Introduction:
The Guidelines, as described below, provide general background on the issues of money laundering and terrorist financing, summarize the main provisions of applicable Indian money laundering and terrorist financing law, and provide guidance on the implications. practices of the law. The Guidelines also set out the steps that a registered broker and any of their representatives must implement to discourage and identify any money laundering terrorist financing activity. These Guidelines are intended to be used primarily by intermediaries registered under Section 12 of the SEBI Act of 1992. While it is recognized that a “one size fits all” approach may not be appropriate for the securities industry in the country, each registered intermediary you should consider the specific nature of your business, organizational structure, type of clients and transactions, etc. by implementing suggested measures and procedures to ensure that they are applied effectively. The overriding principle is that they must be able to convince them that the measures taken by them are adequate, appropriate and follow the spirit of these measures and the requirements enshrined in the Prevention of Money Laundering Act 2002.
Background:
The Money Laundering Prevention Act 2002 came into force on July 1, 2005. The notifications / regulations required under the said Act were published in the Indian Gazette on July 1, 2005 by the Department of Revenue of the Ministry of Finance of the Government of India.
In accordance with the provisions of the Law, every banking company, financial institution (which includes the account fund company, a cooperative bank, a housing finance institution and a non-bank financial company) and intermediary (which includes a broker of stock exchange, sub-broker, stock transfer agent, banker of an issue, trustee of a deed of trust, registrar of an issue, merchant banker, insurer, portfolio manager, investment advisor and any other intermediary associated with the market of securities and registered under section 12 of the Securities and Exchange Board of India Act, 1992) shall keep a record of all transactions; whose nature and value have been prescribed in the Rules under the PMLA. Such transactions include:
All cash transactions worth more than Rs 10 Lacs or its equivalent in foreign currency. All integrally connected series of cash transactions that have been valued below Rs 10 lakhs or its equivalent in foreign currency when such series of transactions take place within one calendar month.
All suspicious transactions, made or not in cash, including, but not limited to, credits or debits from any non-monetary account, such as the d-mat account, a security account maintained by the registered intermediary.
However, it should be clarified that for the purposes of suspicious transaction reporting, in addition to “integrally connected transactions”, “remotely connected or related transactions” should also be considered.
What is money laundering?
Money laundering involves disguising financial assets so that they can be used without detecting the illicit activity that produced them. Through money laundering, the launderer transforms the monetary product derived from criminal activity into funds of apparently legal origin.
Policies and procedures to combat money laundering and terrorism
Financing:
These Guidelines have taken into account the requirements of the Money Laundering Prevention Act, 2002, as applicable to intermediaries registered under Section 12 of the SEBI Act. The detailed guidelines have outlined the relevant measures and laundering procedures to guide registered intermediaries in preventing terrorism and money financing. Some of these suggested measures and procedures may not be applicable in all circumstances. Each intermediary must carefully consider the specific nature of their business, organizational structure, type of customer and transaction, etc. ensure that the measures taken by them are adequate and appropriate to follow the spirit of the suggested measures and the requirements established in the PML Act of 2002.
Obligation to establish policies and procedures:
International initiatives taken to combat drug trafficking, terrorism and other organized and serious crimes have concluded that financial institutions, including intermediaries in the securities market, should establish internal control procedures aimed at preventing and preventing money laundering and financing. of terrorism. This obligation of intermediaries has also been imposed by virtue of the Money Laundering Prevention Act of 2002. To comply with these requirements, it is also necessary for registered intermediaries to have a system to identify, monitor and report suspicions of money laundering. assets or terrorism. finance transactions to law enforcement authorities.
Anti-money laundering procedures:
Each registered intermediary must adopt written procedures to implement the anti-money laundering provisions as provided in the Prevention of Money Laundering Act of 2002. Such procedures must include, among others, the following three specific parameters that are related to the process General Customer Due Diligence:
For. Customer acceptance policy
B. Client identification procedure
vs. Monitoring and reporting of particularly suspicious transactions
Transaction reports (STR)
What is a money laundering crime?
Anyone who, directly or indirectly, tries to please or assists knowingly or knowingly is part or is actually involved in any process or activity related to the proceeds of crime and projecting it as uncontaminated property will be guilty of the crime of money laundering.
Person includes:
(i) an individual
(ii) an undivided Hindu family,
(iii) a company,
(iv) firm,
(v) an association of persons or a group of persons, whether incorporated or not,
(vi) any legal entity that is not included in any of the previous sub-clauses, and
(vii) any agency, office or branch that is owned or controlled by any of the persons mentioned in the previous sub-clauses;
Laws relating to anti-money laundering procedures
o The Money Laundering Prevention Act of 2002 (PMLA 2002)
it constitutes the core of the legal framework established by India to combat money laundering. PMLA 2002 became effective as of July 1, 2005. It imposes the obligation on banking companies, financial institutions and intermediaries to verify the identity of clients, maintain records and provide information to FIU-IND.
o The Foreign Exchange Management Law of 1999 establishes controls and limitations on certain remittances of foreign currency.
o The Benami Transactions (Prohibition) Act 1988 prohibits transactions in which ownership is transferred to one person in exchange for consideration paid or provided by another person.
o The Narcotic Drugs and Psychotropic Substances Act of 1985 establishes the confiscation of the proceeds of the sale acquired in connection with any narcotic or psychotropic substance and any item used to conceal such drugs. Provides for the confiscation of any illegally acquired property.
o The Law for the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 authorizes the detention of people to prevent the illicit traffic of narcotic drugs and psychotropic substances.
o Guidelines for knowing your customers: The Reserve Bank of India introduced Indian banks to reduce financial fraud and identify money laundering transactions. The obligations imposed by these guidelines were lowered in October 2007 to allow foreigners and non-resident Indians to receive cash payments of up to $ 3,000 from money changers. Acceptable identity documentation was also expanded to allow moneychangers to accept a broader class of documents as proof of a business relationship.
o Guidelines for anti-money laundering measures The Securities and Exchange Board of India (SEBI) has issued guidelines for capital market intermediaries under the PMLA 2002. The guidelines refer to all intermediaries registered in SEBI, a grouping that includes institutional investors, brokers and portfolio managers. .
“In November 2006, the Indian Insurance Development and Regulatory Authority issued anti-money laundering guidelines that exempt general insurance companies from the need to comply with certain entry-level controls on clients.”
On April 17, 2008, India finalized amendments to broaden the scope of its AML laws. The amendments will expand these laws to incorporate international credit card transactions, money transfers and crimes with “cross-border implications” within their purview. The amendments allow “single criminality”, according to which a transaction must only be illegal in India, and not in the other state involved, to risk being prosecuted for money laundering offenses. The amendments will also expand the scope of anti-money laundering laws to include casinos, credit card companies, and money exchanges. It is reported that the Cabinet of the Union of India has approved the amendments for submission to parliament.
Under what circumstances is a lawyer required to report?
Currently, there is no specific law that requires a lawyer to report a money laundering crime.
Liability of the lawyer?
No current obligations for customer identification and verification
Customer identification and verification
Indian lawyers usually do this, but not because there is any obligation. Article 12 of the PMLA 2002 requires that every banking company, financial institution and intermediary verify and maintain the records of the identity of all its clients, as prescribed by Rule 9 of the Regulation notified by Notification No. 9/2005.
conclusion
The Act is a first step towards comprehensive legislation to prevent money laundering and has placed India on an equal footing with its international counterparts. Another best part is that it has also included banks and financial institutions, which channel Money Laundering activities, within their scope, imposing certain obligations on them.
The genesis of a transaction related to money laundering may be India, however, it may extend to other territorial borders. Therefore, international cooperation is necessary to fight it. Taking into account this vital aspect, the provisions relating to reciprocal arrangements with other countries to enforce the provisions of this Law, the exchange of any information or assistance for the transfer of the accused for the prevention of the crime of this Law, have clearly been provided for in the law itself. All this ensures a regime in which Money Laundering will be understood as a serious crime and its practice will have serious consequences.