Prevention Of Money Laundering Act

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The Prevention of Money-Laundering Act, 2002 has been developed by the Government of India to prevent the money-laundering in India and to provide the regulations for the confiscation of the property derived from, or invovled in, money-laundering and for matters incidental thereto.

The Act have made the requirements for the Reporting Entities viz. Banks, Financial Institution, NBFCs, etc. to comply with certain rules and regulation prescribed under the Act with the Reserve Bank of India (RBI) and Financial Intelligence Unit-India (FIU-India)

'Know you Customer' guidelines

'Know you Customer' guidelines were issued in Febraury, 2005 for framing an Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards by the Banks/financial institutions/NBFCs are considered necessary for international financial relationships. As such, they are required to frame the Anti Money Laundering measures and Know you Customer gudileines are adopted by passing a Board Resolutoin which needs to be intimated to RBI within the precribed time.

Principal Officer registration with FIU-India

NBFCs are required to appoint a Principal Officer and put in place a system of internal reporting of suspicious transactions and cash transactions of INR 10 lakh and above. In this connection, Government of India, Ministry of Finance, Department of Revenue, issued a notification dated July 1, 2005 in the Gazette of India, notifying the Rules under the Prevention of Money Laundering Act (PMLA), 2002. In terms of the Rules, the provisions of PMLA, 2002 came into effect from July 1, 2005. Section 12 of the PMLA, 2002 casts certain obligations on the NBFCs in regard to preservation and reporting of customer account information.

Maintenance of Records of Transactions

NBFCs are also required to follow a system of maintaining proper record of transactions prescribed under Rule 3 of Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules, 2005), for maintaining the following transactions:

  • All cash transactions of the value of more than INR 10 lakh or its equivalent in foreign currency
  • Series of all cash transactions individually valued below INR 10 Lakh, or its equivalent in foreign currency which have taken place within a month and the monthly aggregate of which exceeds INR 10 lakhs or its equivalent in foreign currency. It is clarified that for determining ‘integrally connected transactions’, ‘all accounts of the same customer’ should be taken into account.
  • All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security has taken place facilitating the transactions
  • All suspicious transactions whether or not made in cash and in manner as mentioned in the Rules framed by Government of India under the Prevention of Money Laundering Act, 2002.

NBFCs are required to adhere to the reporting requirements as per the amended rules.

Reporting to FIU-India

In terms of the PMLA rules, NBFCs are required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit

There are five reporting formats prescribed for a banking company:
  • Manual reporting of cash transactions
  • Manual reporting of suspicious transactions
  • Consolidated reporting of cash transactions by Principal Officer of the bank
  • Electronic data structure for cash transaction reporting and
  • Electronic data structure for suspicious transaction reporting.

The reporting formats contain detailed guidelines on the compilation and manner/procedure of submission of the reports to FIU-IND.

NBFCs are required to adopt the format prescribed for banks with modifications as applicable.

Following transaction are required to be reported by the NBFCs:
  • The cash transaction report (CTR) for each month should be submitted to FIU-IND by 15th of the succeeding month. While filing CTR, individual transactions below rupees fifty thousand may not be included. Cash transaction reporting by branches/offices of NBFCs to their Principal Officer should invariably be submitted on monthly basis (not on fortnightly basis) and the Principal Officer, in turn, should ensure to submit CTR for every month to FIU-IND within the prescribed time schedule
  • The Suspicious Transaction Report (STR) should be furnished within 7 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

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