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Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT)/Obligation of Authorised Persons under Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009- Money changing activities

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..... ] dated October 17, 2007 and A.P. (DIR Series) Circular No. 15 [A.P. (FL Series) Circular No. 2] dated November 19, 2009. 2. In terms of Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009, all Authorized Persons, authorized under Section 10(1) of FEMA, 1999 have been brought under the purview of PMLA, 2002. Therefore, the existing Know Your Customer (KYC) norms/ Anti-Money Launderings (AML) standards/ Combating the Financing of Terrorism (CFT) for money changing activities have been revisited in the context of the Financial Action Task Force (FATF) Recommendations on Anti Money Laundering (AML) standards and on Combating the Financing of Terrorism (CFT). Detailed instructions on Know Your Customer (KYC) norms/ Anti-Money Launderings (AML) standards/ Combating the Financing of Terrorism (CFT) for money changing activities have been revised. 3. Accordingly, revised guidelines on obligation of Authorised Persons under PMLA, 2002 as amended by Prevention of Money Laundering (Amendment) Act, 2009 in respect of money changing activities are given in (F-Part-I) annexed. All Authorised Persons should, therefore .....

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..... mendment) Act, 2009- Money Changing activities 1. Introduction The offence of Money Laundering has been defined in Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA) as "whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering". Money Laundering can be called a process by which money or other assets obtained as proceeds of crime are exchanged for "clean money" or other assets with no obvious link to their criminal origins. There are three stages of money laundering during which there may be numerous transactions made by launderers that could alert an institution to criminal activity - · Placement - the physical disposal of cash proceeds derived from illegal activity. · Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. · Integration - the provision of apparent legitimacy to criminally derived we .....

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..... social and financial status, etc. to enable categorisation of customers into low, medium and high risk (APs may choose any suitable nomenclature viz. level I, level II and level III). Customers requiring very high level of monitoring, e.g. Politically Exposed Persons (PEPs) may, if considered necessary, be categorised even higher. iii) Documentation requirements and other information to be collected in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009, Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 as well as instructions/guidelines issued by the Reserve Bank, from time to time. iv) Not to undertake any transaction where the AP is unable to apply appropriate customer due diligence measures i.e. AP is unable to verify .....

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..... ace to face customers; and (i) those with dubious reputation as per public information available etc. However, only NPOs/NGOs promoted by United Nations or its agencies may be classified as low risk customer. d) It is important to bear in mind that the adoption of customer acceptance-policy and its implementation should not become too restrictive and must not result in denial of money changing services to general public. 4.4 Customer Identification Procedure (CIP) a) The policy approved by the Board of APs should clearly spell out the Customer Identification Procedure to be carried out at different stages i.e. while establishing a business relationship; carrying out a financial transaction or when the AP has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data. Customer identification means identifying the customer and verifying his/her identity by using reliable, independent source documents, data or information. APs need to obtain sufficient information necessary to establish, to their satisfaction, the identity of each new customer, whether occasional or business relationship, and the purpose of the intended .....

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..... letter received through post for further verification of the address. While issuing operational instructions to the branches on the subject, APs should keep in mind the spirit of instructions issued by the Reserve Bank and avoid undue hardships to individuals who are, otherwise, classified as low risk customers. c) APs should introduce a system of periodic updation of customer identification data (including photograph/s) if there is a continuing business relationship. d ) An indicative list of the nature and type of documents/information that may be relied upon for customer identification is given in (F-Part-II) annexed to this Circular. It is clarified that correct permanent address, as referred to in (F-Part-II) annexed, means the address at which a person usually resides and can be taken as the address as mentioned in a utility bill or any other document accepted by the AP for verification of the address of the customer. e) Purchase of foreign exchange from customers i) For purchase of foreign currency notes and/ or Travellers' Cheques from customers for any amount less than US $ 200 or its equivalent, photocopies of the identification document need not be obtai .....

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..... cy Travellers' Cheque and the credit / debit / prepaid card holder is one and the same person. (iii) All purchases made by a person within one month may be treated as single transaction for the above purpose and also for reporting purposes. (iv) Encashment Certificate, wherever required, should also be insisted upon. g) Establishment of business relationship Relationship with a business entity like a company / firm/ trusts and foundations should be established only after conducting due diligence by obtaining and verifying suitable documents, as mentioned at (F-Part-II) annexed to this Circular. Copies of all documents called for verification should be kept on record. APs should obtain information on the purpose and intended nature of the business relationship. APs should 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 customer, its business and risk profile. APs should ensure that documents, data or information collected under the Customer Due Diligence process is kept up-to-date and relevant by undertaking reviews of exis .....

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..... s should gather sufficient information on any person/customer of this category intending to undertake a transaction or establish a business relationship and check all the information available on the person in the public domain. APs should verify the identity of the person and seek information about the source of wealth and source of funds before accepting the PEP as a customer. The decision to undertake a transaction with a PEP should be taken at a senior level which should be clearly spelt out in Customer Acceptance Policy. APs should also subject such transactions to enhanced monitoring on an ongoing basis. The above norms may also be applied to transactions with the family members or close relatives of PEPs. The above norms may also be applied to customers who become PEPs subsequent to establishment of the business relationship. Where a customer subsequently becomes a PEP after a business relationship has already been established, enhanced CDD should be performed on such customers and decision to continue business relationship with the PEP should be taken at a sufficiently senior level. 4.6 Monitoring of Transactions Ongoing monitoring is an essential element of effec .....

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..... ce to the KYC policies and procedures. As a general rule, the compliance function should provide an independent evaluation of the AP's own policies and procedures, including legal and regulatory requirements. APs should ensure that their audit machinery is staffed adequately with individuals who are well-versed in such policies and procedures. The concurrent auditors should check all transactions to verify that they have been undertaken in compliance with the anti-money laundering guidelines and have been reported whenever required to the concerned authorities. Compliance on the lapses, if any, recorded by the concurrent auditors should be put up to the Board. A certificate from the Statutory Auditors on the compliance with KYC / AML / CFT guidelines should be obtained at the time of preparation of the Annual Report and kept on record. 4.9 Introduction of New Technologies- Pre-paid Cards APs should pay special attention to any money laundering threats that may arise from new or developing technologies, that might favour anonymity and take measures, to prevent their use for money laundering purposes. Certain AD Cat-I banks are engaged in issuance of Foreign currency denominate .....

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..... developing appropriate compliance management arrangements across the full range of AML/CFT areas (e.g. CDD, record keeping, etc.). He will maintain close liaison with enforcement agencies, APs and any other institution which are involved in the fight against money laundering and combating financing of terrorism. With a view to enable the Principal Officer to discharge his responsibilities, it is advised that that the Principal Officer and other appropriate staff should have timely access to customer identification data and other CDD information, transaction records and other relevant information. Further, banks should ensure that the Principal Officer is able to act independently and report directly to the senior management or to the Board of Directors. b) The Principal Officer will be responsible for timely submission of CTR and STR to the FIU-IND. 4.13 Maintenance of records of transactions/Information to be preserved/ Maintenance and preservation of records/ Cash and Suspicious Transactions Reporting to Financial Intelligence Unit- India (FIU-IND) Section 12 of the Prevention of Money Laundering Act (PMLA), 2002 , as amended by Prevention of Money Laundering .....

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..... e.g. copies of documents like passport, driving license, PAN card, voter identity card issued by the Election Commission, utility bills, etc.) obtained while undertaking the transaction and during the course of business relationship, are properly preserved for at least ten years from the date of cessation of the transaction / business relationship. The identification records and transaction data should be made available to the competent authorities upon request. c) In paragraph 4.6 of this Circular, APs have been advised to pay special attention to all complex, unusual large transactions and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. It is further clarified that the background including all documents/office records / memoranda pertaining to such transactions and purpose thereof should, as far as possible, be examined and the findings at branch as well as Principal Officer's level should be properly recorded. Such records and related documents should be made available to help auditors in their day-to-day work relating to scrutiny of transactions and also to Reserve Bank/other relevant authorities. These records are required .....

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..... l for effective identification and reporting of suspicious transactions. 4.14 Cash and Suspicious Transaction Reports A) Cash Transaction Report (CTR) While detailed instructions for filing all types of reports are given in the instructions part of the related formats, APs should scrupulously adhere to the following: i) The Cash Transaction Report (CTR) for each month should be submitted to the FIU‑IND by 15th of the succeeding month. Cash transaction reporting by branches to their controlling offices should, therefore, invariably be submitted on a monthly basis and APs should ensure to submit CTR for every month to FIU-IND within the prescribed time schedule. ii) While filing CTR, details of individual transactions below Rs.50,000 need not be furnished. iii) CTR should contain only the transactions carried out by the AP on behalf of their customers excluding transactions between the internal accounts of the AP. iv ) A cash transaction report for the AP as a whole should be compiled by the Principal Officer of the AP every month in physical form as per the format specified. The report should be signed by the Principal Officer and submitted to the FIU-I .....

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..... 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. v) In the context of creating KYC/ AML awareness among the staff and for generating alerts for suspicious transactions, APs may consider the following indicative list of suspicious activities. Some possible suspicious activity indicators are given below: · Customer is reluctant to provide details / documents on frivolous grounds. · The transaction is undertaken by one or more intermediaries to protect the identity of the beneficiary or hide their involvement. · Size and frequency of transactions is high considering the normal business of the customer. · Change in the pattern of transactions. The above list is only indicative and not exhaustive. vi) APs should not put any restrictions on transactions where an STR has been made. Moreover, it should be ensured that employees of APs shall keep the fact of furnishing such information as strictly confidential and there is no tipping off to the customer at .....

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..... h individuals - Legal name and any other names used - Correct permanent address (i) Passport (ii) PAN card (iii) Voter's Identity Card (iv) Driving licence (v) Identity card (subject to the AP's satisfaction) (vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of the AP. (i) Telephone bill (ii) Bank account statement (iii) Letter from any recognized public authority (iv) Electricity bill (v) Ration card (vi) Letter from employer (subject to satisfaction of the AP).(any one of the documents, which provides customer information to the satisfaction of the AP will suffice ). Establishment of business relationship- corporates - Name of the corporate - Principal place of business - Mailing address of the corporate - Telephone/Fax Number Certified copy each of the following documents.(i) Certificate of incorporation (ii) Memorandum Articles of Association (iii) Resolution of the Board of Directors for undertaking forex transactions with the AP (iv) Power of attorney granted to its managers, officers or employees to conduct forex transactions on beh .....

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