TMI BlogMaster Circular on AML/CFTX X X X Extracts X X X X X X X X Extracts X X X X ..... rustee to a trust deed, registrar to an issue, asset management company, depositary participant, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with the securities market and registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act) shall have to adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and Rules notified there under 2. SEBI has issued necessary directives vide circulars, from time to time, covering issues related to Know Your Client (KYC) norms, Anti- Money Laundering (AML), Client Due Diligence (CDD) and Combating Financing of Terrorism (CFT). The directives lay down the minimum requirements and it is emphasized that the intermediaries may, according to their requirements, specify additional disclosures to be made by clients to address concerns of money laundering and suspicious transactions undertaken by clients. Reference to applicable statutes and reporting guidelines for intermediaries is available at the website of the Financial Intelligence Unit India (FIU-IND). Directives to all intermediaries under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them is the holding or subsidiary. 8 SEBI / IMD / MC f h h No.1 /189241/ 2010 January 01,2010 Master Circular for Mutual Funds Compliance with AML/CFT CDD directives of SEBI stipulated in Master Circular dated December 19, 2008 9 ISD/AML/CIR-2/2009 October 23,2009 Directives on CFT under Unlawful Activities (Prevention) Act, 1967 Procedure to be followed for the freezing of assets of individual or entities engaged in terrorism 10 ISD/AML/CIR-1/2009 September 01, 2009 Additional AML/ CFT obligations of Intermediaries under PMLA, 2002 and rules framed Additional AML/CFT requirements and clarifications thereon 11 ISD/AML/CIR-1/2008 December 19, 2008 Master Circular on AML/CFT directives Framework for AML/CFT including procedures for CDD, client identification, record keeping retention, monitoring and reporting of 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Framework for AML And CFT including policies and procedures, Client Due Diligence requirements, record keeping, retention, monitoring and reporting 21 SEBI/MIRSD/DPS-1/Cir-31/2004 August 26,2004 Uniform Documentary Requirements for trading Uniform KYC Documentary requirements for trading on different segments and exchanges 22 MRD/DoP/Dep/Cir-29/2004 August 24,2004 Proof of Identity (POI) and Proof of Address (POA) for opening a Beneficiary Owner Broadening the list of documents that may be accepted as Proof of Identity (POI) and/or Proof of Address (POA) for the 23 SEBI/MRD/SE/Cir-33/2003/27/08 August 27,2003 Mode of payment and delivery Prohibition on acceptance/giving of cash by brokers and on third party transfer of securities 24 SMDRP/Policy/Cir-36/2000 August 4,2000 KYC Norms for Depositories Documentary requirements for opening a beneficiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estors in securities and to promote the development of, and to regulate the securities market. 6. All the registered intermediaries are directed to ensure compliance with the requirements contained in this Master Circular on an immediate basis. Stock exchanges, Depositories and AMFI are also directed to bring the contents of this circular to the attention of their members/ depository participants and verify compliance during inspections. Yours faithfully, S. Ramann SEBI Master Circular on Anti Money Laundering (AML and Combating Financing of Terrorism (CFT)- Obligations of Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules Framed there-under (Consolidated upto December 31, 2010) PART - I OVERVIEW 1 Introduction 2 Back ground 3 Policies and Procedures to Combat Money Laundering and Terrorist financing 3.1 Essential Principles 3.2 Obligations to establish policies and procedures PART - II DETAILED OBLIGATIONS 4 Written Anti Money Laundering Procedures 5 Client Due Diligence 5.1 Elements of Client Due Diligence 5.2 Policy for acceptance of clients 5.3 Risk Based Approach 5.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated March 6, 2009 and inter alia provides that violating the prohibitions on manipulative and deceptive devices, insider trading and substantial acquisition of securities or control as prescribed in Section 12 A read with Section 24 of the Securities and Exchange Board of India Act, 1992 (SEBI Act) will now be treated as a scheduled offence under schedule B of the PMLA. As per the provisions of the PMLA, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing finance institution and a non-banking financial company) and intermediary (which includes 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 securities market and registered under Section 12 of the SEBI Act , shall have to maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules under the PMLA. Such transactions include: All cash transactions of the value of more than ₹ 10 lakh or its equivalent in foreign currency. All series of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedures for the prevention of ML and TF and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements. The Registered Intermediaries shall: (a) issue a statement of policies and procedures, on a group basis where applicable, for dealing with ML and TF reflecting the current statutory and regulatory requirements; (b) ensure that the content of these Directives are understood by all staff members; (c) regularly review the policies and procedures on the prevention of ML and TF to ensure their effectiveness. Further, in order to ensure the effectiveness of policies and procedures, the person doing such a review shall be different from the one who has framed such policies and procedures; (d) adopt client acceptance policies and procedures which are sensitive to the risk of ML and TF; (e) undertake client due diligence ( CDD ) measures to an 15 | P a g e extent that is sensitive to the risk of ML and TF depending on the type of client, business relationship or transaction; (f) have a system in place for identifying, monitoring and reporting suspected ML or TF transactions to the law enforcement authorities; and (g) develop st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficial owner is the natural person or persons who ultimately own, control or influence a client and/or persons onwhose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement. (b) Verify the client s identity using reliable, independent source documents, data or information; (c) Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the client and/or the person on whose behalf a transaction is being conducted; (d) Verify the identity of the beneficial owner of the client and/or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c); (e) Understand the ownership and control structure of the client; (f) Conduct ongoing due diligence and scrutiny, i.e. Perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the registered intermediary s knowledge of the client, its business and risk profile, taking into account, where necessary, the cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cautious to ensure that it does not return securities of money that may be from suspicious trades. However, the market intermediary shall consult the relevant authorities in determining what action it shall take when it suspects suspicious trading. e) The circumstances under which the client is permitted to act on behalf of another person / entity shall be clearly laid down. It shall be specified in what manner the account shall be operated, transaction limits for the operation, additional authority required for transactions exceeding a specified quantity/value and other appropriate details. Further the rights and responsibilities of both the persons i.e. the agent- client registered with the intermediary, as well as the person on whose behalf the agent is acting shall be clearly laid down. Adequate verification of a person s authority to act on behalf of the client shall also be carried out. f) Necessary checks and balance to be put into place before opening an account so as to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies against which government sanctions are applied, countries reputed to be any of the following Havens/ sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent. While dealing with clients in high risk countries where the existence/effectiveness of money laundering control is suspect, intermediaries apart from being guided by the Financial Action Task Force (FATF) statements that identify countries that do not or insufficiently apply the FATF Recommendations, published by the FATF on its website (www.fatf- gafi.org), shall also independently access and consider other publicly available information. viii. Non face to face clients ix. Clients with dubious reputation as per public information available etc. The above mentioned list is only illustrative and the intermediary shall exercise independent judgment to ascertain whether any other set of clients shall be classified as CSC or not. 5.5 Client identification procedure: 5.5 The KYC policy shall clearly spell out the client identification procedure to be carried out at different stages i.e. while establishing the intermediary client relationship, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be prescribed by SEBI from time to time, all registered intermediaries shall frame their own internal directives based on their experience in dealing with their clients and legal requirements as per the established practices. Further, the intermediary shall conduct ongoing due diligence where it notices inconsistencies in the information provided. The underlying objective shall be to follow the requirements enshrined in the PMLA, SEBI Act and Regulations, directives and circulars issued thereunder so that the intermediary is aware of the clients on whose behalf it is dealing. 5.5.2 Every intermediary shall formulate and implement a CIP which shall incorporate the requirements of the PML Rules Notification No. 9/2005 dated July 01, 2005 (as amended from time to time), which notifies rules for maintenance of records of the nature and value of transactions, the procedure and manner of maintaining and time for furnishing of information and verification of records of the identity of the clients of the banking companies, financial institutions and intermediaries of securities market and such other additional requirements that it considers appropriate to enable it to determine the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and transaction records and information are available on a timely basis to the competent investigating authorities. Where required by the investigating authority, they shall retain certain records, e.g. client identification, account files, and business correspondence, for periods which may exceed those required under the SEBI Act, Rules and Regulations framed there-under PMLA, other relevant legislations, Rules and Regulations or Exchange bye-laws or circulars. 6.5 More specifically, all the intermediaries shall put in place a system of maintaining proper record of transactions prescribed under Rule 3 of PML Rules as mentioned below: (i) all cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency; (ii) all series of cash transactions integrally connected to each other which have been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds rupees ten lakh; (iii) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itoring of transactions 9.1 Regular monitoring of transactions is vital for ensuring effectiveness of the AML procedures. This is possible only if the intermediary has an understanding of the normal activity of the client so that it can identify deviations in transactions / activities. 9.2 The intermediary shall pay special attention to all complex, unusually large transactions / patterns which appear to have no economic purpose. The intermediary may specify internal threshold limits for each class of client accounts and pay special attention to transactions which exceeds these limits. The background including all documents/office records /memorandums/clarifications sought pertaining to such transactions and purpose thereof shall also be examined carefully and findings shall be recorded in writing. Further such findings, records and related documents shall be made available to auditors and also to SEBI/stock exchanges/FIUIND/ other relevant Authorities, during audit, inspection or as and when required. These records are required to be preserved for ten years as is required under the PMLA. 9.3 The intermediary shall ensure a record of the transactions is preserved and mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the client shall not be told of the report/suspicion. In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended, in one or more jurisdictions concerned in the transaction, or other action taken. The Principal Officer/Money Laundering Control Officer and other appropriate compliance, risk management and related staff members shall have timely access to client identification data and CDD information, transaction records and other relevant information. 10.4 It is likely that in some cases transactions are abandoned or aborted by clients on being asked to give some details or to provide documents. It is clarified that intermediaries shall report all such attempted transactions in STRs, even if not completed by clients, irrespective of the amount of the transaction. 10.5 Clause 5.4(vii) of this Master Circular categorizes clients of high risk countries, including countries where existence and effectiveness of money laundering controls is suspect or which do not or insufficiently apply FATF standards, as CSC . Intermediaries are directed that such clients shall also be subject to appropriate counter measures. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd expeditious implementation of said Order has been issued vide SEBI Circular ref. no: ISD/AML/CIR-2/2009 dated October 23, 2009, which needs to be complied with scrupulously. 13. Reporting to Financial Intelligence Unit-India 13.1 In terms of the PML Rules, intermediaries are required to reportinformation 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. Website: http://fiuindia.gov.in 13.2 Intermediaries shall carefully go through all the reporting requirements and formats enclosed with this circular. These requirements and formats are divided into two parts- Manual Formats and Electronic Formats. Details of these formats are given in the documents (Cash Transaction Report- version 1.0 and Suspicious Transactions Report version 1.0) which are also enclosed with this circular. These documents contain detailed directives on the compilation and manner/procedure of submission of the manual/electronic reports to FIU-IND. The related hardware and technical requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To ensure that the registered intermediaries properly discharge their legal obligations to report suspicious transactions to the authorities, the Principal Officer would act as a central reference point in facilitating onward reporting of suspicious transactions and for playing an active role in the identification and assessment of potentially suspicious transactions and shall have access to and be able to report to senior management at the next reporting level or the Board of Directors. Names, designation and addresses (including email addresses) of Principal Officer including any changes therein shall also be intimated to the Office of the Director-FIU. As a matter of principle, it is advisable that the Principal Officer is of a sufficiently senior position and is able to discharge the functions with independence and authority. 15. Employees Hiring/Employee s Training/ Investor Education 15.1 Hiring of Employees The registered intermediaries shall have adequate screening procedures in place to ensure high standards when hiring employees. They shall identify the key positions within their own organization structures having regard to the risk of money laundering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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