Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the “clean” money to the launderer in an obscure and indirect way. Money Laundering is a criminal act of misrepresenting illegally obtained money, such as from drug trafficking or terrorism, being obtained from legitimate resources. It is one of the illicit activities through which criminals disguise their original ownership of undeclared money by making proceeds appear to have been derived from lawful sources.
Such money is called “Proceeds of crime” which means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. Further it include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.
The PML Act seeks to combat money laundering in India and has three main objectives:
1) To prevent and control money laundering
2) To confiscate and seize the property obtained from the laundered money;
3) To deal with any other issue connected with money laundering in India.
Under the PML Act a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:-
1) Concealment
2) Possession
3) Acquisition
4) Use
5) Projecting as untainted property
6) Claiming as untainted property
The process or activity of money laundering is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by any of the above methods.
Process of Money Laundering: Placement, Layering & Integration
Placement (depositing into banks)
Dirty money being inserted in financial system. The first stage is the physical disposal of cash. The launderer introduces his illegal profits into the financial system. This placement is accomplished by depositing the cash in domestic banks or in other types of formal or informal financial institutions.
Layering (making shell companies causing rotation of money)
Separates the proceeds from their criminal origin by moving them through a series of financial transactions. The Second stage in money laundering is layering. The launderer engages in a series of conversions or movements of the funds to distance them from their source. Shell companies (i.e. paper companies/bogus companies) serve as front and are registered in offshore havens. They are a common tool in the layering phase.
Integration(acquiring legitimate explanation through investments, loans etc)
Creating a legitimate explanation for their sources of funds, allowing them to be retained, invested or used, to acquire goods or assets. This is the stage where the funds are returned to the legitimate economy for later extraction. Examples include investing in a company, purchasing real estate, luxury goods, etc. This is the final stage in the process.
The Act prescribes obligation of Reporting Entities for verification and maintenance of records of the identity of all its clients and also of all transactions and for furnishing information of such transactions in prescribed form to the Financial Intelligence Unit-India (FIU-IND).
It empowers the Director of FIU-IND to impose fine on Reporting Entities if they or any of its officers fails to comply with the provisions of the Act as indicated above. PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering. PMLA envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties. It also envisages setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities like Director FIU-IND.
Punishment for money-laundering.
Section 4. Rigorous imprisonment for a term not less than three years but which may extend to seven years and shall also be liable to fine and in case of scheduled offences it may extend to ten years.
Thus, the main crux of the PLMA centres around the process of Verification of Identity & Activities of the client by reporting entities and submission of timely information to the controlling authorities. For this purpose, the government has designated certain entities as the Reporting Entities and obligated them to carrying out the verification process as provided in this Act.
Obligations Of The Reporting Entities
Reporting Entity has been defined to mean
1. A banking company,
2. A financial institution,
3. An intermediary i.e.
i. A stock-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or any other intermediary associated with securities market and registered with SEBI.
ii. An association recognised or registered under the Forward Contracts (Regulation) Act, 1952 or any member of such association; or
iii. Intermediary registered by the Pension Fund Regulatory and Development Authority; or
iv. A recognised stock exchange
4. A person carrying on a designated business or profession which means;
i. A person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
ii. Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 as may be notified by the Central Government;]
iii. Real estate agent, as may be notified by the Central Government;
iv. Dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
v. Person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
vi. Person carrying on such other activities as the Central Government may, by notification, so designate, from time to time;
vii. The Central Government, by Notification dated 3rd May, 2023 has notified that the financial transactions carried out by a Relevant Person on behalf of his client, in the course of his or her profession, in relation to the following activities-
a) Buying and selling of any immovable property;
b) Managing of client money, securities or other assets;
c) Management of bank, savings or securities accounts;
d) Organisation of contributions for the creation, operation or management of companies;
e) Creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,
shall be an activity for the purposes of the above purposes.
It is pertinent to note that for the purposes of this notification ‘Relevant Person’ includes –
(i) An individual who obtained a certificate of practice of ICAI and practicing individually or through a firm, in whatever manner it has been constituted;
(ii) An individual who obtained a certificate of practice of ICSI and practicing individually or through a firm, in whatever manner it has been constituted;
(iii) An individual who has obtained a certificate of practice of CWA and practicing individually or through a firm, in whatever manner it has been constituted.
NOTIFICATION 9th May, 2023S.O. 2135(E) The Central Government hereby notifies that the following activities when carried out in the course of business on behalf of or for another person, as the case may be, as an activity for the purposes of said sub-clause, namely:-
(i) acting as a formation agent of companies and limited liability partnerships;
(ii) acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
(iii) providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
(iv) acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
(v) acting as (or arranging for another person to act as) a nominee shareholder for another person.
Explanation.–For removal of doubts, it is clarified that the following activities shall not be regarded as activity for the purposes of sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Act, namely:-
(a) any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 (43 of 1961); or
(b) any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
(c) any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under clause (b) of sub-section (1) of section 7 of Companies Act, 2013 (18 of 2013); or
(d) any activity of a person which falls within the meaning of an intermediary as defined in clause (n) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003).
Verification of the Identity by Reporting Entity. Section 11A
Every reporting entity shall verify the identity of its clients and the beneficial owner, by-
a) Authentication under the Aadhaar if the reporting entity is a banking company;
b) Offline verification under the Aadhaar or
c) Use of passport or
d) Use of any other Officially Valid Document or modes of identification as may be notified
A. Officially Valid Document means the
1. Passport,
2. Driving licence,
3. Proof of possession of Aadhaar number
4. Voter’s Identity Card
5. Job card issued by NREGA duly signed
6. Letter issued by the National Population Register or
7. any other document as notified by the Central Government
B. Where Simplified measures are applied for verifying the identity of the clients the following shall be deemed to be officially valid documents:
1. Identity card with applicant’s Photograph issued Government, PSU, Scheduled Commercial Banks, and Public Financial Institutions;
2. Letter issued by a gazetted officer, with a duly attested photograph of the person:
C. For the limited purpose of verification of address:
1. Utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, Water bill);
2. Property or Municipal tax receipt
3. Bank account or Post Office savings bank account statement or if the reporting entity is located in an International Financial Services Centre, statement of foreign bank
4. Pension or family pension payment orders (PPOs) issued to retired employees
5. Letter of allotment of accommodation from employer issued by State or Central Government departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies.
6. Similarly, leave and licence agreements with such employers allotting official accommodation; and
7. A letter issued by the Foreign Embassy or Mission in India in case of a foreign national
8. The national identity card and voter identification card issued by Government of foreign jurisdictions or agencies for an entity in an International Financial Services Centre,
9. A document shall be deemed to an “officially valid document” even if there is a change in the name subsequent to its issuance provided it is supported by a marriage certificate issued by the State Government or Gazette notification, indicating such a change of name.
10. The Central Government may permit reporting entities other than a Banking Company to perform authentication under the Aadhaar
(2) The reporting entity performing authentication shall make the other modes of identification available to such client or the beneficial owner.
(3) The use of modes of identification shall be a voluntary choice of every client or beneficial owner who is sought to be identified and no client or beneficial owner shall be denied services for not having an Aadhaar number.
(4) If, for identification of a client or beneficial owner, authentication or offline verification is used, neither his core biometric information nor his Aadhaar number shall be stored.
Reporting entity to maintain records: Section 12.
Every reporting entity shall-
a. Maintain a record of all transactions, including information relating to other prescribed transactions, in such manner as to enable it to reconstruct individual transactions;
b. Furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed.
c. Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
“Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes-
i. opening of an account;
ii. deposits, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means;
iii. the use of a safety deposit box or any other form of safe deposit;
iv. entering into any fiduciary relationship;
v. any payment made or received in whole or in part of any contractual or other legal obligation;
vi. any payment made in respect of playing games of chance for cash or kind including such activities associated with casino; and
vii. establishing or creating a legal person or legal arrangement.
viii. Other transactions being:-
(A) all cash transactions of the value of more than ten lakh rupees or its equivalent in foreign currency;
(B) all series of cash transactions integrally connected to each other which have been individually valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency
(BA) all transactions involving receipts by non-profit organisations of value more than rupees ten lakh, or its equivalent in foreign currency;
(C) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions;
(D) all suspicious transactions whether or not made in cash and by way of:
(i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of:
(a) Cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other instrument of payment of money including electronic receipts or credits and electronic payments or debits, or
(b) Travelers cheques, or
(c) Transfer from one account within the same banking company, financial institution and intermediary, as the case may be, including from or to Nostro and Vostro accounts, or
(d) Any other mode in whatsoever name it is referred to;
(ii) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained by the banking company, financial institution and intermediary, as the case may be;
(iii) money transfer or remittances in favour of own clients or non-clients from India or abroad and to third party beneficiaries in India or abroad including transactions on its own account in any currency by any of the following:-
(a) payment orders, or
(b) cashiers cheques, or
(c) demand drafts, or
(d) telegraphic or wire transfers or electronic remittances or transfers, or
(e) internet transfers, or
(f) Automated Clearing House remittances, or
(g) lock box driven transfers or remittances, or
(h) remittances for credit or loading to electronic cards, or
(i) any other mode of money transfer by whatsoever name it is called;
(iv) loans and advances including credit or loan substitutes, investments and contingent liability by way of :
(a) subscription to debt instruments such as commercial paper, certificate of deposits, preferential shares, debentures, securitised participation, interbank participation or any other investments in securities or the like in whatever form and name it is referred to, or
(b) purchase and negotiation of bills, cheques and other instruments, or
(c) foreign exchange contracts, currency, interest rate and commodity and any other derivative instrument in whatsoever name it is called, or
(d) letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates and any other instrument for settlement and/or credit support services in any currency by way of collection of bills, cheques, instruments or any other mode of collection in whatsoever name it is referred to.
Suspicious transaction means a transaction including an attempted transaction, whether or not made in cash, which to a person acting in good faith–
(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona fide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.
(e) Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist organisation or those who finance or are attempting to finance terrorism
(E) 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;
(F) all purchase and sale by any person of immovable property valued at fifty lakh rupees or more than is registered by the reporting entity, as the case may be.]
Reporting Entity to maintain Records containing Information.
(1) The prescribed records shall contain all necessary information specified by the Regulator to permit reconstruction of individual transaction including the following information:-
(a) the nature of the transactions;
(b) the amount of the transaction and the currency in which it was denominated
(c) the date on which the transaction was conducted; and
(d) the parties to the transaction.
(2) Every information maintained, furnished or verified shall be kept confidential.
(3) The records which enable it to reconstruct individual transactions shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
(4) other records shall be maintained for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.
Enhanced due diligence Section 12AA.
Every reporting entity shall, prior to the commencement of each specified transaction,-
(a) verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar or if Aadhaar not available then by other prescribed means.
(b) take additional steps to examine the ownership and financial position, including sources of funds of the client.
(c) take additional steps to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties.
(2) Where the client fails to fulfil the above conditions, the reporting entity shall not allow the specified transaction to be carried out.
(3) Where any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions.
(4) The information obtained while applying the enhanced due diligence measures under shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
Specified Transaction means- Act
(a) any withdrawal or deposit in cash, exceeding such amount;
(b) any transaction in foreign exchange, exceeding such amount;
(c) any transaction in any high value imports or remittances;
(d) such other transaction or class of transactions, in the interest of revenue or where there is a high risk or money-laundering or terrorist financing, as may be prescribed.]
Client Due Diligence. Every reporting entity shall- Rule 9
(a) at the time of commencement of an account-based relationship-
(i) identify its clients, verify their identity, obtain information on the purpose and intended nature of the business relationship; and
(ii) determine whether a client is acting on behalf of a beneficial owner, and identify the beneficial owner and take all steps to verify the identity of the beneficial owner:
(b) in all other cases, verify identity while carrying out-
(i) transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or
(ii) any international money transfer operations.
(1A) Every reporting entity shall within ten days after the commencement of an account-based relationship with a client, file the electronic copy of the client’s KYC records with the Central KYC Records Registry;
(1B) The Central KYC Records Registry shall process the KYC records received from a reporting entity for de-duplicating and issue a KYC Identifier for each client to the reporting entity, which shall communicate the KYC Identifier in writing to their client;
(1C) Where a client submits a KYC Identifier to a reporting entity, then such reporting entity shall retrieve the KYC records online from the Central KYC Records Registry by using the KYC Identifier and shall not require a client to submit the same KYC records or information or any other additional identification documents or details, unless –
(i) there is a change in the information of the client as existing in the records of Central KYC Records Registry;
(ii) the current address of the client is required to be verified;
(iii) the reporting entity considers it necessary in order to verify the identity or address of the client, or to perform enhanced due diligence or to build an appropriate risk profile of the client.
(1D) A reporting entity after obtaining additional or updated information from a client under sub-rule (1C), shall as soon as possible furnish the updated information to the Central KYC Records Registry which shall update the existing KYC records of the client and the Central KYC Records Registry shall thereafter inform electronically all reporting entities who have dealt with the concerned client regarding updatation of KYC record of the said client.
(1E) The reporting entity which performed the last KYC verification or sent updated information in respect of a client shall be responsible for verifying the authenticity of the identity or address of the client.
(1F) A reporting entity shall not use the KYC records of a client obtained from the Central KYC Records Registry for purposes other than verifying the identity or address of the client and shall not transfer KYC records or any information contained therein to any third party unless authorised to do so by the client or by the Regulator or by the Director;
(1G) The regulator shall issue guidelines to ensure that the Central KYC records are accessible to the reporting entities in real time.]
(2) For the purpose of clause a reporting entity may rely on a third party subject to the conditions that-
(a) the reporting entity, within two days, obtains from the third party or from the Central KYC Records Registry records or the information of the client due diligence carried out by the third party.]
(b) the reporting entity takes adequate steps to satisfy itself that copies of identification data and other relevant documentation relating to the client due diligence requirements will be made available from the third party upon request without delay;
(c) the reporting entity is satisfied that such third party is regulated, supervised or monitored for, and has measures in place for compliance with client due diligence and record-keeping requirements in line with the requirements and obligations under the Act;
(d) the third party is not based in a country or jurisdiction assessed as high risk;
(e) the reporting entity is ultimately responsible for client due diligence and undertaking enhanced due diligence measures, as applicable; and
(f) where a reporting entity relies on a third party that is part of the same financial group, the Regulator may issue guidelines to consider any relaxation in the conditions (a) to (d).
(3) The beneficial owner shall be determined as under-
(a) where the client is a company, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has a controlling ownership interest or who exercises control through other means.
(b) where the client is a partnership firm, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has ownership of/entitlement to more than fifteen per cent of capital or profits of the partnership;
(c) where the client is an unincorporated association or body of individuals, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has ownership of or entitlement to more than fifteen per cent of the property or capital or profits of such association or body of individuals;
(d) where no natural person is identified under (a) or (b) or (c) above, the beneficial owner is the relevant natural person who holds the position of senior managing official;
(e) where the client is a trust, the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with ten per cent or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership; and
(f) where the client or the owner of the controlling interest is an entity listed on a stock exchange in India, or it is an entity resident in jurisdictions notified by the Central Government and listed on stock exchanges in such jurisdictions notified by the Central Government, or it is a subsidiary of such listed entities, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such entities.
(4) Where the client is an individual, he shall submit to the reporting entity,-
(a) the Aadhaar number where,
(i) he is desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar.
(ii) he decides to submit his Aadhaar number voluntarily to a banking company or any notified reporting entity
(aa) the proof of possession of Aadhaar number where offline verification can be carried out; or
(ab) the proof of possession of Aadhaar number where offline verification cannot be carried out or any officially valid document or the equivalent e-document thereof containing the details of his identity and address; and
(b) the Permanent Account Number or the equivalent e-document thereof or Form No. 60 as defined in Income-tax Rules, 1962; and
(c) such other documents including in respect of the nature of business and financial status of the client, or the equivalent e-documents thereof as may be required by the reporting entity:
(6) Where the client is a company, it shall submit to the reporting entity the certified copies of the following documents or the equivalent e-documents thereof, namely:-
(i) certificate of incorporation;
(ii) Memorandum and Articles of Association;
(iii) Permanent Account Number of the company;
(iv) a resolution from the Board of Directors and power of attorney granted to its managers, officers or employees, as the case may be, to transact on its behalf;
(v) such documents as are required for an individual relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on the company’s behalf;
(vi) the names of the relevant persons holding senior management position; and
(vii) the registered office and the principal place of its business, if it is different.
(7) Where the client is a partnership firm, it shall submit to the reporting entity the certified copies of the following documents or the equivalent e-documents thereof, namely:-
(i) registration certificate;
(ii) partnership deed;
(iii) Permanent Account Number of the partnership firm
(iv) such documents as are required for an individual relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; and
(v) the names of all the partners and address of the registered office, and the principal place of its business, if it is different.
(8) Where the client is a trust, it shall, submit to the reporting entity the certified copies of the following documents or the equivalent e-documents thereof, namely:-
(i) registration certificate;
(ii) trust deed;
(iii) Permanent Account Number or Form No.60 of the trust
(iv) such documents as are required for an individual relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf;]]
(v) the names of the beneficiaries, trustees, settlor and authors of the trust and the address of the registered office of the trust; and
(vi) list of trustees and documents as are required for individuals for those discharging role as trustee and authorised to transact on behalf of the trust.”
(9) Where the client is an unincorporated association or a body of individuals, it shall submit to the reporting entity the certified copies of the following documents or the equivalent e-documents thereof], namely:-
(i) resolution of the managing body of such association or body of individuals;
(ii) Permanent account number or Form No.60 of the unincorporated association or a body of individuals;
(iii) power of attorney granted to him to transact on its behalf; and
(iv) such documents as are required for an individual) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf;
(v) such information as may be required by the reporting entity to collectively establish the existence of such association or body of individuals.
(9A) Every Banking Company or Financial Institution or intermediary, as the case may be, shall register the details of a client, in case of client being a non-profit organisation, on the DARPAN Portal of NITI Aayog, if not already registered, and maintain such registration records for a period of five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later.
(9B) Where the client has submitted any documents it shall submit to the reporting entity any update of such documents, for the purpose of updating the records mentioned within 30 days of such updatation
(10) Where the client purports to act on behalf of juridical person or individual or trust, the reporting entity shall verify that any person purporting to act on behalf of such client is so authorized and verify the identity of that person.
(11) No reporting entity shall allow the opening of or keep any anonymous account or account in fictitious names or account on behalf of other persons whose identity has not been disclosed or cannot be verified.
(12) (i) Every reporting entity shall 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.
(ii) 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 client identification data, the reporting entity shall 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, as the case may be.
(iii) The reporting entity shall apply client due diligence measures also to existing clients on the basis of materiality and risk, and conduct due diligence on such existing relationships at appropriate times or as may be specified by the regulator, taking into account whether and when client due diligence measures have previously been undertaken and the adequacy of data obtained.
(13) (i) Every reporting entity shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, and products, services, transactions or delivery channels that is consistent with any national risk assessment conducted by a body or authority duly notified by the Central Government.
(ii) The risk assessment mentioned shall-
(a) be documented;
(b) consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied;
(c) be kept up to date; and
(d) be available to competent authorities and self-regulating bodies.
(ii) Every reporting entity shall formulate and implement a Client Due Diligence Programme, incorporating the requirements of sub-rules (1) to (13) sub-rule (15) and sub-rule (17)] and guidelines issued under clause (i) and (ia).]
(iii) The Client Due Diligence Programme shall include policies, controls and procedures, approved by the senior management, to enable the reporting entity to manage and mitigate the risk that have been identified either by the reporting entity or through national risk assessment.]
(15) Where the client has submitted-
(a) his Aadhaar number to the banking company or a reporting entity notified, such banking company or reporting entity shall carry out authentication of the client’s Aadhaar number using e-KYC authentication facility provided by the Unique Identification Authority of India;
(b) proof of possession of Aadhaar where offline verification can be carried out, the reporting entity shall carry out offline verification;
(c) an equivalent e-document of any officially valid document, the reporting entity shall verify the digital signature as per the provisions of the Information Technology Act, 2000 (21 of 2000) and any rules issues thereunder and take a live photo as specified under Annexure 1.
(d) any officially valid document or proof of possession of Aadhaar number where offline verification cannot be carried out, the reporting entity shall carry out verification through digital KYC as specified under Annexure 1:
The reporting entity may obtain a certified copy of the proof of possession of Aadhaar number or the officially valid document and a recent photograph where an equivalent e-document is not submitted.
(16) Every reporting entity shall, where its client submits a proof of possession of Aadhaar Number containing Aadhaar Number, ensure that such client redacts or blacks out his Aadhaar number through appropriate means where the authentication of Aadhaar number is not required.
(17) (i) A client already having an account based relationship with a reporting entity, shall submit his Permanent Account Number or equivalent e-document thereof or Form No.60, on such date as may be notified by the Central Government, failing which the account shall temporarily cease to be operational till the time the Permanent Account Number or Form No. 60 is submitted by the client:
(ii) if a client having an existing account based relationship with a reporting entity gives in writing to the reporting entity that he does not want to submit his Permanent Account Number or equivalent e-document thereof] or Form No.60, as the case may be, the client’s account with the reporting entity shall be closed and all obligations due in relation to the account shall be appropriately settled after establishing the identity of the client in the manner as may be determined by the regulator.
(18) In case of officially valid document furnished by the client does not contain updated address, the following documents or their equivalent e-documents thereof shall be deemed to be officially valid documents for the limited purpose of proof of address:-
(a) utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill);
(b) property or Municipal tax receipt;
(c) pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address;
(d) letter of allotment of accommodation from employer issued by State Government or Central Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and licence agreements with such employers allotting official accommodation:
Provided that the client shall submit updated officially valid document 56[or their equivalent e-documents thereof] with current address within a period of three months of submitting the above documents.]
(19) Where a client has provided his Aadhaar number for identification and wants to provide a current address, different from the address as per the identity information available in the Central Identities Data Repository, he may give a self-declaration to that effect to the reporting entity.
Maintenance of the records of the identity of clients.
(1) Every reporting entity shall maintain the physical copy of records of the identity of its clients after filing the electronic copy of such records with the Central KYC Records Registry.]
(2) The records of the identity of clients shall be maintained by a reporting entity in the manner as may be specified by the Regulator from time to time.
(3) Where the reporting entity does not have records of the identity of its existing clients, it shall obtain the records within the period specified by the regulator, failing which the reporting entity shall close the account of the clients after giving due notice to the client.
Records of the identity of Clients” shall include updated records of the identification data, account files and business correspondence.
Procedure and manner of maintaining information.
(1) Every reporting entity shall maintain information in respect of transactions with its client in accordance with the procedure and manner as may be specified by its regulator from time to time.
(2) Every reporting entity shall evolve an internal mechanism for maintaining such information in such form and manner and at such intervals as may be specified by its regulator from time to time.
(3) It shall be the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of maintaining information as specified by its regulator.
Procedure and manner of furnishing information.
(1) Every reporting entity shall communicate to the Director the name, designation and address of the Designated Director and the Principal Officer.
(2) Every reporting entity shall evolve an internal mechanism having regard to any guidelines issued by and for furnishing information about such transactions in such form as may be directed by the Director in consultation with its Regulator.
(3) It shall be the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of furnishing information as specified by the Director in consultation with, its Regulator.
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