary concern:
.
Proof of the name, address and activity of the concern, like registration certificate (in the
case of a registered concern), certificate/licence issued by the Municipal authorities under
Shop & Establishment Act, sales and income tax returns, CST/VAT certificate,
certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities, Licence issued by the Registering authority like Certificate of Practice issued
by Institute of Chartered Accountants of India, Institute of Cost Accountants of India,
Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control
Authorities, registration/licensing document issued in the name of the proprietary concern
by the Central Government or State Government Authority/Department. Banks may also
accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of
DGFT, the 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 and utility bills such as electricity, water, and landline
telephone bills in the name of the proprietary concern as required documents for opening
of bank accounts of proprietary concerns.
Any two of the above documents would suffice. These documents should be in the name of the
proprietary concern.
o) Procedure to be followed in respect of foreign students:
Banks may follow the following procedure for foreign students studying in India.
iv) Banks may open a Non Resident Ordinary (NRO) bank account of a foreign student
on the basis of his/her passport (with appropriate visa & immigration endorsement)
which contains the proof of identity and address in the home country along with a
photograph and a letter offering admission from the educational institution.
v) Within a period of 30 days of opening the account, the foreign student should submit
to the branch where the account is opened, a valid address proof giving local address,
in the form of a rent agreement or a letter from the educational institution as a proof of
living in a facility
.
provided by the educational institution. Banks should not insist on the landlord visiting
the branch for verification of rent documents and alternative means of verification of
local address may be adopted by banks.
v) During the 30 days period, the account should be operated with a condition of
allowing foreign remittances not exceeding USD 1,000 into the account and a cap of
monthly withdrawal to Rs. 50,000/-, pending verification of address.
vi) On submission of the proof of current address, 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, and the provisions of Schedule 3 of FEMA Notification 5/2000 RB dated
May 3, 2000.
vii) Students with Pakistani nationality will need prior approval of the
Reserve Bank for opening the account.
2.6. Selling Third party products
When banks sell third party products as agents, the responsibility for ensuring compliance with
KYC/AML/CFT regulations lies with the third party. However, to mitigate reputational risk to bank and
to enable a holistic view of a customer’s transactions, banks are advised as follows:
(c) Even while selling third party products as agents, banks should verify the identity and address
of the walk-in customer.
(d) Banks should also maintain transaction details with regard to sale of third party products and
related records for a period and in the manner prescribed in paragraph 2.24 below.
(e) Bank’s AML software should be able to capture, generate and analyse alerts for the purpose of
filing CTR/STR in respect of transactions relating to third party products with customers
including walk-in customers.
(f) Sale of third party products by banks as agents to customers, including walk-in customers, for
Rs.50,000 and above must be (a) by debit to customers’ account or against cheques and (b)
obtention & verification of the PAN given
by the account based as well as walk-in customers. This instruction would also apply to sale of
banks’ own products, payment of dues of credit cards/sale and reloading of prepaid/travel
cards and any other product for Rs. 50,000/- and above.
2.7. Due Diligence in correspondent banking relationship
Some commercial banks have arrangements with co-operative banks wherein 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 facilitating their remittances and payments. Since the ‘at
par’ facility offered by commercial banks to co-operative banks is in the nature of correspondent
banking arrangements, banks should monitor and review such arrangements to assess the risks
including credit risk and reputational risk arising therefrom. 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.
2.8. Simplified KYC norms for Foreign Portfolio Investors (FPIs)
In terms of Rule 9 (14)(i) of the PML Rules, simplified norms have been prescribed for those FPIs
who have been duly registered in accordance with SEBI guidelines and have undergone the required
KYC due diligence/verification prescribed by SEBI through a Custodian/Intermediary regulated by
SEBI. Such eligible/registered FPIs may approach a bank for opening a bank account for the purpose
of investment under Portfolio Investment Scheme (PIS) for which KYC documents prescribed by the
Reserve Bank (as detailed in Annex II of the circular DBOD.AML.BC.No.103/14.01.001/2013-14
dated April 3, 2014) would be required. For this purpose, banks may rely on the KYC verification
done by the third party (i.e. the Custodian/SEBI Regulated Intermediary) subject to the conditions laid
down in Rule 9 (2) [(a) to (e)] of the Rules.
2.9. Small Accounts
In terms of Government of India, Notification No. 14/2010/F.No.6/2/2007-E.S dated December 16,
2010, (Annex - III a 'small account' means a savings account in a banking company where
i.the aggregate of all credits in a financial year does not exceed rupees one lakh;
ii.the aggregate of all withdrawals and transfers in a month does not exceed rupees ten
thousand; and
iii. the balance at any point of time does not exceed rupees fifty thousand.
(a) A ‘small account’ may be opened on the basis of a self-attested photograph and affixation of
signature or thumb print. Such accounts may be opened and operated subject to the following
conditions:
i) the designated officer of the bank, while opening the small account, certifies under his
signature that the person opening the account has affixed his signature or thumb print,
as the case may be, in his presence;
ii) a small account shall be opened only at Core Banking Solution linked bank 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 limits on monthly and annual
aggregate of transactions
and balance in such accounts are not breached, before a transaction is allowed to take
place;
iii)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;
iv)a small account shall be monitored and when there is suspicion of money laundering or
financing of terrorism or other high risk scenarios, the identity of customer shall be
established through the production of “officially valid documents”; and
v) foreign remittance shall not be allowed to be credited into a small account unless the
identity of the customer is fully established through the production of “officially valid
documents”.
2.10. Officially Valid Documents under Government of India notifications
(a) The notifications further state that job card issued by NREGA duly signed by an officer of the
State Government and the letters issued by the Unique Identification Authority of India
containing details of name, address and Aadhaar number can now be accepted as an ‘Officially
Valid Document’.
(b) E-KYC service of Unique Identification Authority of India (UIDAI) may be accepted as a valid
process for KYC verification under the PML Rules. The information containing demographic
details and photographs made available from UIDAI as a result of e-KYC process may be
treated as an ‘Officially Valid Document’. However, the individual user has to authorize to
UIDAI, by explicit consent, to release her or his identity/address through biometric
authentication to the bank branches/business correspondents.
(c) Further, e-Aadhaar downloaded from UIDAI website may be accepted as an officially valid
document subject to the following:
i. If the prospective customer knows only his/her Aadhaar number, the bank may print the
prospective customer’s e-Aadhaar letter in the bank directly from the UIDAI portal; or
adopt e-KYC procedure as mentioned in paragraph (b) above.
ii. If the prospective customer carries a copy of the e-Aadhaar downloaded elsewhere, the
bank may print the prospective customer’s e-Aadhaar letter in the bank directly from
the UIDAI portal; or adopt e-KYC procedure as mentioned in paragraph (b) above; or
confirm identity and
address of the resident through simple authentication service of UIDAI.
2.11. Operation of Bank Accounts & Money Mules
a) It has been brought to our notice that “Money Mules” can be used to launder the proceeds of
fraud schemes (e.g., phishing and identity theft) by criminals who gain illegal access to
deposit accounts by recruiting third parties to act as “money mules.” In some cases these
third parties may be innocent while in others they may be having complicity with the criminals.
b) In a money mule transaction, an individual with a bank account is recruited to receive cheque
deposits or wire transfers and then transfer these funds to accounts held on behalf of another
person or to other individuals, minus a certain commission payment. Money mules may be
recruited by a variety of methods, including spam e-mails, advertisements on genuine
recruitment web sites, social networking sites, instant messaging and advertisements in
newspapers. When caught, these money mules often have their bank accounts suspended,
causing inconvenience and potential financial loss, apart from facing likely legal action for
being part of a fraud. Many a times the address and contact details of such mules are found
to be fake or not up to date, making it difficult for enforcement agencies to locate the account
holder.
c) The operations of such mule accounts can be minimised if banks follow the guidelines on
opening of accounts and monitoring of transactions contained in this Master Circular. Banks
are, therefore, advised to strictly adhere to the guidelines on KYC/AML/CFT issued from time
to time and to those relating to periodical updation of customer identification data after the
account is opened and also to monitoring of transactions in order to protect themselves and
their
customers from misuse by such fraudsters.
2.12. Bank No Longer Knows the True Identity
In the circumstances when a bank believes that it would no longer be satisfied that it knows the
true identity of the account holder, the bank should also file an STR with FIU-IND.
2.13. Monitoring of Transactions
a) Ongoing monitoring is an essential element of effective KYC procedures. Banks can
effectively control and reduce their risk only if they have an understanding of the normal and
reasonable activity of the customer so that they have the means of identifying transactions
that fall outside the regular pattern of activity. However, the extent of monitoring will depend
on the risk sensitivity of the account. Banks should pay special attention to all complex,
unusually large transactions and all unusual patterns which have no apparent economic or
visible lawful purpose. Banks may prescribe
threshold limits for a particular category of accounts and pay particular attention to the
transactions which exceed these limits. Transactions that involve large amounts of cash
inconsistent with the normal and expected activity of the customer should particularly attract
the attention of the bank. Very high account turnover inconsistent with the size of the balance
maintained may indicate that funds are being 'washed' through the account. High-risk
accounts have to be subjected to intensified monitoring. Every bank should set key indicators
for such accounts, taking note of the background of the customer, such as the country of
origin, sources of funds, the type of transactions involved and other risk factors. High risk
associated with accounts of bullion dealers (including sub-dealers) & jewelers should be
taken into account by banks to identify suspicious transactions for filing Suspicious
Transaction Reports (STRs) to Financial Intelligence Unit- India (FIU-IND). Banks 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.
b) It has come to our notice that accounts of Multi-level Marketing (MLM) Companies were
misused for defrauding public by luring them into depositing their money with the MLM
company by promising a high return. Such depositors are assured of high returns and issued
post-dated cheques for interest and repayment of principal. So long as money keeps coming
into the MLM company’s account from new depositors, the cheques are honoured but once
the chain breaks, all such post-dated instruments are dishonoured. This results in fraud on
the public and is a reputational risk for banks concerned. Further, banks should closely
monitor the transactions in accounts of marketing firms. 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, the bank should carefully analyse such data and in
case they find such unusual operations in accounts, the matter
should be immediately reported to Reserve Bank and other appropriate authorities such as
Financial Intelligence Unit India (FIU-Ind) under Department of Revenue, Ministry of Finance.
c) Banks 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 of the client, his business and risk profile and where necessary, the
source of funds [Ref: Government of India Notification dated June 16, 2010 -Rule 9, sub-rule
(1B)]
d) The risk categorization of customers as also compilation and periodic updation of customer
profiles and monitoring and closure of alerts in accounts by banks are extremely important for
effective implementation of KYC/AML/CFT measures. It is, however, observed that there are
laxities in effective implementation of the Reserve Bank’s guidelines in this area, leaving
banks vulnerable to operational risk. Banks should, therefore, ensure compliance with the
regulatory guidelines on KYC/AML/CFT both in letter and spirit. Accordingly, banks were
advised to complete the process of risk categorization and compiling/updating profiles of all of
their existing
customers in a time-bound manner, by end-March 2013.
2.14. Closure of accounts
Where the bank is unable to apply appropriate KYC measures due to non-furnishing of
information and /or non-cooperation by the customer, the bank should consider closing the
account or terminating the banking/business relationship after issuing due notice to the customer
explaining the reasons for taking such a decision. Such decisions need to be taken at a
reasonably senior level.
2.15. Risk Management
a) The Board of Directors of the bank should ensure that an effective KYC programme is put in
place by establishing appropriate procedures and ensuring their effective implementation. It
should cover proper management oversight, systems and controls, segregation of duties,
training and other related matters. Responsibility should be explicitly allocated within the bank
for ensuring that the bank’s policies and procedures are implemented effectively. Banks
should, in consultation with their boards, devise procedures for creating risk profiles of their
existing and new customers, assess risk in dealing with various countries, geographical areas
and also the risk of various products, services, transactions, delivery channels, etc. Banks’
policies should address effectively managing and mitigating these risks adopting a risk-based
approach as discussed in Para 2.3 (d) above.
b) Banks’ internal audit and compliance functions have an important role in evaluating and
ensuring adherence to the KYC policies and procedures. As a general rule, the compliance
function should provide an independent evaluation of the bank’s own policies and procedures,
including legal and regulatory requirements. Banks should ensure that their audit machinery
is staffed adequately with individuals who are well-versed in such policies and procedures.
Concurrent/ Internal Auditors should specifically check and verify the application of KYC
procedures at the branches and comment on the lapses observed in this regard. The
2.16. Introduction of New Technologies – Credit Cards/Debit Cards/ Smart Cards/Gift
Cards
Banks should pay special attention to any money laundering threats that may arise from new or
developing technologies including internet banking that might favour anonymity, and take
measures, if needed, to prevent their use in money laundering schemes. Many banks are
engaged in the business of issuing a variety of Electronic Cards that are used by customers for
buying goods and services, drawing cash from ATMs, and can be used for electronic transfer of
funds. Banks are required to ensure full compliance with all KYC/AML/CFT guidelines issued
from time to time, in respect of add-on/ supplementary cardholders also. Further, marketing of
credit cards is generally done through the services of agents. Banks should ensure that
appropriate KYC procedures are duly applied before issuing the cards to the customers. It is also
desirable that agents are also subjected to KYC measures.
2.17. Combating Financing of Terrorism
In terms of PMLA Rules, suspicious transaction should include, inter alia,
a. Transactions, which give rise to a reasonable ground of suspicion that these may involve
financing of the activities relating to terrorism. Banks are, therefore, advised to develop
suitable mechanism through appropriate policy framework for enhanced monitoring of
accounts suspected of having terrorist links and swift identification of the transactions and
making suitable reports to FIU-Ind on priority.
b. As and when list of individuals and entities, approved by Security Council Committee
established pursuant to various United Nations' Security Council Resolutions (UNSCRs), are
received from Government of India, Reserve Bank circulates these to all banks and financial
institutions. Banks/Financial Institutions should ensure to update the lists of individuals and
entities as circulated by Reserve Bank. The UN Security Council has adopted Resolutions
1988 (2011) and 1989 (2011) which have resulted in splitting of the 1267 Committee's
Consolidated List into two separate lists, namely:
i) “Al-Qaida Sanctions List”, which is maintained by the 1267 / 1989 Committee. This list
shall include only the names of those individuals, groups, undertakings and entities
associated with Al-Qaida. The Updated
Al-Qaida Sanctions List is available at
http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml
ii) “1988 Sanctions List”, which is maintained by the 1988 Committee. This list consists of
names previously included in Sections A (“Individuals associated with the Taliban”) and B
(“Entities and other groups and undertakings associated with the Taliban”) of the
Consolidated List. The
Updated 1988 Sanctions list is available at http://www.un.org/sc/committees/
1988/list.shtml
It may be noted that both “Al-Qaida Sanctions List” and “1988 Sanctions List” are to be taken into
account for the purpose of implementation of Section 51A of the Unlawful Activities (Prevention)
Act, 1967.
Banks are advised that before opening any new account it should be ensured that the name/s of
the proposed customer does not appear in the lists. Further, banks
should scan all existing accounts to ensure that no account is held by or linked to any of the
entities or individuals included in the list. Full details of accounts bearing resemblance with any of
the individuals/entities in the list should immediately be intimated to RBI and FIU-IND.
2.18. 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 detailing the procedure for implementation of Section 51A of the Unlawful Activities
(Prevention) Act, 1967 relating to the purposes of prevention of, and for coping with terrorist
activities. 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 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.
b) Banks are required to strictly follow the procedure laid down in the UAPA Order dated August
27, 2009 (Annex II) and ensure meticulous compliance to the Order issued by the
Government.
c) On receipt of the list of individuals and entities subject to UN sanctions (referred to as
designated lists) from RBI, banks should ensure expeditious and effective implementation of
the procedure prescribed under Section 51A of UAPA in regard to freezing/unfreezing of
financial assets of the designated individuals/entities enlisted in the UNSCRs and especially,
in regard to funds, financial assets or economic resources or related services held in the form
of bank accounts.
d) In terms of Para 4 of the Order, in regard to funds, financial assets or economic
resources or related services held in the form of bank accounts, the RBI would forward
the designated lists to the banks requiring them to:
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 with them.
ii) In case, the particulars of any of their customers match with the
particulars of designated individuals/entities, the banks 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, held by such customer on their books to the Joint Secretary (IS.I), Ministry of
Home Affairs, at Fax No.011-23092569 and also convey over telephone on 011-
23092736. The particulars apart from being sent by post should necessarily be
conveyed on e-mail.
iii) Banks shall also send by post, a copy of the communication mentioned in (ii) above to
the UAPA nodal officer of RBI, Chief General Manager, Department of Banking
Operations and Development, Central Office, Reserve Bank of India, Anti Money
Laundering Division, Central Office Building, 13th Floor, Shahid Bhagat Singh Marg,
Fort, Mumbai - 400 001 and also by fax at No.022-22701239. The particulars, apart
from being sent by post/fax should necessarily be conveyed on e-mail.
iv) Banks shall also send a copy of the communication mentioned in (ii) above to the
UAPA nodal officer of the state/UT where the account is held as the case may be and
to FIU-India.
v) In case, the match of any of the customers with the particulars of designated
individuals/entities is beyond doubt, the banks would
prevent designated persons from conducting financial transactions, under intimation to
Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No. 011-23092569 and also
convey over telephone on 011-23092736. The particulars apart from being sent by post
should necessarily be conveyed on e-mail.
vi) Banks shall also file a Suspicious Transaction Report (STR) with FIU-IND covering all
transactions in the accounts covered by paragraph (ii ) above, carried through or
attempted, as per the prescribed format.
e) Freezing of financial assets
i) On receipt of the particulars as mentioned in paragraph d(ii)) above, IS-I Division of MHA
would cause a verification to be conducted by the State Police and /or the Central
Agencies so as to ensure that the individuals/ entities identified by the banks are the
ones listed as designated individuals/entities and the funds, financial assets or
economic resources or related services , reported by banks are held by the designated
individuals/entities. This verification would be completed within a period not exceeding
five working days from the date of receipt of such particulars.
ii) 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 under intimation to Reserve
Bank of India and FIU-IND.
iii) The order shall take place without prior notice to the designated individuals/entities.
f) Implementation of requests received from foreign countries under U.N. Security
Council Resolution 1373 of 2001.
i) 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 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.
ii) 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.
iii) The UAPA nodal officer of IS-I Division of MHA, shall cause the request to be
examined, within five 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 RBI. The proposed designee,
as mentioned above would be treated as designated individuals/entities.
iv) Upon receipt of the requests from the UAPA nodal officer of IS-I Division, the list would
be forwarded to banks and the procedure as enumerated at paragraphs 2.18[(c), (d)
and (e)] shall be followed.
v) The freezing orders shall take place without prior notice to the designated persons
involved.
g) 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 evidence, in
writing, to the concerned bank. The banks 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 given
in paragraph (d)(ii) above 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 fifteen working days, unfreezing the funds,
financial assets or economic resources or related services, owned/held by such applicant
under intimation to the concerned bank. 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.
h) 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 through RBI.
2.19. Jurisdictions that do not or insufficiently apply the FATF Recommendations
a) Banks 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, (latest as on June 30, 2014, being our circular
DBOD. AML.No.15245/14.01.001/2013-14 dated March 05, 2014) banks should also
consider publicly available information for identifying countries, which do not or insufficiently
apply the FATF Recommendations. It is clarified that banks 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 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.
2.20. Correspondent Banking and Shell Bank
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. Banks should 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 may be of special relevance. Similarly, banks should
try to ascertain from publicly available information whether the other bank has been subject to
any money laundering or terrorist financing investigation or regulatory action. While it is
desirable that such relationships should be established only with the approval of the Board, in
case the Boards of some banks wish to delegate the power to an administrative authority,
they may delegate the power to a committee headed by the Chairman/CEO of the bank while
laying 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 correspondent bank should also ensure
that the respondent bank is able to provide the relevant customer identification data
immediately on request.
b) Correspondent relationship with a “Shell Bank”
Banks should refuse to 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 unaffiliated to any
regulated financial group). Shell banks are not permitted to operate in India. Banks should not
enter into relationship with shell banks and before establishing correspondent relationship with
any foreign institution, banks should take appropriate measures to satisfy themselves that the
foreign respondent institution does not permit its accounts to be used by shell banks. Banks
should be extremely cautious while continuing relationships with correspondent banks located in
countries with poor KYC standards and countries identified as 'non-cooperative' in the fight
against money laundering and terrorist financing. Banks should ensure that their respondent
banks have anti money laundering policies and procedures in place and apply enhanced 'due
diligence' procedures for transactions carried out through the correspondent accounts.
2.21. Applicability to branches and subsidiaries outside India
The guidelines contained in this master circular shall apply to the branches and majority owned
subsidiaries located abroad, especially, in countries which do not or insufficiently apply the FATF
Recommendations, to the extent local laws permit. When local applicable laws and regulations
prohibit implementation of these guidelines, the same should be brought to the notice of Reserve
Bank. In case there is a variance in KYC/AML standards prescribed by the Reserve Bank and the
host country regulators, branches/overseas subsidiaries of banks are required to adopt the more
stringent regulation of the two.
2.22. Wire Transfer
Banks 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.
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
may be the same person.
ii) 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 cross-border element.
iii) 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.
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.
b) Wire transfer is an instantaneous and most preferred route for transfer of funds across the
globe and hence, there is a need for preventing terrorists and other criminals from having
unfettered access to wire transfers for moving their funds and for detecting any misuse when
it occurs. This can be achieved if basic information on the originator of wire transfers is
immediately available to appropriate law enforcement and/or prosecutorial authorities in order
to assist them in detecting, investigating, prosecuting terrorists or other criminals and
tracing their assets. The information can be used by Financial Intelligence Unit - India (FIUIND)
for analysing suspicious or unusual activity and disseminating it as necessary. The
originator information can also be put to use by the beneficiary bank to facilitate identification
and reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing
threat posed by small wire transfers, the objective is to be in a position to trace all wire
transfers with minimum threshold limits. Accordingly, banks must ensure that all wire
transfers are accompanied by the following information:
1. 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.
2. 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. 50000/- (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 non-cooperation from the customer, efforts
should be made to establish his identity and Suspicious Transaction Report
(STR) should be made to FIU-IND.
bi) When a credit or debit card is used to effect money transfer, necessary
information as (i) above should be included in the message.
c) Exemptions
Interbank transfers and settlements where both the originator and beneficiary are banks or
financial institutions would be exempted from the above requirements.
d) 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 ten 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 ten
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.
2.23. Designated Director and Principle Officer
a) Designated Director
Banks are required to nominate a Director on their Boards as “Designated Director”, as per the
provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), to
ensure overall compliance with the obligations under the Act and Rules. The name, designation and
address of the Designated Director is to be communicated to the Director, Financial Intelligence
Unit – India (FIU-IND).
b) Principal Officer
Banks should appoint a senior management officer to be designated as Principal Officer. Banks
should ensure that the Principal Officer is able to act independently and report directly to the senior
management or to the Board of Directors. Principal Officer shall be located at the head/corporate
office of the bank and shall be responsible for monitoring and reporting of all transactions and sharing
of information as required under the law. He will maintain close liaison with enforcement agencies,
banks and any other institution which are involved in the fight against money laundering and
combating financing of terrorism
Further, the role and responsibilities of the Principal Officer should include overseeing and ensuring
overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and
obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made
thereunder, as amended form time to time. The Principal Officer will also be responsible for timely
submission of CTR, STR and reporting of counterfeit notes and all transactions involving
receipts by non-profit organisations of value more than Rupees Ten Lakh or its equivalent in foreign
currency to FIU-IND.With a view to enabling the Principal Officer to discharge his responsibilities
effectively, the Principal Officer and other appropriate staff should have timely access to customer
identification data and other CDD information, transaction records and other relevant information.
2.24. Maintenance of records of transactions/Information to be preserved/Maintenance
and preservation of records/Cash and Suspicious transactions reporting to
Financial Intelligence Unit- India (FIU-IND)
Section 12 of the PMLA, 2002 casts certain obligations on the banking companies in regard to
preservation and reporting of customer account information. Banks are, therefore, advised to go
through the provisions of PMLA, 2002 and the Rules notified there under and take all steps
considered necessary to ensure compliance with the requirements of Section 12 of the Act ibid.
a) Maintenance of records of transactions
Banks should introduce a system of maintaining proper record of transactions prescribed under
Rule 3 of 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)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;
b) Information to be preserved
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Banks are required to maintain all necessary information in respect of transactions referred to in
PML Rule 3 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.
c) Maintenance and Preservation of Records
i) Banks are required to maintain the records containing information of all transactions
including the records of transactions detailed in Rule 3 above. Banks should take
appropriate steps to evolve a system for
proper maintenance and preservation of account information in a manner that allows
data to be retrieved easily and quickly whenever required or when requested by the
competent authorities. Further, in terms of PML Amemdment Act 2012 notified on
February 15, 2013, banks should maintain for at least five years from the date of
transaction between the bank 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.
ii) Banks should 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 at least five years after the
business relationship is ended as required under Rule 10 of the Rules ibid. The
identification records and transaction data should be made available to the
competent authorities upon request.
iii) In paragraph 2.13 of this Master Circular, banks have been advised to pay special
attention to all complex, unusual large transactions and all unusual patterns of
transactions, which have no apparent economic or visible lawful purpose. It is further
clarified that the background including all documents/office records/memorandums
pertaining to such transactions and purpose thereof should, as far as possible, be
examined and the findings at branch as well as Principal Officer level should be
properly recorded. Such records and related documents should be made available to
help auditors in their day-to-day work relating to scrutiny of transactions and also to
Reserve Bank/other relevant authorities. These records are required to be preserved
for ten years as is required under PMLA, 2002.
d) Reporting to Financial Intelligence Unit - India
i) In terms of the PMLA Rules, banks are required to report information relating to cash
and suspicious transactions and all transactions
involving receipts by non-profit organisations of value more than rupees ten lakh or
its equivalent in foreign currency to the Director, Financial Intelligence Unit-India
(FIU-IND) in respect of transactions referred to in Rule 3 at the following address:
Director, FIU-IND,
Financial Intelligence Unit-India,
6th Floor, Hotel Samrat,
Chanakyapuri,
New Delhi -110021
Website - http://fiuindia.gov.in/
Explanation: Government of India Notification dated November 12, 2009- Rule 2 sub-rule (1)
clause (ca) defines Non-Profit Organization (NPO). 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
under section 25 of the Companies Act, 1956.
ii) The earlier prescribed multiple data files reporting format has been replaced by a
new single XML file format. 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 OM issued on
Reporting Formats under Project FINnet dated 31st March,2011 by FIU containing all
relevant details are available on FIU’s website. Banks In this regard, a reference is
also invited to
circulars DBOD.AML.BC.No.39/14.01.001/2012-13 and
DBOD.AML.BC.No.49/14.01.001/2012-13 dated September 7, 2012 and October 11,
2012 respectively. Accordingly, banks should carefully go through all the reporting
formats prescribed by FIU-IND. Accordingly, banks should carefully go through all the
reporting formats prescribed by FIU-IND.
iii) FIU-IND have placed on their website editable electronic utilities to enable banks to
file electronic CTR/STR who 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 banks, where all the branches are not fully computerized, the Principal
Officer of the bank 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
In terms of instructions contained in paragraph 2.3(b) of this Master Circular, banks are required
to prepare a profile for each customer based on risk categorisation. Further, vide paragraph
2.13(d), the need for periodical review of risk categorisation has been emphasized. It is, therefore,
reiterated that banks, as a part of transaction monitoring mechanism, are required to put in place
an appropriate software application to throw alerts when the transactions are inconsistent with
risk categorization and updated profile of customers. It is needless to add that a robust software
throwing alerts is essential for effective identification and reporting of suspicious transaction.
2.25. Various Reporting Formats
a) Cash Transaction Report (CTR)
While detailed instructions for filing all types of reports are given in the instructions part of the
related formats, banks should scrupulously adhere to the following:
i) The Cash Transaction Report (CTR) for each month should be submitted to FIUIND
by 15th of the succeeding month. Cash transaction reporting by branches to
their controlling offices should, therefore, invariably be submitted on monthly basis
(not on fortnightly basis) and banks should ensure to submit CTR for every month
to FIU-IND within the prescribed time schedule.
ii) All cash transactions, where forged or counterfeit Indian currency notes have been
used as genuine should be reported by the Principal Officer to FIU-IND in the
specified format not later than seven working days from the date of occurrence of
such transactions (Counterfeit Currency Report – CCR). 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.
iii) While filing CTR, details of individual transactions below Rupees Fifty thousand
need not be furnished.
iv) 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.
v) A summary of cash transaction report 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-India.
vi) In case of Cash Transaction Reports (CTR) compiled centrally by banks for the
branches having Core Banking Solution (CBS) at their central data centre level,
banks may generate centralised Cash Transaction Reports (CTR) in respect of
branches under core banking solution at one point for onward transmission to FIUIND,
provided:
a) The CTR is to be generated in the format prescribed by FIU-IND;
b) A copy of the monthly CTR submitted on its behalf to FIU-India is available at the
concerned branch for production to auditors/inspectors, when asked for; and
c) The instruction on ‘Maintenance of records of transactions’; ‘Information to
be preserved’ and ‘Maintenance and Preservation of records’ as contained
above in this Master Circular at Para 2.24
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 FIUIND.
b) Suspicious Transaction Reports (STR)
i) While determining suspicious transactions, banks should be guided by definition of
suspicious transaction contained in PMLA Rules as amended from time to time.
ii) 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
should report all such attempted transactions in STRs, even if not completed by
customers, irrespective of the amount of the transaction.
iii) Banks should make STRs if they have reasonable ground to believe that the
transaction involve proceeds of crime generally irrespective of the amount of
transaction and/or the threshold limit envisaged for predicate offences in part B of
Schedule of PMLA, 2002.
iv) 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.
v) In the context of creating KYC/AML awareness among the staff and for generating
alerts for suspicious transactions, banks may consider the indicative list of
suspicious activities contained in Annex-E of the 'IBA's
Guidance Note for Banks, January 2012’.
vi)
Banks should not put any restrictions on operations in the accounts where an STR
has been made. Banks and their employees should keep
the fact of furnishing of STR strictly confidential, as required under PML Rules. It
should be ensured that there is no tipping off to the customer at any level.
c) Non-Profit Organisation
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.
d) Cross-border Wire Transfer
Cross-border Wire Transfer Report (CWTR) is required to be filed 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.
2.26. Customer Education/Employee's Training/Employee's Hiring
a) Customer Education
Implementation of KYC procedures requires banks to demand certain information from customers
which may be of personal nature or which has hitherto never been called for. This can personnel.
lead to a lot of questioning by the customer as to the motive and purpose of collecting such
information. There is, therefore, a need for banks to prepare specific literature/ pamphlets etc. so
as to educate the customer of the objectives of the KYC programme. The front desk staff needs
to be specially trained to handle such situations while dealing with customers.
b) Employees’ Training
Banks must have an ongoing employee training programme so that the members of the staff are
adequately trained in KYC procedures. Training requirements should have different focuses for
frontline staff, compliance staff and staff dealing with new customers. It is crucial that all those
concerned fully understand the rationale behind the KYC policies and implement them
consistently.
c) Hiring of Employees
It may be appreciated that KYC norms/AML standards/CFT measures have been prescribed to
ensure that criminals are not allowed to misuse the banking
channels. It would, therefore, be necessary that adequate screening mechanism
is put in place by banks as an integral part of their recruitment/hiring process of
personnel.
Measures/Combating of Financing of Terrorism (CFT)/Obligations of banks under
PMLA, 2002
The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC
procedures also enable banks to know/understand their customers and their financial dealings
better which in turn help them manage their risks prudently.
1.2. Definition of Customer
For the purpose of KYC policy, a ‘Customer’ is defined as:
c a person or entity that maintains an account and/or has a business relationship with the
bank;
d one on whose behalf the account is maintained (i.e. the beneficial owner). [Ref:
Government of India Notification dated February 12, 2010 - Rule 9, sub-rule (1A) of
PMLA Rules - 'Beneficial Owner' means the natural person who ultimately owns or
controls a client and or the person on whose behalf a transaction is being conducted,
and includes a person who exercise ultimate effective control over a juridical person]
e beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
.
f any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.
3 Guidelines
4 1.General
(c) Banks should keep in mind that the information collected from the customer for
the purpose of opening of account is to be treated as confidential and details thereof
are not to be divulged for cross selling or any other like purposes. Banks should,
therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not intrusive, and is in
conformity with the guidelines issued in this regard. Any other information from the
customer should be sought separately with his/her consent and after opening the
account
31. 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 Rupees fifty thousand and above is effected by debit to the customer’s account or
against cheques and not against cash payment
32. With effect from April 1, 2012, banks should not make payment of cheques/drafts/pay
orders/banker’s cheques bearing that date or any subsequent date, if they are
presented beyond the period of three months from the date of such instrument.
33. Banks should ensure that the provisions of Foreign Contribution (Regulation) Act,
2010, wherever applicable, are strictly adhered to.
2.2. KYC Policy
Banks should frame their KYC policies incorporating the following four key elements:
4 Customer Acceptance Policy;
5 Customer Identification Procedures;
.
6 Monitoring of Transactions; and
iv)Risk Management.
2.3. Customer Acceptance Policy (CAP)
3 Every bank should develop a clear Customer Acceptance Policy laying down explicit criteria
for acceptance of customers. The Customer Acceptance Policy must ensure that explicit
guidelines are in place on the following aspects of customer relationship in the bank.
(bi) No account is opened in anonymous or fictitious/benami name.
[Ref: Government of India Notification dated June 16, 2010 Rule 9, sub-rule (1C) -
Banks should not allow the opening of or keep any
anonymous account or accounts in fictitious name or account on behalf of other
persons whose identity has not been disclosed or cannot be verified].
5 Parameters of risk perception are clearly defined in terms of the nature of business
activity, location of customer and his clients, mode of payments, volume of turnover,
social and financial status etc. to enable categorisation of customers into low, medium
and high risk (banks may choose any suitable nomenclature viz. level I, level II and level
III). Customers requiring very high level of monitoring, e.g. Politically Exposed Persons
(PEPs) may, if considered necessary, be categorised even higher;
iii)Documentation requirements and other information to be collected in respect of different
categories of customers depending on perceived risk and keeping in mind the
requirements of PML Act, 2002 and instructions/guidelines issued by Reserve Bank
from time to time;
iv)Not to open an account where the bank is unable to apply appropriate customer due
diligence measures, i.e., bank is unable to verify the identity and /or obtain documents
required as per the risk categorisation due to non-cooperation of the customer or nonreliability
of the data/information furnished to the bank. Bank may also consider closing
an existing account under similar circumstances. It is, however, necessary to have
suitable built in safeguards to avoid harassment of the customer. For example, decision
by a bank to close an account should be taken at a reasonably high level after giving
due notice to the customer explaining the reasons for such a decision.
.
32.Circumstances, in which a customer is permitted to act on behalf of another
person/entity, should be clearly spelt out in conformity with the established law and
practice of banking as there could be occasions when an account is operated by a
mandate holder or where an account is opened by an intermediary in fiduciary capacity
and
(v) Necessary checks before opening a new account so as to ensure that the identity of the
customer does not match with any person with known criminal background or with
banned entities such as individual terrorists or terrorist organisations etc.
34. Banks should prepare a profile for each new customer based on risk categorisation. The
customer profile may contain information relating to customer’s identity, social/financial status,
nature of business activity, information about his clients’ business and their location etc. The
nature and extent of due diligence will depend on the risk perceived by the bank. However,
while preparing customer profile banks should take care to seek only such information from
the customer, which is relevant to the risk category and is not intrusive. The customer profile
is a confidential document and details contained therein should not be divulged for cross
selling or any other purposes.
35. For the purpose of risk categorisation, individuals (other than High Net Worth) and entities
whose identities and sources of wealth can be easily identified and transactions in whose
accounts by and large conform to the known profile, may be categorised as low risk.
Illustrative examples of low risk
customers could be salaried employees whose salary structures are well
defined, people belonging to lower economic strata of the society whose accounts show
small balances and low turnover, Government Departments and Government owned
companies, regulators and statutory bodies etc. In such cases, the policy may require that
only the basic requirements of verifying the identity and location of the customer are to be
met. Customers that are likely to pose a higher than average risk to the bank should be
categorised as medium or high risk depending on customer's background, nature and
location of activity, country of origin, sources of funds and his client profile, etc. Banks should
apply enhanced due diligence measures based on the risk assessment, thereby requiring
intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of
funds are not clear. In view of the risks involved in cash intensive businesses, accounts of
.
10
bullion dealers (including sub-dealers) & jewelers should also be categorized by banks as
'high risk' requiring enhanced due diligence. Other examples of customers requiring higher
due diligence include (a) nonresident customers;
42. high net worth individuals; (c) trusts, charities, NGOs and organizations receiving
donations; (d) companies having close family shareholding or beneficial ownership; (e) firms
with 'sleeping partners';
(f) politically exposed persons (PEPs) of foreign origin, customers who are close relatives of
PEPs and accounts of which a PEP is the ultimate beneficial owner; (g) non-face to face
customers and (h) those with dubious reputation as per public information available etc.
However, NPOs/NGOs promoted by United Nations or its agencies may be classified as low
risk customers.
48. In addition to what has been indicated above, banks/FIs should take steps to identify and
assess their ML/TF risk for customers, countries and geographical areas as also for products/
services/ transactions/delivery channels. Banks/FIs should have policies, controls and
procedures, duly approved by their boards, in place to effectively manage and mitigate their
risk adopting a risk-based approach. As a corollary, banks would be required to adopt
enhanced measures for products, services and customers with a medium or high risk rating.
In this regard, banks may use for guidance in their own risk assessment, a Report on
Parameters for Risk-Based Transaction Monitoring (RBTM) dated March 30, 2011 which was
issued by Indian Banks' Association as a supplement to their guidance note on Know Your
Customer (KYC) norms / Anti-Money Laundering (AML) standards issued in July 2009. The
IBA guidance also provides an indicative list of high risk customers, products, services and
geographies.
49. It is important to bear in mind that the adoption of customer acceptance policy and its
implementation should not become too restrictive and must not result in denial of banking
services to general public, especially to those, who are financially or socially disadvantaged.
.
11
2.4. Customer Identification Procedure (CIP)
50. The policy approved by the Board of banks should clearly spell out the Customer
Identification Procedure to be carried out at different stages, i.e., while establishing a banking
relationship; carrying out a financial transaction or when the bank has a doubt about the
authenticity/veracity or the adequacy of the previously obtained customer identification data.
Customer identification means identifying the customer and verifying his/her identity by using
reliable, independent source documents, data or information. Banks need to obtain sufficient
information necessary to establish, to their satisfaction, the identity of each new customer,
whether regular or occasional, and the purpose of the intended nature of banking relationship.
Being satisfied means that the bank must be able to satisfy the competent authorities that
due diligence was observed based on the risk profile of the customer in compliance with the
extant guidelines in place. Such risk-based approach is considered necessary to avoid
disproportionate cost to banks and a burdensome regime for the customers. Besides risk
perception, the nature of information/documents required would also depend on the type of
customer (individual, corporate etc.). For customers that are natural persons, the banks
should obtain sufficient identification data to verify the identity of the customer, his
address/location, and also his recent photograph. For customers that are legal persons or
entities, the bank should (i) verify the legal status of the legal person/entity through proper
and relevant documents;
(i) verify that any person purporting to act on behalf of the legal person/entity is so
authorised and identify and verify the identity of that person; (iii)
understand the ownership and control structure of the customer and determine who are the
natural persons who ultimately control the legal person.
(viii) Banks may seek ‘mandatory’ information required for KYC purpose which the customer is
obliged to give while opening an account or during periodic updation. Other ‘optional’
customer details/additional information, if required may be obtained separately after the
account is opened only with the explicit
.
12
consent of the customer. The customer has a right to know what is the information required
for KYC that she/he is obliged to give, and what is the additional information sought by the
bank that is optional. Further, it is reiterated that banks should keep in mind that the
information (both ‘mandatory’ – before opening the account as well as ‘optional’- after
opening the account with the explicit consent of the customer) collected from the customer is
to be treated as confidential and details thereof are not to be divulged for cross selling or any
other like purposes.
59. Customer identification requirements in respect of a few typical cases, especially, legal
persons requiring an extra element of caution are given in paragraph 2.5 below for guidance
of banks. Banks may, however, frame their own internal guidelines based on their experience
of dealing with such persons/entities, normal bankers’ prudence and the legal requirements
as per established practices. If the bank decides to accept such accounts in terms of the
Customer Acceptance Policy, the bank should take reasonable measures to identify the
beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it
knows who the beneficial owner(s) is/are [Ref: Government of India Notification dated June
16, 2010 - Rule 9 sub-rule (1A) of PML Rules].
d) In this connection, a reference may be made to the circular DBOD.AML.BC. No.
71/14.01.001/2012-13 dated January 18, 2013 wherein the procedure for determination of
Beneficial Ownership, as advised by Government of India has been specified.
63. The increasing complexity and volume of financial transactions necessitate that customers do
not have multiple identities within a bank, across the banking system and across the financial
system. This can be achieved by introducing a unique identification code for each customer.
The Unique Customer Identification Code (UCIC) will help banks to identify customers, track
the facilities availed, monitor financial transactions in a holistic manner and enable banks to
have a better approach to risk profiling of customers. It would also smoothen banking
operations for the customers. While some
.
banks already use UCIC for their customers by providing them a relationship number, etc.,
other banks have not adopted this practice. Banks were therefore, advised to initiate steps for
allotting UCIC to all their customers while entering into any new relationships for individual
customers to begin with. Existing individual customers were required to be allotted UCIC by
end-May 2013. However, in view of difficulties expressed by some banks in implementing
UCIC for their customers, for various reasons, and keeping in view the constraints, the time
for completing the process of allotting UCIC to existing customers was extended up to March
31, 2014. In this regard a further extension upto December 31, 2014 has been allowed.
Banks have been advised to expedite the procedure and complete the work of allotting UCIC
to all the existing individual customers, within the stipulated timeframe. They may chalk out a
plan for completing the work and furnish the monthly progress report to their Board.
Considering the fact that a period of two years has been allotted for completion of the task,
no further extension in this regard would be considered. Further, it is reiterated that UCIC
should be allotted to all customers while entering into new relationships.
72. When there are suspicions of money laundering or financing of the activities relating to
terrorism or where there are doubts about the adequacy or veracity of previously obtained
customer identification data, banks should review the due diligence measures including
verifying again the identity of the client and obtaining information on the purpose and
intended nature of the business relationship. [Ref: Government of India Notification dated
June 16, 2010- Rule 9 sub-rule (1D) of PML Rules].
73. It has been observed that some close relatives, e.g. wife, son, daughter and parents, etc.
who live with their husband, father/mother and son, as the case may be, are finding it difficult
to open account in some banks as the utility bills required for address verification are not in
their name. It is clarified, that in such cases, banks can obtain an identity document and a
utility bill of the relative with whom the prospective customer is living along with a declaration
from the relative that the said person (prospective customer) wanting to open
an account is a relative and is staying with him/her. Banks can use any supplementary
evidence such as a letter received through post for further verification of the address. While
issuing operational instructions to the branches on the subject, banks should keep in mind
the spirit of instructions issued by the Reserve Bank and avoid undue hardships to individuals
who are, otherwise, classified as low risk customers.
83. Norms for furnishing proof of address have been relaxed to allow submitting only one
documentary proof of address (either current or permanent) while opening a bank account or
while undergoing periodic updation. In case the address mentioned as per ‘proof of address’
undergoes a change, fresh proof of address may be submitted to the branch within a period
.
of six months. In case the proof of address furnished by the customer is not the local address
or address where the customer is currently residing, the bank may take a declaration of the
local address on which all correspondence will be made by the bank with the customer. No
proof is required to be submitted for such address for correspondence/local address. This
address may be verified by the bank through ‘positive confirmation’ such as acknowledgment
of receipt of (i) letter, cheque books, ATM cards; (ii) telephonic conversation;
(i) visits; etc. In the event of change in this address due to relocation or any
other reason, customers may intimate the new address for correspondence to the bank within
two weeks of such a change.
83. Some banks insist on opening of fresh accounts by customers when customers approach
them for transferring their account from one branch of the bank to another branch of the
same bank. Banks are advised that KYC once done by one branch of the bank should be
valid for transfer of the account within the bank as long as full KYC has been done for the
concerned account. The customer should be allowed to transfer his account from one branch
to another branch without restrictions.Banks may transfer existing accounts at the transferor
branch to the transferee branch without insisting on fresh proof of address and on the basis
of a self-declaration from the account holder about his/her current address.
87. Banks should carry out periodical updation of KYC information of every customer, which may
include the following:
Full KYC exercise may 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. Full
KYC may include all measures for confirming identity and address and other particulars
of the customer that the bank may consider reasonable and necessary based on the
risk profile of the customer.
Positive confirmation (obtaining KYC related updates through e-mail/ letter/
telephonic conversation/ forms/ interviews/ visits, etc.), may be completed at least
every two years for medium risk and at least every three years for low risk
individuals and entities.
Fresh photographs to be obtained from minor customer on becoming major.
The time limits prescribed above would apply from the date of opening of the account/
last verification of KYC.
.
88. An indicative list of the nature and type of documents/information that may be may be relied
upon for customer identification is given in Annex-I to this Master Circular.
89. If the address on the document submitted for identity proof by the prospective customer is
same as that declared by him/her in the account opening form, the document may be
accepted as a valid proof of both identity and address.
90. A rent agreement indicating the address of the customer duly registered with State
Government or similar registration authority may also be accepted as a proof of address.
n) It has been brought to our notice that the said indicative list furnished in Annex - I, is being
treated by some banks as an exhaustive list as a result of which a section of public is being
denied access to banking services. Banks are, therefore, advised to take a review of their
extant internal instructions in this regard.
2.5. Customer Identification Requirements – Indicative Guidelines
90. Walk-in Customers
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 rupees fifty thousand, whether conducted
as a single transaction or several transactions that appear to be connected, the customer's
identity and address should be verified. However, 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 transaction report (STR) to FIU-IND.
NOTE: In terms of Clause (b) (ii) of sub-Rule (1) of Rule 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
b) Salaried Employees
.
In case of salaried employees, it is clarified that with a view to containing the risk of fraud, banks
should rely on certificate/letter of identity and/or address issued only from corporate and other
entities of repute and should be aware of the competent authority designated by the concerned
employer to issue such certificate/letter. Further, in addition to the certificate/letter issued by the
employer, banks should insist on at least one of the officially valid documents as provided in the
Prevention of Money Laundering Rules (viz. passport, driving licence, PAN Card, Voter’s Identity
card, etc.) or utility bills for KYC purposes for opening bank accounts of salaried employees of
corporate and other entities.
c) Trust/Nominee or Fiduciary Accounts
There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent
the customer identification procedures. Banks should determine whether the customer is acting
on behalf of another person as trustee/nominee or any other intermediary. If so, banks should
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, banks 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.
d) Accounts of companies and firms
Banks need to be vigilant against business entities being used by individuals as a ‘front’ for
maintaining accounts with banks. Banks 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.
iii Client accounts opened by professional intermediaries
v. 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 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 bank and there are 'sub-accounts', 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 through to 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 regulated and
supervised and has adequate systems in place to comply
with the KYC requirements. It should be understood that the ultimate responsibility for
knowing the customer lies with the bank.
ix. Under the extant AML/CFT framework, therefore, it is not possible for professional
intermediaries like Lawyers and Chartered Accountants, etc. who are bound by any
client confidentiality that prohibits disclosure of the client details, to hold an account on
behalf of their clients. It is reiterated that banks should not allow opening and/or holding
of an account on behalf of a client/s by professional intermediaries, like Lawyers and
Chartered Accountants, etc., who are unable to disclose true identity of the owner of the
account/funds due to any professional obligation of customer confidentiality. Further,
any professional intermediary who is under any obligation that inhibits bank's ability to
know and verify the true identity of the client on whose behalf the account is held or
beneficial ownership of the account or understand true nature and purpose of
transaction/s, should not be allowed to open an account on behalf of a client.
h) Accounts of Politically Exposed Persons (PEPs) resident outside India
i) 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. Banks
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. Banks should verify the identity of the person and seek information
about the sources of funds before accepting the PEP as a customer. The decision to
open an account for a PEP should be taken at a senior level which should be clearly
spelt out in Customer Acceptance Policy. Banks should also subject such accounts to
enhanced monitoring on an ongoing basis. The above norms may also
.
be applied to the accounts of the family members or close relatives of PEPs.
iii) In the event of an existing customer or the beneficial owner of an existing account,
subsequently becoming a PEP, banks should obtain senior management approval to
continue the business relationship and subject the account to the CDD measures as
applicable to the customers of PEP category including enhanced monitoring on an
ongoing basis. These instructions are also applicable to accounts where a PEP is the
ultimate beneficial owner.
iv) Further, banks should have appropriate ongoing risk management procedures for
identifying and applying enhanced CDD to PEPs, customers who are close relatives of
PEPs, and accounts of which a PEP is the ultimate beneficial owner.
h) 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 should be insisted upon and, if necessary, additional
documents may be called for. In such cases, banks may also require the first payment to be
effected through the customer's account 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 bank may 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.
h) Accounts of proprietary concerns
Apart from following the extant guidelines on customer identification procedure as applicable to
the proprietor, banks should call for and verify the following documents before opening of
accounts in the name of a proprietary concern:
.
Proof of the name, address and activity of the concern, like registration certificate (in the
case of a registered concern), certificate/licence issued by the Municipal authorities under
Shop & Establishment Act, sales and income tax returns, CST/VAT certificate,
certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities, Licence issued by the Registering authority like Certificate of Practice issued
by Institute of Chartered Accountants of India, Institute of Cost Accountants of India,
Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control
Authorities, registration/licensing document issued in the name of the proprietary concern
by the Central Government or State Government Authority/Department. Banks may also
accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of
DGFT, the 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 and utility bills such as electricity, water, and landline
telephone bills in the name of the proprietary concern as required documents for opening
of bank accounts of proprietary concerns.
Any two of the above documents would suffice. These documents should be in the name of the
proprietary concern.
o) Procedure to be followed in respect of foreign students:
Banks may follow the following procedure for foreign students studying in India.
iv) Banks may open a Non Resident Ordinary (NRO) bank account of a foreign student
on the basis of his/her passport (with appropriate visa & immigration endorsement)
which contains the proof of identity and address in the home country along with a
photograph and a letter offering admission from the educational institution.
v) Within a period of 30 days of opening the account, the foreign student should submit
to the branch where the account is opened, a valid address proof giving local address,
in the form of a rent agreement or a letter from the educational institution as a proof of
living in a facility
.
provided by the educational institution. Banks should not insist on the landlord visiting
the branch for verification of rent documents and alternative means of verification of
local address may be adopted by banks.
v) During the 30 days period, the account should be operated with a condition of
allowing foreign remittances not exceeding USD 1,000 into the account and a cap of
monthly withdrawal to Rs. 50,000/-, pending verification of address.
vi) On submission of the proof of current address, 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, and the provisions of Schedule 3 of FEMA Notification 5/2000 RB dated
May 3, 2000.
vii) Students with Pakistani nationality will need prior approval of the
Reserve Bank for opening the account.
2.6. Selling Third party products
When banks sell third party products as agents, the responsibility for ensuring compliance with
KYC/AML/CFT regulations lies with the third party. However, to mitigate reputational risk to bank and
to enable a holistic view of a customer’s transactions, banks are advised as follows:
(c) Even while selling third party products as agents, banks should verify the identity and address
of the walk-in customer.
(d) Banks should also maintain transaction details with regard to sale of third party products and
related records for a period and in the manner prescribed in paragraph 2.24 below.
(e) Bank’s AML software should be able to capture, generate and analyse alerts for the purpose of
filing CTR/STR in respect of transactions relating to third party products with customers
including walk-in customers.
(f) Sale of third party products by banks as agents to customers, including walk-in customers, for
Rs.50,000 and above must be (a) by debit to customers’ account or against cheques and (b)
obtention & verification of the PAN given
by the account based as well as walk-in customers. This instruction would also apply to sale of
banks’ own products, payment of dues of credit cards/sale and reloading of prepaid/travel
cards and any other product for Rs. 50,000/- and above.
2.7. Due Diligence in correspondent banking relationship
Some commercial banks have arrangements with co-operative banks wherein 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 facilitating their remittances and payments. Since the ‘at
par’ facility offered by commercial banks to co-operative banks is in the nature of correspondent
banking arrangements, banks should monitor and review such arrangements to assess the risks
including credit risk and reputational risk arising therefrom. 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.
2.8. Simplified KYC norms for Foreign Portfolio Investors (FPIs)
In terms of Rule 9 (14)(i) of the PML Rules, simplified norms have been prescribed for those FPIs
who have been duly registered in accordance with SEBI guidelines and have undergone the required
KYC due diligence/verification prescribed by SEBI through a Custodian/Intermediary regulated by
SEBI. Such eligible/registered FPIs may approach a bank for opening a bank account for the purpose
of investment under Portfolio Investment Scheme (PIS) for which KYC documents prescribed by the
Reserve Bank (as detailed in Annex II of the circular DBOD.AML.BC.No.103/14.01.001/2013-14
dated April 3, 2014) would be required. For this purpose, banks may rely on the KYC verification
done by the third party (i.e. the Custodian/SEBI Regulated Intermediary) subject to the conditions laid
down in Rule 9 (2) [(a) to (e)] of the Rules.
2.9. Small Accounts
In terms of Government of India, Notification No. 14/2010/F.No.6/2/2007-E.S dated December 16,
2010, (Annex - III a 'small account' means a savings account in a banking company where
i.the aggregate of all credits in a financial year does not exceed rupees one lakh;
ii.the aggregate of all withdrawals and transfers in a month does not exceed rupees ten
thousand; and
iii. the balance at any point of time does not exceed rupees fifty thousand.
(a) A ‘small account’ may be opened on the basis of a self-attested photograph and affixation of
signature or thumb print. Such accounts may be opened and operated subject to the following
conditions:
i) the designated officer of the bank, while opening the small account, certifies under his
signature that the person opening the account has affixed his signature or thumb print,
as the case may be, in his presence;
ii) a small account shall be opened only at Core Banking Solution linked bank 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 limits on monthly and annual
aggregate of transactions
and balance in such accounts are not breached, before a transaction is allowed to take
place;
iii)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;
iv)a small account shall be monitored and when there is suspicion of money laundering or
financing of terrorism or other high risk scenarios, the identity of customer shall be
established through the production of “officially valid documents”; and
v) foreign remittance shall not be allowed to be credited into a small account unless the
identity of the customer is fully established through the production of “officially valid
documents”.
2.10. Officially Valid Documents under Government of India notifications
(a) The notifications further state that job card issued by NREGA duly signed by an officer of the
State Government and the letters issued by the Unique Identification Authority of India
containing details of name, address and Aadhaar number can now be accepted as an ‘Officially
Valid Document’.
(b) E-KYC service of Unique Identification Authority of India (UIDAI) may be accepted as a valid
process for KYC verification under the PML Rules. The information containing demographic
details and photographs made available from UIDAI as a result of e-KYC process may be
treated as an ‘Officially Valid Document’. However, the individual user has to authorize to
UIDAI, by explicit consent, to release her or his identity/address through biometric
authentication to the bank branches/business correspondents.
(c) Further, e-Aadhaar downloaded from UIDAI website may be accepted as an officially valid
document subject to the following:
i. If the prospective customer knows only his/her Aadhaar number, the bank may print the
prospective customer’s e-Aadhaar letter in the bank directly from the UIDAI portal; or
adopt e-KYC procedure as mentioned in paragraph (b) above.
ii. If the prospective customer carries a copy of the e-Aadhaar downloaded elsewhere, the
bank may print the prospective customer’s e-Aadhaar letter in the bank directly from
the UIDAI portal; or adopt e-KYC procedure as mentioned in paragraph (b) above; or
confirm identity and
address of the resident through simple authentication service of UIDAI.
2.11. Operation of Bank Accounts & Money Mules
a) It has been brought to our notice that “Money Mules” can be used to launder the proceeds of
fraud schemes (e.g., phishing and identity theft) by criminals who gain illegal access to
deposit accounts by recruiting third parties to act as “money mules.” In some cases these
third parties may be innocent while in others they may be having complicity with the criminals.
b) In a money mule transaction, an individual with a bank account is recruited to receive cheque
deposits or wire transfers and then transfer these funds to accounts held on behalf of another
person or to other individuals, minus a certain commission payment. Money mules may be
recruited by a variety of methods, including spam e-mails, advertisements on genuine
recruitment web sites, social networking sites, instant messaging and advertisements in
newspapers. When caught, these money mules often have their bank accounts suspended,
causing inconvenience and potential financial loss, apart from facing likely legal action for
being part of a fraud. Many a times the address and contact details of such mules are found
to be fake or not up to date, making it difficult for enforcement agencies to locate the account
holder.
c) The operations of such mule accounts can be minimised if banks follow the guidelines on
opening of accounts and monitoring of transactions contained in this Master Circular. Banks
are, therefore, advised to strictly adhere to the guidelines on KYC/AML/CFT issued from time
to time and to those relating to periodical updation of customer identification data after the
account is opened and also to monitoring of transactions in order to protect themselves and
their
customers from misuse by such fraudsters.
2.12. Bank No Longer Knows the True Identity
In the circumstances when a bank believes that it would no longer be satisfied that it knows the
true identity of the account holder, the bank should also file an STR with FIU-IND.
2.13. Monitoring of Transactions
a) Ongoing monitoring is an essential element of effective KYC procedures. Banks can
effectively control and reduce their risk only if they have an understanding of the normal and
reasonable activity of the customer so that they have the means of identifying transactions
that fall outside the regular pattern of activity. However, the extent of monitoring will depend
on the risk sensitivity of the account. Banks should pay special attention to all complex,
unusually large transactions and all unusual patterns which have no apparent economic or
visible lawful purpose. Banks may prescribe
threshold limits for a particular category of accounts and pay particular attention to the
transactions which exceed these limits. Transactions that involve large amounts of cash
inconsistent with the normal and expected activity of the customer should particularly attract
the attention of the bank. Very high account turnover inconsistent with the size of the balance
maintained may indicate that funds are being 'washed' through the account. High-risk
accounts have to be subjected to intensified monitoring. Every bank should set key indicators
for such accounts, taking note of the background of the customer, such as the country of
origin, sources of funds, the type of transactions involved and other risk factors. High risk
associated with accounts of bullion dealers (including sub-dealers) & jewelers should be
taken into account by banks to identify suspicious transactions for filing Suspicious
Transaction Reports (STRs) to Financial Intelligence Unit- India (FIU-IND). Banks 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.
b) It has come to our notice that accounts of Multi-level Marketing (MLM) Companies were
misused for defrauding public by luring them into depositing their money with the MLM
company by promising a high return. Such depositors are assured of high returns and issued
post-dated cheques for interest and repayment of principal. So long as money keeps coming
into the MLM company’s account from new depositors, the cheques are honoured but once
the chain breaks, all such post-dated instruments are dishonoured. This results in fraud on
the public and is a reputational risk for banks concerned. Further, banks should closely
monitor the transactions in accounts of marketing firms. 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, the bank should carefully analyse such data and in
case they find such unusual operations in accounts, the matter
should be immediately reported to Reserve Bank and other appropriate authorities such as
Financial Intelligence Unit India (FIU-Ind) under Department of Revenue, Ministry of Finance.
c) Banks 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 of the client, his business and risk profile and where necessary, the
source of funds [Ref: Government of India Notification dated June 16, 2010 -Rule 9, sub-rule
(1B)]
d) The risk categorization of customers as also compilation and periodic updation of customer
profiles and monitoring and closure of alerts in accounts by banks are extremely important for
effective implementation of KYC/AML/CFT measures. It is, however, observed that there are
laxities in effective implementation of the Reserve Bank’s guidelines in this area, leaving
banks vulnerable to operational risk. Banks should, therefore, ensure compliance with the
regulatory guidelines on KYC/AML/CFT both in letter and spirit. Accordingly, banks were
advised to complete the process of risk categorization and compiling/updating profiles of all of
their existing
customers in a time-bound manner, by end-March 2013.
2.14. Closure of accounts
Where the bank is unable to apply appropriate KYC measures due to non-furnishing of
information and /or non-cooperation by the customer, the bank should consider closing the
account or terminating the banking/business relationship after issuing due notice to the customer
explaining the reasons for taking such a decision. Such decisions need to be taken at a
reasonably senior level.
2.15. Risk Management
a) The Board of Directors of the bank should ensure that an effective KYC programme is put in
place by establishing appropriate procedures and ensuring their effective implementation. It
should cover proper management oversight, systems and controls, segregation of duties,
training and other related matters. Responsibility should be explicitly allocated within the bank
for ensuring that the bank’s policies and procedures are implemented effectively. Banks
should, in consultation with their boards, devise procedures for creating risk profiles of their
existing and new customers, assess risk in dealing with various countries, geographical areas
and also the risk of various products, services, transactions, delivery channels, etc. Banks’
policies should address effectively managing and mitigating these risks adopting a risk-based
approach as discussed in Para 2.3 (d) above.
b) Banks’ internal audit and compliance functions have an important role in evaluating and
ensuring adherence to the KYC policies and procedures. As a general rule, the compliance
function should provide an independent evaluation of the bank’s own policies and procedures,
including legal and regulatory requirements. Banks should ensure that their audit machinery
is staffed adequately with individuals who are well-versed in such policies and procedures.
Concurrent/ Internal Auditors should specifically check and verify the application of KYC
procedures at the branches and comment on the lapses observed in this regard. The
2.16. Introduction of New Technologies – Credit Cards/Debit Cards/ Smart Cards/Gift
Cards
Banks should pay special attention to any money laundering threats that may arise from new or
developing technologies including internet banking that might favour anonymity, and take
measures, if needed, to prevent their use in money laundering schemes. Many banks are
engaged in the business of issuing a variety of Electronic Cards that are used by customers for
buying goods and services, drawing cash from ATMs, and can be used for electronic transfer of
funds. Banks are required to ensure full compliance with all KYC/AML/CFT guidelines issued
from time to time, in respect of add-on/ supplementary cardholders also. Further, marketing of
credit cards is generally done through the services of agents. Banks should ensure that
appropriate KYC procedures are duly applied before issuing the cards to the customers. It is also
desirable that agents are also subjected to KYC measures.
2.17. Combating Financing of Terrorism
In terms of PMLA Rules, suspicious transaction should include, inter alia,
a. Transactions, which give rise to a reasonable ground of suspicion that these may involve
financing of the activities relating to terrorism. Banks are, therefore, advised to develop
suitable mechanism through appropriate policy framework for enhanced monitoring of
accounts suspected of having terrorist links and swift identification of the transactions and
making suitable reports to FIU-Ind on priority.
b. As and when list of individuals and entities, approved by Security Council Committee
established pursuant to various United Nations' Security Council Resolutions (UNSCRs), are
received from Government of India, Reserve Bank circulates these to all banks and financial
institutions. Banks/Financial Institutions should ensure to update the lists of individuals and
entities as circulated by Reserve Bank. The UN Security Council has adopted Resolutions
1988 (2011) and 1989 (2011) which have resulted in splitting of the 1267 Committee's
Consolidated List into two separate lists, namely:
i) “Al-Qaida Sanctions List”, which is maintained by the 1267 / 1989 Committee. This list
shall include only the names of those individuals, groups, undertakings and entities
associated with Al-Qaida. The Updated
Al-Qaida Sanctions List is available at
http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml
ii) “1988 Sanctions List”, which is maintained by the 1988 Committee. This list consists of
names previously included in Sections A (“Individuals associated with the Taliban”) and B
(“Entities and other groups and undertakings associated with the Taliban”) of the
Consolidated List. The
Updated 1988 Sanctions list is available at http://www.un.org/sc/committees/
1988/list.shtml
It may be noted that both “Al-Qaida Sanctions List” and “1988 Sanctions List” are to be taken into
account for the purpose of implementation of Section 51A of the Unlawful Activities (Prevention)
Act, 1967.
Banks are advised that before opening any new account it should be ensured that the name/s of
the proposed customer does not appear in the lists. Further, banks
should scan all existing accounts to ensure that no account is held by or linked to any of the
entities or individuals included in the list. Full details of accounts bearing resemblance with any of
the individuals/entities in the list should immediately be intimated to RBI and FIU-IND.
2.18. 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 detailing the procedure for implementation of Section 51A of the Unlawful Activities
(Prevention) Act, 1967 relating to the purposes of prevention of, and for coping with terrorist
activities. 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 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.
b) Banks are required to strictly follow the procedure laid down in the UAPA Order dated August
27, 2009 (Annex II) and ensure meticulous compliance to the Order issued by the
Government.
c) On receipt of the list of individuals and entities subject to UN sanctions (referred to as
designated lists) from RBI, banks should ensure expeditious and effective implementation of
the procedure prescribed under Section 51A of UAPA in regard to freezing/unfreezing of
financial assets of the designated individuals/entities enlisted in the UNSCRs and especially,
in regard to funds, financial assets or economic resources or related services held in the form
of bank accounts.
d) In terms of Para 4 of the Order, in regard to funds, financial assets or economic
resources or related services held in the form of bank accounts, the RBI would forward
the designated lists to the banks requiring them to:
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 with them.
ii) In case, the particulars of any of their customers match with the
particulars of designated individuals/entities, the banks 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, held by such customer on their books to the Joint Secretary (IS.I), Ministry of
Home Affairs, at Fax No.011-23092569 and also convey over telephone on 011-
23092736. The particulars apart from being sent by post should necessarily be
conveyed on e-mail.
iii) Banks shall also send by post, a copy of the communication mentioned in (ii) above to
the UAPA nodal officer of RBI, Chief General Manager, Department of Banking
Operations and Development, Central Office, Reserve Bank of India, Anti Money
Laundering Division, Central Office Building, 13th Floor, Shahid Bhagat Singh Marg,
Fort, Mumbai - 400 001 and also by fax at No.022-22701239. The particulars, apart
from being sent by post/fax should necessarily be conveyed on e-mail.
iv) Banks shall also send a copy of the communication mentioned in (ii) above to the
UAPA nodal officer of the state/UT where the account is held as the case may be and
to FIU-India.
v) In case, the match of any of the customers with the particulars of designated
individuals/entities is beyond doubt, the banks would
prevent designated persons from conducting financial transactions, under intimation to
Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No. 011-23092569 and also
convey over telephone on 011-23092736. The particulars apart from being sent by post
should necessarily be conveyed on e-mail.
vi) Banks shall also file a Suspicious Transaction Report (STR) with FIU-IND covering all
transactions in the accounts covered by paragraph (ii ) above, carried through or
attempted, as per the prescribed format.
e) Freezing of financial assets
i) On receipt of the particulars as mentioned in paragraph d(ii)) above, IS-I Division of MHA
would cause a verification to be conducted by the State Police and /or the Central
Agencies so as to ensure that the individuals/ entities identified by the banks are the
ones listed as designated individuals/entities and the funds, financial assets or
economic resources or related services , reported by banks are held by the designated
individuals/entities. This verification would be completed within a period not exceeding
five working days from the date of receipt of such particulars.
ii) 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 under intimation to Reserve
Bank of India and FIU-IND.
iii) The order shall take place without prior notice to the designated individuals/entities.
f) Implementation of requests received from foreign countries under U.N. Security
Council Resolution 1373 of 2001.
i) 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 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.
ii) 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.
iii) The UAPA nodal officer of IS-I Division of MHA, shall cause the request to be
examined, within five 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 RBI. The proposed designee,
as mentioned above would be treated as designated individuals/entities.
iv) Upon receipt of the requests from the UAPA nodal officer of IS-I Division, the list would
be forwarded to banks and the procedure as enumerated at paragraphs 2.18[(c), (d)
and (e)] shall be followed.
v) The freezing orders shall take place without prior notice to the designated persons
involved.
g) 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 evidence, in
writing, to the concerned bank. The banks 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 given
in paragraph (d)(ii) above 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 fifteen working days, unfreezing the funds,
financial assets or economic resources or related services, owned/held by such applicant
under intimation to the concerned bank. 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.
h) 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 through RBI.
2.19. Jurisdictions that do not or insufficiently apply the FATF Recommendations
a) Banks 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, (latest as on June 30, 2014, being our circular
DBOD. AML.No.15245/14.01.001/2013-14 dated March 05, 2014) banks should also
consider publicly available information for identifying countries, which do not or insufficiently
apply the FATF Recommendations. It is clarified that banks 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 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.
2.20. Correspondent Banking and Shell Bank
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. Banks should 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 may be of special relevance. Similarly, banks should
try to ascertain from publicly available information whether the other bank has been subject to
any money laundering or terrorist financing investigation or regulatory action. While it is
desirable that such relationships should be established only with the approval of the Board, in
case the Boards of some banks wish to delegate the power to an administrative authority,
they may delegate the power to a committee headed by the Chairman/CEO of the bank while
laying 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 correspondent bank should also ensure
that the respondent bank is able to provide the relevant customer identification data
immediately on request.
b) Correspondent relationship with a “Shell Bank”
Banks should refuse to 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 unaffiliated to any
regulated financial group). Shell banks are not permitted to operate in India. Banks should not
enter into relationship with shell banks and before establishing correspondent relationship with
any foreign institution, banks should take appropriate measures to satisfy themselves that the
foreign respondent institution does not permit its accounts to be used by shell banks. Banks
should be extremely cautious while continuing relationships with correspondent banks located in
countries with poor KYC standards and countries identified as 'non-cooperative' in the fight
against money laundering and terrorist financing. Banks should ensure that their respondent
banks have anti money laundering policies and procedures in place and apply enhanced 'due
diligence' procedures for transactions carried out through the correspondent accounts.
2.21. Applicability to branches and subsidiaries outside India
The guidelines contained in this master circular shall apply to the branches and majority owned
subsidiaries located abroad, especially, in countries which do not or insufficiently apply the FATF
Recommendations, to the extent local laws permit. When local applicable laws and regulations
prohibit implementation of these guidelines, the same should be brought to the notice of Reserve
Bank. In case there is a variance in KYC/AML standards prescribed by the Reserve Bank and the
host country regulators, branches/overseas subsidiaries of banks are required to adopt the more
stringent regulation of the two.
2.22. Wire Transfer
Banks 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.
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
may be the same person.
ii) 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 cross-border element.
iii) 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.
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.
b) Wire transfer is an instantaneous and most preferred route for transfer of funds across the
globe and hence, there is a need for preventing terrorists and other criminals from having
unfettered access to wire transfers for moving their funds and for detecting any misuse when
it occurs. This can be achieved if basic information on the originator of wire transfers is
immediately available to appropriate law enforcement and/or prosecutorial authorities in order
to assist them in detecting, investigating, prosecuting terrorists or other criminals and
tracing their assets. The information can be used by Financial Intelligence Unit - India (FIUIND)
for analysing suspicious or unusual activity and disseminating it as necessary. The
originator information can also be put to use by the beneficiary bank to facilitate identification
and reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing
threat posed by small wire transfers, the objective is to be in a position to trace all wire
transfers with minimum threshold limits. Accordingly, banks must ensure that all wire
transfers are accompanied by the following information:
1. 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.
2. 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. 50000/- (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 non-cooperation from the customer, efforts
should be made to establish his identity and Suspicious Transaction Report
(STR) should be made to FIU-IND.
bi) When a credit or debit card is used to effect money transfer, necessary
information as (i) above should be included in the message.
c) Exemptions
Interbank transfers and settlements where both the originator and beneficiary are banks or
financial institutions would be exempted from the above requirements.
d) 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 ten 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 ten
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.
2.23. Designated Director and Principle Officer
a) Designated Director
Banks are required to nominate a Director on their Boards as “Designated Director”, as per the
provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), to
ensure overall compliance with the obligations under the Act and Rules. The name, designation and
address of the Designated Director is to be communicated to the Director, Financial Intelligence
Unit – India (FIU-IND).
b) Principal Officer
Banks should appoint a senior management officer to be designated as Principal Officer. Banks
should ensure that the Principal Officer is able to act independently and report directly to the senior
management or to the Board of Directors. Principal Officer shall be located at the head/corporate
office of the bank and shall be responsible for monitoring and reporting of all transactions and sharing
of information as required under the law. He will maintain close liaison with enforcement agencies,
banks and any other institution which are involved in the fight against money laundering and
combating financing of terrorism
Further, the role and responsibilities of the Principal Officer should include overseeing and ensuring
overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and
obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made
thereunder, as amended form time to time. The Principal Officer will also be responsible for timely
submission of CTR, STR and reporting of counterfeit notes and all transactions involving
receipts by non-profit organisations of value more than Rupees Ten Lakh or its equivalent in foreign
currency to FIU-IND.With a view to enabling the Principal Officer to discharge his responsibilities
effectively, the Principal Officer and other appropriate staff should have timely access to customer
identification data and other CDD information, transaction records and other relevant information.
2.24. Maintenance of records of transactions/Information to be preserved/Maintenance
and preservation of records/Cash and Suspicious transactions reporting to
Financial Intelligence Unit- India (FIU-IND)
Section 12 of the PMLA, 2002 casts certain obligations on the banking companies in regard to
preservation and reporting of customer account information. Banks are, therefore, advised to go
through the provisions of PMLA, 2002 and the Rules notified there under and take all steps
considered necessary to ensure compliance with the requirements of Section 12 of the Act ibid.
a) Maintenance of records of transactions
Banks should introduce a system of maintaining proper record of transactions prescribed under
Rule 3 of 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)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;
b) Information to be preserved
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Banks are required to maintain all necessary information in respect of transactions referred to in
PML Rule 3 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.
c) Maintenance and Preservation of Records
i) Banks are required to maintain the records containing information of all transactions
including the records of transactions detailed in Rule 3 above. Banks should take
appropriate steps to evolve a system for
proper maintenance and preservation of account information in a manner that allows
data to be retrieved easily and quickly whenever required or when requested by the
competent authorities. Further, in terms of PML Amemdment Act 2012 notified on
February 15, 2013, banks should maintain for at least five years from the date of
transaction between the bank 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.
ii) Banks should 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 at least five years after the
business relationship is ended as required under Rule 10 of the Rules ibid. The
identification records and transaction data should be made available to the
competent authorities upon request.
iii) In paragraph 2.13 of this Master Circular, banks have been advised to pay special
attention to all complex, unusual large transactions and all unusual patterns of
transactions, which have no apparent economic or visible lawful purpose. It is further
clarified that the background including all documents/office records/memorandums
pertaining to such transactions and purpose thereof should, as far as possible, be
examined and the findings at branch as well as Principal Officer level should be
properly recorded. Such records and related documents should be made available to
help auditors in their day-to-day work relating to scrutiny of transactions and also to
Reserve Bank/other relevant authorities. These records are required to be preserved
for ten years as is required under PMLA, 2002.
d) Reporting to Financial Intelligence Unit - India
i) In terms of the PMLA Rules, banks are required to report information relating to cash
and suspicious transactions and all transactions
involving receipts by non-profit organisations of value more than rupees ten lakh or
its equivalent in foreign currency to the Director, Financial Intelligence Unit-India
(FIU-IND) in respect of transactions referred to in Rule 3 at the following address:
Director, FIU-IND,
Financial Intelligence Unit-India,
6th Floor, Hotel Samrat,
Chanakyapuri,
New Delhi -110021
Website - http://fiuindia.gov.in/
Explanation: Government of India Notification dated November 12, 2009- Rule 2 sub-rule (1)
clause (ca) defines Non-Profit Organization (NPO). 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
under section 25 of the Companies Act, 1956.
ii) The earlier prescribed multiple data files reporting format has been replaced by a
new single XML file format. 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 OM issued on
Reporting Formats under Project FINnet dated 31st March,2011 by FIU containing all
relevant details are available on FIU’s website. Banks In this regard, a reference is
also invited to
circulars DBOD.AML.BC.No.39/14.01.001/2012-13 and
DBOD.AML.BC.No.49/14.01.001/2012-13 dated September 7, 2012 and October 11,
2012 respectively. Accordingly, banks should carefully go through all the reporting
formats prescribed by FIU-IND. Accordingly, banks should carefully go through all the
reporting formats prescribed by FIU-IND.
iii) FIU-IND have placed on their website editable electronic utilities to enable banks to
file electronic CTR/STR who 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 banks, where all the branches are not fully computerized, the Principal
Officer of the bank 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
In terms of instructions contained in paragraph 2.3(b) of this Master Circular, banks are required
to prepare a profile for each customer based on risk categorisation. Further, vide paragraph
2.13(d), the need for periodical review of risk categorisation has been emphasized. It is, therefore,
reiterated that banks, as a part of transaction monitoring mechanism, are required to put in place
an appropriate software application to throw alerts when the transactions are inconsistent with
risk categorization and updated profile of customers. It is needless to add that a robust software
throwing alerts is essential for effective identification and reporting of suspicious transaction.
2.25. Various Reporting Formats
a) Cash Transaction Report (CTR)
While detailed instructions for filing all types of reports are given in the instructions part of the
related formats, banks should scrupulously adhere to the following:
i) The Cash Transaction Report (CTR) for each month should be submitted to FIUIND
by 15th of the succeeding month. Cash transaction reporting by branches to
their controlling offices should, therefore, invariably be submitted on monthly basis
(not on fortnightly basis) and banks should ensure to submit CTR for every month
to FIU-IND within the prescribed time schedule.
ii) All cash transactions, where forged or counterfeit Indian currency notes have been
used as genuine should be reported by the Principal Officer to FIU-IND in the
specified format not later than seven working days from the date of occurrence of
such transactions (Counterfeit Currency Report – CCR). 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.
iii) While filing CTR, details of individual transactions below Rupees Fifty thousand
need not be furnished.
iv) 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.
v) A summary of cash transaction report 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-India.
vi) In case of Cash Transaction Reports (CTR) compiled centrally by banks for the
branches having Core Banking Solution (CBS) at their central data centre level,
banks may generate centralised Cash Transaction Reports (CTR) in respect of
branches under core banking solution at one point for onward transmission to FIUIND,
provided:
a) The CTR is to be generated in the format prescribed by FIU-IND;
b) A copy of the monthly CTR submitted on its behalf to FIU-India is available at the
concerned branch for production to auditors/inspectors, when asked for; and
c) The instruction on ‘Maintenance of records of transactions’; ‘Information to
be preserved’ and ‘Maintenance and Preservation of records’ as contained
above in this Master Circular at Para 2.24
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 FIUIND.
b) Suspicious Transaction Reports (STR)
i) While determining suspicious transactions, banks should be guided by definition of
suspicious transaction contained in PMLA Rules as amended from time to time.
ii) 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
should report all such attempted transactions in STRs, even if not completed by
customers, irrespective of the amount of the transaction.
iii) Banks should make STRs if they have reasonable ground to believe that the
transaction involve proceeds of crime generally irrespective of the amount of
transaction and/or the threshold limit envisaged for predicate offences in part B of
Schedule of PMLA, 2002.
iv) 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.
v) In the context of creating KYC/AML awareness among the staff and for generating
alerts for suspicious transactions, banks may consider the indicative list of
suspicious activities contained in Annex-E of the 'IBA's
Guidance Note for Banks, January 2012’.
vi)
Banks should not put any restrictions on operations in the accounts where an STR
has been made. Banks and their employees should keep
the fact of furnishing of STR strictly confidential, as required under PML Rules. It
should be ensured that there is no tipping off to the customer at any level.
c) Non-Profit Organisation
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.
d) Cross-border Wire Transfer
Cross-border Wire Transfer Report (CWTR) is required to be filed 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.
2.26. Customer Education/Employee's Training/Employee's Hiring
a) Customer Education
Implementation of KYC procedures requires banks to demand certain information from customers
which may be of personal nature or which has hitherto never been called for. This can personnel.
lead to a lot of questioning by the customer as to the motive and purpose of collecting such
information. There is, therefore, a need for banks to prepare specific literature/ pamphlets etc. so
as to educate the customer of the objectives of the KYC programme. The front desk staff needs
to be specially trained to handle such situations while dealing with customers.
b) Employees’ Training
Banks must have an ongoing employee training programme so that the members of the staff are
adequately trained in KYC procedures. Training requirements should have different focuses for
frontline staff, compliance staff and staff dealing with new customers. It is crucial that all those
concerned fully understand the rationale behind the KYC policies and implement them
consistently.
c) Hiring of Employees
It may be appreciated that KYC norms/AML standards/CFT measures have been prescribed to
ensure that criminals are not allowed to misuse the banking
channels. It would, therefore, be necessary that adequate screening mechanism
is put in place by banks as an integral part of their recruitment/hiring process of
personnel.
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