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 from 1st July 2005. Under PMLA, all entities registered with SEBI are required to furnish information of all suspicious transactions, whether or not made in cash, to FIU-IND. Under Section 3 of PMLA, projecting proceeds of 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. Financial Intelligence Unit-India (FIU-IND) is the central national agency of India responsible for receiving, processing, analysing and disseminating information on suspect financial transactions, and for coordinating and strengthening the efforts of national and international intelligence, investigation and enforcement agencies in combating money laundering and related crimes.
Section 2(1)(g) of the PMLA Rules defines a "suspicious transaction" — whether or not made in cash — as one which, to a person acting in good faith:
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. They also set out the steps a registered intermediary and its representatives should implement to discourage and identify any money laundering or terrorist financing activities. Necessary notifications/rules under the 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 a chit fund company, a co-operative bank, a housing finance institution, and a non-banking financial company) and intermediary (including a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with the securities market and registered under Section 12 of the SEBI Act, 1992) shall maintain a record of all transactions, the nature and value of which are prescribed under the PMLA Rules. Such transactions include:
Written procedures are adopted to implement the anti-money laundering provisions envisaged under the Act. Such procedures cover, inter alia, three specific parameters related to the overall "Client Due Diligence Process": (a) policy for acceptance of clients, (b) procedure for identifying clients, and (c) transaction monitoring and reporting, especially Suspicious Transactions Reporting (STR).
Sufficient information is obtained to identify persons who beneficially own or control a securities account. As an organization providing Research Analyst services, details of clients' securities accounts are not shared with us as part of delivering our service — execution services are not part of our service package. Accordingly, identifying the beneficial owner or controlling party of a client's securities account is the responsibility of the broker handling that account.
We adhere to SEBI KYC Registration Agency (KRA) Regulations and any subsequently amended regulations to verify a 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 client information from the KRA system. If a client's KYC status or information changes, we update the information on the KRA system and retain the relevant physical documents.
i.e. determining which individual(s) ultimately own(s) or control(s) the customer, and/or the person on whose behalf a transaction is conducted. Transaction data is not handled by us, as the client does not share such data with us. We provide a non-discretionary research/recommendation service — execution of which is at the discretion of the client, and execution is handled by the client themselves. Clients do not share any executional or transactional data with us. Accordingly, identifying the beneficial owner or controlling party of the client's securities account is the responsibility of the broker handling that account.
The following safeguards are followed while accepting clients:
The Know Your Client (KYC) policy is strictly observed concerning client identification procedures, carried out at the time of establishing the client relationship, i.e. onboarding. The client is identified using reliable sources, including documents/information. Adequate information is obtained to satisfactorily establish the identity of each new client and the purpose of the intended relationship — sufficient to satisfy competent authorities (regulatory/enforcement authorities) in the future that due diligence was observed in compliance with the guidelines. Each original document is seen before acceptance of a copy, and it is verified and duly attested. Failure by prospective clients to provide satisfactory evidence of identity is noted and reported to the higher authority within the organization.
SEBI has prescribed the minimum requirements relating to KYC for certain classes of registered intermediaries from time to time. Taking into account the basic principles enshrined in the KYC norms, internal guidelines are followed in dealing with clients and legal requirements as per established practices. We also maintain continuous familiarity and follow-up where inconsistencies are noticed in the information provided by the client. The principles enshrined in the PML Act, 2002 as well as the SEBI Act, 1992 are followed, so that the Firm is aware of the clients on whose behalf it is dealing.
All records of the clients are maintained for a minimum period of 10 years, or in the case of any regulatory action, till the time the same is resolved.
Audit of RA activities is done by an independent professional as allowed by regulation. Any observations of audit are taken up on a priority basis and corrective actions initiated.
The only transaction encountered while delivering the service is collection of fees, as we do not have access to the execution of clients' transaction data. Accordingly, fee collection is through our bank account only. No cash transaction is allowed for fee payment by clients. The nature and value of transactions prescribed under the PMLA Rules to maintain and record include:
Any suspicious transaction is immediately notified to the Compliance Officer. Notifications may be made in the form of a detailed report with specific reference to the clients, transactions, and the nature/reason of suspicion. Compliance staff members have timely access to customer identification data and other CDD information, transaction records, and other relevant information. The Compliance Officer carefully reviews all reporting requirements and formats as per the provisions of PMLA:
Reporting to FIU-India: In terms of the PMLA rules, we will report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit — India (FIU-IND), at the following address:
Director, FIU-IND
Financial Intelligence Unit India
6th Floor, Hotel Samrat
Chanakyapuri, New Delhi — 110021
The Principal Officer is responsible for:
For staff members dealing with customers or handling customer-facing processes, it is essential to be sensitive to AML requirements and obligations — the primary responsibility of compliance rests on on-boarding staff since they deal face-to-face with customers.
A copy of this policy is 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 awareness session on this policy is conducted on a yearly basis, in the 1st week of April, to spread awareness among all relevant person(s).
It is ensured that all activities are in compliance with relevant statutory and regulatory requirements, and that there is co-operation with relevant law enforcement authorities, including timely disclosure of information. As and when sought by appropriate authorities, information on clients as maintained is shared with the relevant law enforcement authorities, and timely disclosures are made as per requirement.
The management of the Research Analyst firm reviews this policy and its procedures on the prevention of ML and TF to ensure their effectiveness, as and when there is a change in regulatory guidelines with respect to the prevention of ML and TF.