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Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA 2002

Money Laundering - DBOD. AML.BC.No.26/14.01.001/2014-15, - Dated:- 17-7-2014 - CIRCULAR DBOD. AML.BC.No.26/14.01.001/2014-15, Dated 17-7-2014 Government of India has notified the Prevention of Money-Laundering (Maintenance of Records) Amendment Rules, 2013 and have published the same in the extraordinary official gazette vide G.S.R. No. 576 (E) dated August 27, 2013. In order to align the existing instructions contained in our Master Circular DBOD. AML. BC. No. 22/14.01.001/2014-15 dated July 1, .....

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ated Director - Rule 2 (ba) New definition added in the PML Rules. Designated Director" means a person designated by the reporting entity to ensure overall compliance with the obligations imposed under chapter IV of the Act and the Rules and includes - (i) the Managing Director or a whole-time Director duly authorized by the Board of Directors if the reporting entity is a company, (ii) the managing partner if the reporting entity is a partnership firm, (iii) the proprietor if the reporting .....

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"Managing Director" and "Whole-time Director" shall have the meaning assigned to them in the Companies Act, 1956 (1 of 1956). Reserve Bank vide circular DBOD.AML.BC. No.80/14.01.001/2013-14 dated December 31, 2013, has advised banks to nominate a Designated Director for ensuring compliance with the obligations under the PML Act. 2 Definition of Officially Valid Document - Rule 2(d) "Officially valid document" means the passport, the driving license, the Permanent A .....

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"Officially valid document" means the passport, the driving license, the Permanent Account Number (PAN) Card, the Voter's Identity Card issued by Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government, the letter issued by the Unique Identification Authority of India containing details of name, address and Aadhaar number or any document as notified by the Central Government in consultation with the regulator. Henceforth, only the d .....

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eans 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 .....

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deration the type of customer, business relationship, nature and value of transactions based on the overall money laundering and terrorist financing risks involved A proviso has been added to the definition of 'officially valid document' at Rule 2(d), which states that where 'simplified measures' are applied for verifying the identity of customers the following documents shall be deemed to be 'officially valid documents: i. identity card with applicant's Photograph issued .....

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of transactions based on the overall money laundering and terrorist financing risks involved. In respect of low risk category of customers, where simplified measures are applied, it would be sufficient to obtain any of the documents at (i) and (ii) of proviso to rule 2(d) for the purpose of proof of identity and proof of address. 5 Rule 3(1)(B) (B) all series of cash transactions integrally connected to each other which have been valued below rupees ten lakhs or its equivalent in foreign curren .....

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er wire transfers of the value of more than rupees five lakhs or its equivalent in foreign currency where either the origin or destination of fund is in India; to be reported to FIU-IND These revised guidelines on reporting of cross border wire transfers (CWTR) have already been issued in terms of circular DBOD. AML. No. 16415 /14.01.001/2013-14 dated March 28, 2014. 7 Rule 5 Rule 5 (1)(a) reads as: Every reporting entity shall maintain information in respect of transactions with its client refe .....

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n rule 3 in hard or soft format. 8 Rule 10(2) (2) The records of the identity of clients shall be maintained in hard and soft copies in a manner as may be specified by its regulators from time to time. (2) The records of the identity of clients shall be maintained in a manner as may be specified by its regulators from time to time. Regulator has to specify the procedure and manner of maintaining the records of the identity of clients. 9 Rule 7(1) New addition The name, designation and address of .....

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requirements as per this new rule. 10 Rule 8 (1) All Cash transactions (in terms of Rule 3 (c)) where forged or counterfeit currency notes or bank notes has been used as genuine or where any forgery of valuable security or a document has taken place facilitating the transactions, had to be reported not later than 7 working days from the occurrence of such transactions. All Cash transactions (in terms of Rule 3 (c)) where forged or counterfeit currency notes or bank notes has been used as genuine .....

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n this rule shall constitute a separate violation. The banks are, therefore, advised to take note of these reporting requirements. 12 Proviso to Rule 9(1)(ii) New instructions Provided that where the Regulator is of the view that money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business, the Regulator may permit the reporting entity to complete the verification as soon as reasonably practicable following the .....

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nce No existing instructions on reliance on third party due diligence For the purpose of identifying and verifying the identity of customers at the time of commencement of an account-based relationship, reporting entity may rely on a third party; subject to the conditions that- (a) the reporting entity immediately obtains necessary information of such client due diligence carried out by the third party; (b) the reporting entity takes adequate steps to satisfy itself that copies of identification .....

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gh risk; and (e) the reporting entity is ultimately responsible for client due diligence and undertaking enhanced due diligence measures, as applicable. Banks may rely on third party verification subject to conditions at (a) to (e) of Rule 9(2) 14 Rule 9(3) Procedure for determining beneficial owner A. Where the client is a person other than an individual or trust, the banking company and financial institution, as the case may be, shall identify the beneficial owners of the client and take reaso .....

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wnership of/entitlement to more than 15% of the capital or profits of the juridical person where the juridical person is a partnership; or, ownership of/entitlement to more than 15% of the property or capital or profits of the juridical person where the juridical person is an unincorporated association or body of individuals. (ii) In cases where there exists doubt under (i) as to whether the person with the controlling ownership interest is the beneficial owner or where no natural person exerts .....

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case may be, shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% 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. C. Where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a .....

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; means ownership of or entitlement to more than twenty-five percent of shares or capital or profits of the company; 2. "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements; (b) where the client is a partnership firm, the beneficial owner is the natural person(s), who, whether acting alone or together, or throu .....

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l 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 fifteen percent 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 ( .....

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NREGA duly signed by an officer of the State Govt. (iii) The letter issued by the Unique Identification Authority of India ( UIDAI) containing details of name, address and Aadhaar number (iv) Identity card (subject to the bank's satisfaction) (v) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank and one proof of address such as (i) telephone bill, (ii) Bank Account Statement, (iii) letter from any reco .....

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ssued by NREGA duly signed by an officer of the State Government, the letter issued by the Unique Identification Authority of India containing details of name, address and Aadhaar number. It is implied that proof of address also follows from the above documents only. In view of the change in the definition of 'Officially Valid Documents,' henceforth, only the documents mentioned in the revised PML Rules would be accepted for opening accounts of individuals. Banks would not have the discr .....

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; (b) Memorandum and Articles of Association; (c) A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; and (d) An officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf. Banks to take note of the list of documents to be accepted as specified in the Rules. 17 Rule 9(7) Accounts of partnership firms (i) Registration certificate, if registered (ii) Partn .....

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