AML Provisions of Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering and related crimes. PMLA and the Rules notified thereunder came into force on 1st July 2005. Under PMLA, all entities registered with SEBI are required to furnish information about all suspicious transactions, whether or not made in cash, to FIU-IND. Under Section 3 of PMLA, projecting crime as untainted property is an offence of money laundering, liable to punishment under Section 4 of the PMLA.
Money Laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.
The Financial Intelligence Unit-India (FIU-IND) is the central national agency of India responsible for receiving, processing, analyzing, and disseminating information on suspicious financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation, and enforcement agencies in combating money laundering and related crimes.
Section 2 (1) (g) of PMLA Rules defines a suspicious transaction, whether or not made in cash, as one that, to a person acting in good faith:
➢ Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
➢ Appears to be made in circumstances of unusual or unjustified complexity; or
➢ Appears to have no economic rationale or bona fide purpose; or
➢ Gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism.
Policy and Procedures for Anti-Money Laundering Measures
The policy and procedures outlined below provide a general background on the subjects of money laundering and terrorist financing, summarize the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India, and provide guidance on the practical implications of the Act. The same also sets out the steps that a registered intermediary and any of its representatives should implement to discourage and identify any money laundering or terrorist financing activities.
The Prevention of Money Laundering Act, 2002 has been in effect since 1st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on 1st July 2005 by the Department of Revenue, Ministry of Finance, Government of India.
As per the provisions of the Act, every banking company, financial institution (including chit fund companies, co-operative banks, housing finance institutions, and non-banking financial companies), and intermediary (including stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees to a trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and any other intermediary associated with the securities market and registered under Section 12 of the Securities and Exchange Board of India Act, 1992) shall maintain records of all transactions, the nature and value of which have been prescribed in the Rules under PMLA. Such transactions include:
- All cash transactions valued over Rs 10 lacs or its equivalent in foreign currency.
- All series of cash transactions integrally connected to each other, which have been valued below Rs 10 lakhs or its equivalent in foreign currency, where such series of transactions take place within one calendar month.
- All suspicious transactions, whether or not made in cash, including credits or debits into/from any non-monetary account such as a demat account or security account maintained by the registered intermediary.
We should adopt written procedures to implement the anti-money laundering provisions as envisaged under the Anti-Money Laundering Act, 2002. Such procedures should include, inter alia, the following three specific parameters related to the overall ‘Client Due Diligence Process’:
a) Policy for acceptance of clients
b) Procedure for identifying the clients
c) Transaction monitoring and reporting, especially Suspicious Transactions Reporting (STR)
Client Due Diligence Process
The customer due diligence ("CDD") measures comprise the following:
a. Obtaining sufficient information to identify persons who beneficially own or control securities accounts.
As an organization providing Research Analyst Services, details of securities accounts of clients are not shared with us in the process of delivering services, and execution services are not part of our service package. Accordingly, identifying the beneficial owner or controlling party of the securities account of the client is the responsibility of the broker handling the security account of the client.
b. Verify the customer’s identity
We adhere to SEBI KYC (Know Your Client) Registration Agency Regulations and any subsequently amended regulations to verify the customer's identity in accordance with PMLA requirements. As registered members of KRA Agencies, including CVL KRA, NDML KRA, and BSE KRA, we validate and download the client's information from the KRA system. If the status of the clients or their KYC information changes, we update the information on the KRA system and maintain the relevant physical documents.
c. Identify beneficial ownership and control, i.e., determine which individual(s) ultimately own or control the customer and/or the person on whose behalf a transaction is being conducted.
Transaction data is not handled by us as the client does not share such data with us as part of our research service. We provide non-discretionary research recommendation services, and execution of those recommendations is at the discretion of the client, with execution handled by the client themselves. Thus, identifying the beneficial owner or controlling party of the securities account of the client is the responsibility of the broker handling the security account.
Guidelines to be Followed as Part of Client Due Diligence Process
a. Policy for Acceptance of Clients
The following safeguards should be followed while accepting clients:
No account should be opened in a fictitious/benami name or on an anonymous basis.
Ensure that an account is not opened where you are unable to apply appropriate client due diligence measures/collect basic KYC details (e.g., PAN card number).
Ensure that the client is KYC registered.
The client should not be permitted to act on behalf of another person/entity for service delivery.
Do not accept clients with identities matching banned persons/entities as per SEBI/Stock Exchanges in the capital market. Before opening an account, check whether the client’s identity matches with persons debarred/banned by SEBI using the following links:
Conduct a risk assessment that takes into account any country-specific information, using the updated list of individuals and entities who are subject to sanction measures under various United Nations Security Council Resolutions. Do not onboard a client who is present in these lists:
b. Procedure for Identifying the Clients
The Know Your Client (KYC) policy should be strictly observed regarding the client identification procedures carried out at the time of establishing the client relationship (i.e., onboarding the client).
- The client should be identified by using reliable sources, including documents/information.
- Obtain adequate information to satisfactorily establish the identity of each new client and the intended nature of the relationship.
- The information should be adequate to satisfy competent authorities (regulatory/enforcement authorities) that due diligence was observed in compliance with the Guidelines.
- Each original document should be seen before acceptance of a copy, and it should be verified and duly attested.
Failure by prospective clients to provide satisfactory evidence of identity should be noted and reported to higher authority within the organization.
c. Maintenance of Records
All the records of the clients are to be maintained for a minimum period of 10 years or, in the case of any regulatory action, until the matter is resolved.
d. Audit
An audit of Research Analyst (RA) activities should be conducted by an independent professional as per the regulations. Any audit observations should be addressed on a priority basis, and corrective actions should be initiated.
e. Transaction Monitoring and Reporting, Especially Suspicious Transactions Reporting (STR)
The only transaction encountered while delivering services is the collection of fees, as we do not have access to the execution of transaction data of the clients. Therefore, the fee collection should be processed through our bank account only. Further, no cash transaction should be allowed for fee payment by the clients.
The nature and value of transactions that need to be maintained and recorded include:
- All cash transactions of the value of more than Rs 10 lakhs or its equivalent in foreign currency.
- All series of cash transactions integrally connected to each other that are below Rs 10 lakhs or its equivalent in foreign currency, if they occur within one calendar month.
- All suspicious transactions, whether or not made in cash, including credits or debits to/from any non-monetary account such as a demat account or security account maintained by the registered intermediary.
Any suspicious transactions will be immediately reported to the Compliance Officer, who will carefully review all the reporting requirements and formats as per the provisions of PMLA.
Reporting to FIU-India
In terms of PMLA rules, Elitefinserv will report information relating to cash and suspicious transactions to:
Director, FIU-IND
Financial Intelligence Unit - India
6th Floor, Hotel Samrat
Chanakyapuri, New Delhi - 110021
Role of Staff
Principal Officer
The Principal Officer is responsible for:
- Communicating the policy on prevention of money laundering to the employees.
- Receiving reports from employees regarding suspicious dealings noticed by them.
- Clarifying any queries from employees on this matter.
- Ensuring that employees dealing with clients are aware of and strictly follow the guidelines.
- Reporting any suspicious transactions to the appropriate authorities.
- Handling compliance functions and ensuring adherence to policies, procedures, and controls related to the prevention of money laundering (ML) and terrorist financing (TF).
- Evaluating the process in case any gaps are identified.
Onboarding Staff
Staff members dealing with customers or handling customer-facing processes must be sensitive to AML requirements and obligations:
- The primary responsibility for compliance lies with the onboarding staff, as they interact directly with clients.
- Onboarding staff must conduct the KYC process and client due diligence during new business and renewals.
- Defaulting on AML obligations may lead to actions as per firm policies.
- If any suspicious activity is identified, it should be brought to the notice of the higher authorities.
Communication of Policy
A copy of this policy should be provided to all management and relevant staff who handle account information, securities transactions, money, and client records, whether in branches, departments, or subsidiaries. An internal session on awareness of the above policy will be conducted annually in the first week of April.
Compliance with Relevant Statutory and Regulatory Requirements
Ensure that activities comply with all relevant statutory and regulatory requirements.
Co-operation with Relevant Law Enforcement Authorities
As required, relevant client information must be shared with law enforcement authorities, and timely disclosures should be made as per their request.
Review of Policy and Procedures
The management of Elitefinserv will review the policies and procedures on the prevention of ML and TF to ensure their effectiveness and to address any changes in regulatory guidelines.
Mr. Divyansh Jain
For,
Elitefinserv
SEBI Registered Research Analyst
Registration No. INH000016409
