Anti Money Laundering
UNDERSTANDING PREVENTION OF MONEY LAUNDERING ACT, 2002 (PMLA)
World is increasingly getting converted to global village with increasing freedom
to travel across the globe, easy movement of capital between countries, easy flow
of information with new technological wonders in the form of internet, mobile telephony
In the process of globalization, businesses and capital loose their national identity
and controls. Nations and citizens across the globe are the beneficiary of all such
developments but at the same time are also concerned about ways of isolating the
wealth created out of undesirable activities entering the main stream economic activities.
As per the global convention, every nation is required to introduce legislation
in their country to prevent the illegal money to get invested in legal economic
activities. Accordingly an act “PREVENTION OF MONEY LAUNDERING ACT, 2002 (PMLA)”
was introduced in India which puts onus on designated financial intermediaries to
draw attention of a special authority created for the purpose of looking into suspicious
It is important for you as an investor to know the nuances of the Act, particularly
the type of suspicious transactions and the reporting requirement by us as a financial
1.Money Laundering can be defined as engaging in financial transactions that involve
income derived from criminal activity, transactions designed to conceal the true
origin of criminally derived proceeds and appears to have been received through
legitimate sources/origins. In common parlance, it is conversion of black (illegal)
money into white (legal) money and also wealth generated out of criminal and undesirable
economical activities. There are certain instances where such converted money is
deployed for executing transactions in financial markets with a view to gain profits/returns
and to utilise such profits/returns for unlawful activities.
2.In order to monitor and prevent illegal activities as above, the Prevention of
Money Laundering Act, 2002 (PMLA) was brought into force with effect from
1st July, 2005. SEBI and other regulatory and statutory authorities have from time
to time issued various notifications / circulars / guidelines in this respect. The
PMLA 2002 and Rules notified thereunder impose an obligation on intermediaries including
brokers and sub-brokers to verify identity of clients, maintain records and furnish
information to the Financial Intelligence Unit (FIU) - INDIA
The main objectives and criteria of the PMLA are as follows:
To protect the interests of genuine investors and from this perspective
a. To follow a proper Customer Due Diligence (CDD) process before registering
b. To monitor / maintain records of all cash transactions of the value of more
than Rs.10 lacs.
c. To maintain records of all series of integrally connected cash transactions
within one calendar month.
d. To monitor and report suspicious transactions.
e. To discourage and identify money laundering or terrorist financing activities.
f. To take adequate and appropriate measures to follow the spirit of PMLA
Asit C. Mehta Investment Interrmediates Ltd. (ACMIIL), has put in place a policy
framework for prevention of money-laundering. As per its policy framework and guidelines
issued thereunder, ACMIIL has laid the following parameters for conducting overall
Client Due Diligence:
1. Policy for identifying clients:
- Obtain all details with respect to KYC in order to establish identity of the client
along with firm proof of address to prevent opening of any account which is fictitious
/ benami / anonymous in nature.
- Conduct independent verification of information submitted by client using available
services,like websites, newspapers, notifications issued by statutory authorities/regulatory
2. Procedure for acceptance of clients:
- Obtain antecedent details of the prospective client.
- Account not to be opened in fictitious or benami name.
- Risk perception of the client needs to be defined.
- Perform an ongoing scrutiny of the transactions and account throughout the course
of the business relationship with the Client to ensure that the transactions being
conducted are consistent with the client’s profile, his business and financial profile
updated with ACMIIL.
3. Transaction monitoring and reporting especially Suspicious Transaction Reporting
(STR): “Suspicious transactions” broadly means and includes a transaction
whether or not made in cash which to a person acting in good faith –
a)Gives rise to a reasonable ground of suspicion that it may involve the proceeds
b)Appears to be made in circumstances of unusual or unjustified complexity or
c)Appears to have no economic rationale or bonafide purpose
Reasons for Suspicion:
It is difficult to define exactly what constitutes suspicious transactions and as
such given below is a list of circumstances where transactions may be considered
to be suspicious in nature. This list is only inclusive and not exhaustive. Whether
a particular transaction is actually suspicious or not will depend on the background,
details of the transactions and other facts and circumstances.
a) Identity of Clients:
b) Suspicious Background: Suspicious background or links with criminals.
- False identification documents
- Identification documents which could not be verified within reasonable time
- Non face to face Client
- Clients in high-risk jurisdiction
- Doubt over the real beneficiary of the account
- Accounts opened with names very close to other established business entities
- Receipt back of welcome kit undelivered at the address given by the client
c) Multiple Accounts:
d) Activity In Accounts:
- Large number of accounts having a common parameters such as common partners / directors
/ promoters / address/ email address / telephone numbers introducer or authorized
- Unexplained transfers between such multiple accounts.
e) Nature of Transactions:
- Unusual activity compared to past transactions
- Use of different accounts by client alternatively
- Sudden activity in dormant accounts
- Activity inconsistent with what would be expected from declared business
- Account used for circular trading
f) Value Of Transactions:
- Unusual or unjustified complexity
- No economic rationale or bonafied purpose
- Source of funds are doubtful
- Appears to be case of insider trading
- Purchases made on own account transferred to a third party through an off market
transactions through DP account
- Transactions reflect likely market manipulations
- Suspicious off market transactions
g) What to Report:
- Value just under the reporting threshold amount in an apparent attempt to avoid
- Large sums being transferred from overseas for making payments
- Inconsistent with the clients apparent financial standing
- Inconsistency in the payment pattern by client
- Block deal which is not at market price or prices appear to be artificially inflated/deflated
In order to ensure compliance as above, ACMIIL conducts client due diligence on
a regular basis by scrutinizing the client’s transaction and accounts to ensure
that the transactions being conducted are consistent with the Organization’s knowledge
of the client its business and risk profile, taking into account, where necessary,
the customer's source of funds. ACMIIL may at its discretion, call from the prospective/existing
clients, such information and documents (which may not be a mandatory requirement).
Further, no cash dealings are entertained by ACMIIL and payments to ACMIIL are accepted
in the form of account payee cheques/Electronic Funds Transfer in the name of “Asit
C. Mehta Investment Interrmediates Ltd” and only from the designated bank account
of the client.
- The nature of the transactions
- The amount of the transaction and the currency in which it was denominated
- The date on which the transaction was conducted: and
- The parties to the transaction.
- The reason of suspicion
4.Principal Officer: To ensure compliances as above, ACMIIL has appointed
a Principal Officer designated as the Compliance Officer who may be contacted in
case any client’s transactions and accounts are found to be inconsistent with the
organisation’s knowledge of the client profile and appear to be suspicious in nature.
The Compliance Officer shall report such inconsistency and suspicion to the Financial
Intelligence Unit (FIU).