Kyc & Aml

IIBF & NISM Adda
Certificate Examination in
Anti-Money Laundering & Know Your Customer

( IIBF & Other Exams)
Compiled by
Srinivas Kante B.Tech, CAIIB
https://iibfadda.blogspot.com/ Facebook Group 1

https://www.facebook.com/groups/iibfcertifications/ Email: [email protected]
About Certificate Examination in Anti-Money Laundering & Know Your Customer
IIBF Certificate Examination
Objective:
To provide advanced knowledge and understanding in AML / KYC standards and

to develop the professional competence of employees of banks and financial institutions
Eligibility
Employees of Banks / NBFCs / Financial Institutions / Insurance Companies etc. are
eligible to write the examination.
EXAMINATION FEES / REGISTRATION FEEAN INSTITUTE OF BANKING & FINANCE

n ISO 9001 - 2008 CERTIFI 400 070
Web-www.iibf.org.in
For Members For Non-Members
First attempt `1,124/- * `1,685/- *
Subsequent each attempt `1,124/- * `1,685/- *
Examination will be conducted in English only.

(i) Each Question Paper will contain approximately 120 objective type multiple
choice questions.
(ii) The examination will be held in online mode only. A list of examination centre will
be provided in the online examination application form.
The duration of the examination will be of two hours.
(i) The examination will be conducted normally twice a year in May / June and
November / December.
(ii) Examination will be conducted on a Sunday.
Candidate has to secure 60% or more marks in the examination to pass i.e. 60 marks
out of 100.
Application for examination should be made online from the Institute's website
www.iibf.org.in. No physical form will be accepted by the Institute with effect
from 1st January, 2013.
Non-members applying for Institute's exams / courses are required to submit a
copy of any one of the following documents along with Examination Application
Form. Forms without the same shall be liable to be rejected.
1) Photo i/card issued by Employer or 2) PAN Card or 3) Driving License or
4) Election Voter's i/card or 5) Passport or 6) Aadhaar Card
The Institute has developed a courseware to cover the syllabus. Candidates are
advised to make full use of the courseware and also the updates put on the IIBF
website from time to time. However, as banking and finance fields are dynamic, rules
and regulations witness rapid changes. Hence, candidates should keep themselves
updated on latest developments by going through Master Circulars issued by RBI,
visiting the websites of organizations like RBI, SEBI, BIS etc.
The Institute has published study books to facilitate study and they will be available at
outlets / showrooms / distributors of M/s. Macmillan Publishers India Ltd.

SYLLABUS
(i) Anti Money Laundering

Money Laundering - Origin - Definition - Techniques Impact on Banks -
Structuring; Integration, Preventive Legislations - International Co-operation -
UK; USA; India - Basel Committee - PMLA Objectives - RBI Guidelines -
System Adequacy to Combat Money Laundering - Antiterrorism finance -
Financial Intelligence Unit (FIU)
The Financial Action Task Force (FATF) - IBA Working Group - Software for
AML Screening :
Money Laundering and Correspondent Banking - Exchange Companies -
Foreign Branches
(ii) Know Your Customer - Introduction and overview
Customer Profile - KYC Policies - Countries Deficient in KYC Policies,

Initiatives by the RBI - Organised Financial Crimes Customer - Definition under
the KYC Principles - Transaction Profile - Organisational Structure - Important

KYC framework in RBI prescriptions - Operating Guidelines.
Introduction of new accounts - Guidelines for Opening Accounts of Companies,
Trusts, Firms, Intermediaries etc., Client Accounts opened by Professional
Intermediaries - Trust / Nominee or Fiduciary Accounts - Accounts of Politically
Exposed Persons (PEPs) Residing Outside India, Accounts of ‘non-face-to-face’
Customers - Qualitative data - Joint accounts - Minor accounts - KYC for existing
accounts - KYC for low income group customers.
Monitoring Accounts - Customer research - Suspicious transactions

1 Preface
This policy and procedure document is a comprehensive source of reference for all the
concerned and relevant activities of the Bank towards Know Your Customer (KYC), Anti
Money Laundering (AML) and Combating the Financing of Terrorism (CFT) compliance. The
policies and procedures developed are designed to ensure that the Bank is committed to the
prevention of the use of its facilities for laundering the proceeds of crime and financing
terrorist activities. It consists of the following sections:
− Risk based acceptance model to facilitate the classification of current and
existing customers on the basis of money laundering and terrorist financing
risk;
− Account opening procedures including customer classification, verification of
customer information using documentary and non-documentary methods and
escalation processes;
− Policy for customer information updates based on the risk level of the
individual or entity;
− Internal controls to measure the risk levels of products, services and
customers accepted and to measure the effectiveness of current policies and
procedures;
− Policies and procedures for the monitoring and reporting of transactions;
− Policies and procedures for customer record maintenance, retention and their
sharing with government agencies; and
− Recommendation for a training programme for Bank officials geared towards
customer identification and acceptance, customer risk ranking and detection
of money laundering instances.
1.1 Statement of commitment

The goals and objectives of this KYC, AML & CFT programme are to (1) deter
individuals and entities from using the Bank to launder the proceeds of illegal activities;
(2) enable member branches of the Bank to comply with their obligations under the
Prevention of Money Laundering Act, Unlawful Activities Prevention Act (ULPA) and
regulations from Reserve Bank of India (RBI) and National Bank for Agriculture and
Rural Development (NABARD), regulatory bodies for the banks; (3) manage and
mitigate money laundering and terrorist financing related risks; (4) allow banks to cooperate
with regulatory bodies and government agencies in detecting and deterring
money laundering and terrorist financing; and (5) provide employees with guidance for
actions to be taken to comply with the Bank’s obligations under the law and the Bank’s
policies.
2 Definitions
2.1 Customer
RBI defines a customer1 as any one of the following:
− A person or entity that maintains an account and/or has a business
relationship with the Bank.
− One on whose behalf the account is maintained (i.e., the beneficial owner) or
beneficiary of transactions conducted by professional intermediaries, such as
stock brokers, chartered accountants, solicitors, etc. as permitted under the
law.
− Any person or entity connected with a financial transaction or any other
product offered by the Bank including walk-in customers.
2.2 High Net-Worth Individual

An individual is designated as a High Net-Worth Individual (HNI) for the purposes of
the Bank if the sum of all the credits for the individual at the Bank across all products
exceeds Rupees 15 lakhs (Rs. 15,00,000)
2.3 Beneficial Owners
The Beneficial Owner for an entity constitution type is any individual or entity that owns
or controls over 20% of the entity. For an individual constitution type the beneficial
owner refers to the individual itself or all the operators of the account.
2.4 Controlling Parties
Controlling parties are individuals or entities with direct or indirect control over the
account created. For KYC purposes, the controlling parties are defined as authorized
signatories, power of attorney holders, executive management (e.g. CEO, CFO,
Directors) and Board of Directors. Different account types and transactions could

involve different controlling parties.
2.5 Money Laundering
Money Laundering is a process by which illegal sources of money are disguised to
make it appear as if they were the proceeds of legal activities. It usually occurs in three
steps:
1. The placement step involving the introduction of the money into the financial
system;
2. The second step known as layering involves performing complex financial
transactions to hide the illegal source; and
3. Finally, the integration step, during which the previously illegal proceeds enter
the economy and are converted into apparently legitimate earnings.
2.6 Terrorist Financing
Terrorist Financing relates to the use of financial institutions to launder money or
misdirect clean money for illegal and illegitimate terrorist activities. Terrorist financing,
unlike money laundering, cares little about the source of the funds and its purpose is
what defines the scope.
2.7 Small Account
A small account refers to a savings bank account where:
1. The aggregate of all credits in a financial year does not exceed Rupees one
lakh (Rs. 1,00,000);
2. The aggregate of all withdrawals and transfers in a month does not exceed
Rupees ten thousand (Rs. 10,000); and
3. The balance at any point of time does not exceed Rupees fifty thousand (Rs.
50,000)
2.8 Financial Intermediary
For the purposes of this document, a financial intermediary is a person or institution
that acts on behalf of its customers to conduct a transaction or open an account with
the Bank.
As per the RBI, the term Financial Intermediary includes following persons or entities
registered under Section 12 of the Securities and Exchange Board of India (SEBI) Act,
1992:
1. Stock brokers
2. Sub-brokers
3. Share transfer agents
4. Bankers to an issue
5. Trustees to trust deed
6. Registrars to issue
7. Merchant bankers
8. Underwriters
9. Portfolio Managers
10. Depositories and Participants
11. Custodian of securities
12. Credit rating agencies
13. Venture capital funds
14. Collective investment schemes including mutual funds
2.9 Ordering Bank
In relation with wire transfers, an Ordering Bank is a Bank that originates a wire
transfer as per the order placed by its customers
2.10 Intermediary Bank
In relation with wire transfers, an Intermediary Bank provides business services on
behalf of another financial institution (ordering and beneficiary bank). Intermediary
Banks are also known as Correspondent Banks and are used by domestic banks in
order to service transactions originating in different cities, states or foreign countries,
and act as a domestic bank's agent. This is done because the domestic bank may
have limited access to markets outside of its geography, and cannot service its client
accounts without opening up a branch in that particular city, state or country.
2.11 Beneficiary Bank
In relation with wire transfers, a Beneficiary Bank refers to the bank identified in a
payment order in which an account of the beneficiary is to be credited pursuant to the
order or which otherwise is to make payment to the beneficiary if the order does not
provide for payment to an account.
3 Legislative and Regulatory Framework

3.1 Defined legal frameworks
3.1.1 Prevention of Money Laundering Act 2002
The Prevention of Money Laundering Act (PMLA) of 20022 is the legislation that forms
the core of the legal framework put in to place to combat money laundering. The PMLA
came into effect from 1st July 2005 with two amendments passed in May 2005 and
March 2009. The act criminalises money laundering and also provides for freezing and
confiscation of assets associated in money laundering. It requires financial institutions
and intermediaries to verify the identity of clients, maintain records and furnish
prescribed transactional information to the FIU-IND.
3.1.2 Rules under PMLA
In addition, the Government of India has strengthened the PMLA through the
notification of various rules, known as Prevention of Money Laundering Rules (PMLR),
to enforce the PMLA which includes defining an adjudicating authority and appellate
tribunal, conferring exclusive and concurrent powers, specifying rules for receipt and
management of confiscated properties, etc. A complete listing of the rules and their
purpose is available on the FIU-IND website3
3.1.3 Unlawful Activities (Prevention) Act, 1967
The Unlawful Activities Prevention Act of 1967, amended in 2008, relates to the
purposes of prevention, and for coping with terrorist activities. The Government of
India has issued an order dated August 27 2009 detailing the procedure for
implementing of section 51A of the Act and it empowers the Central Government to
freeze, seize or attach funds and other financial assets or economic resources held by:
− On behalf of or at the direction of the individuals or entities listed in the
Schedule to the Order, or
− Any other person engaged in or suspected to be in engaged in terrorism ,or
− Prohibit any individual or entity from making any funds ,financial assets or
economic resources or related services available for the benefit of the
individuals or entities listed in the Schedule or Order.
3.2 Applicable Regulatory Authorities
3.2.1 Reserve Bank of India
The RBI is the central banking institution in India and controls the monetary policy of
the rupee and the currency reserves. Through its Master Circular on Know Your
Customer (KYC) norms/Anti Money Laundering (AML) Standards/Combating of
Financing of Terrorism/Obligations of Banks under PMLA, 2002 the RBI introduced KYC
guidelines for all banks which it has since updated yearly. The RBI also has the
authority to penalize banking institutions for violations in KYC, AML and CFT norms.
3.2.2 National Bank for Agriculture and Rural Development
NABARD is the apex development bank in India and is accredited with matters
regarding policy, planning and operations in the field of credit for agriculture and
other economic activities in rural regions in India. In discharging its role as a
facilitator for rural prosperity, NABARD is also entrusted with acting as a regulator for
Cooperative Banks and Regional Rural Banks (RRBs). NABARD created a model
KYC policy for its member banks with a stipulation that it be tailored to the individual
needs of the bank.
3.2.3 Financial Intelligence Unit – India
FIU-IND is the central national agency responsible for receiving, processing,
analysing and disseminating information relating to suspicious financial transactions
and is responsible for domestic and global efforts against money laundering and
related crimes. Any reports regarding financial transactions such as Suspicious
Transaction Reports (STRs) and Cash Transaction Reports (CTRs) must be filed
with the agency. FIU-IND also has the authority to request additional information on
individuals or entities from banks and other financial institutions.
3.3 Consequences of Non-Compliance

3.3.1 Penalties for Non-Compliance
Any contravention or non-compliance with RBI’s instructions relating to KYC, AML
and CFT guidelines shall attract penalties under the provisions of Section 47(A) (1)
(b) read with Section 46(4) of the Banking Regulation Act, 1949. The RBI has
imposed fines on various public and private sector banks for non-compliance with
KYC norms. In the first six months of 2011, over 48 cooperative banks had been
fined between Rupees one lakh (Rs. 1, 00,000) and Rupees five lakh (Rs. 5,
00,000) for various KYC, AML and CFT related offences.
Additionally, the PMLA specifies punishments of up to ten years of rigorous
imprisonment on whosoever willingly commits the offence of money laundering.

3.3.2 Reputational Risk
If the Bank is penalised for non-compliance, it can create a negative perception of the
institution on customers, investors and regulators and can adversely affect the
Bank’s ability to raise capital and to maintain and create business relationships.
RBI has stepped up its actions against non-compliant banks and in addition to fiscal
penalties, also issues notifications and press releases5 on the banks that have been
fined for violation of KYC, AML and CFT guidelines. These press releases are picked
up by national and international news media which can result in a severe reputational
damage to the banks.

Short Notes on Anti Money Laundering
1. The conversion or transfer of property, the concealment or disguising of the nature of the proceeds,
the acquisition, possession or use of property, knowing that these are derived from criminal activity and
participate or assist the movement of funds to make the proceeds appear legitimate is money
laundering.
Money obtained from certain crimes, such as extortion, insider trading, drug trafficking, and illegal
gambling is "dirty" and needs to be "cleaned" to appear to have been derived from legal activities, so
that banks and other financial institutions will deal with it without suspicion. Money can be laundered by
many methods which vary in complexity and sophistication.
Money laundering involves three steps: The first involves introducing cash into the financial system by
some means ("placement"); the second involves carrying out complex financial transactions to
camouflage the illegal source of the cash ("layering"); and finally, acquiring wealth generated from the
transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending upon the
circumstances. For example, non-cash proceeds that are already in the financial system would not
need to be placed.[8]
According to the United States Treasury Department:
Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal
(i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the
illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved
around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it
is integrated into the financial system through additional transactions until the "dirty money" appears
"clean".
2.Money laundering involves taking criminal proceeds and disguising their illegal source in anticipation
of ultimately using the criminal proceeds to perform legal and illegal activities.
Simply put, money laundering is the process of making dirty money look clean.
3. Money laundering methods

Money laundering:
The money laundering cycle can be broken down into three distinct stages; however, it is important to
remember that money laundering is a single process. The stages of money laundering include the:
Placement Stage
Layering Stage
Integration Stage
The Placement Stage
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the
financial system. Generally, this stage serves two purposes: (a) it relieves the criminal of holding and
guarding large amounts of bulky of cash; and (b) it places the money into the legitimate financial
system. It is during the placement stage that money launderers are the most vulnerable to being caught.
This is due to the fact that placing large amounts of money (cash) into the legitimate financial system
may raise suspicions of officials.
The placement of the proceeds of crime can be done in a number of ways. For example, cash could be
packed into a suitcase and smuggled to a country, or the launderer could use smurfs to defeat
reporting threshold laws and avoid suspicion. Some other common methods include:
Loan Repayment
Repayment of loans or credit cards with illegal proceeds Gambling
Purchase of gambling chips or placing bets on sporting events
Currency Smuggling
The physical movement of illegal currency or monetary instruments over the border
Currency Exchanges
Purchasing foreign money with illegal funds through foreign currency exchanges
Blending Funds

Using a legitimate cash focused business to co-mingle dirty funds with the day's legitimate sales
receipts
This environment has resulted in a situation where officials in these jurisdictions are either unwilling
due to regulations, or refuse to cooperate in requests for assistance during international money
laundering investigations.
To combat this and other international impediments to effective money laundering investigations, many
like-minded countries have met to develop, coordinate, and share model legislation, multilateral
agreements, trends & intelligence, and other information. For example, such international watchdogs
as the Financial Action Task Force (FATF) evolved out of these discussions.
The Layering Stage
After placement comes the layering stage (sometimes referred to as structuring). The layering stage is
the most complex and often entails the international movement of the funds. The primary purpose of
this stage is to separate the illicit money from its source. This is done by the sophisticated layering of
financial transactions that obscure the audit trail and sever the link with the original crime.
During this stage, for example, the money launderers may begin by moving funds electronically from
one country to another, then divide them into investments placed in advanced financial options or
overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or
discrepancies in legislation and taking advantage of delays in judicial or police cooperation.
The Integration Stage
The final stage of the money laundering process is termed the integration stage. It is at the integration
stage where the money is returned to the criminal from what seem to be legitimate sources. Having
been placed initially as cash and layered through a number of financial transactions, the criminal
proceeds are now fully integrated into the financial system and can be used for any purpose.
There are many different ways in which the laundered money can be integrated back with the criminal;
however, the major objective at this stage is to reunite the money with the criminal in a manner that
does not draw attention and appears to result from a legitimate source. For example, the purchases of
property, art work, jewellery, or high-end automobiles are common ways for the launderer to enjoy their
illegal profits without necessarily drawing attention to themselves
Smurfs - A popular method used to launder cash in the placement stage. This technique involves the
use of many individuals (the"smurfs") who exchange illicit funds (in smaller, less conspicuous amounts)
for highly liquid items such as traveller cheques, bank drafts, or deposited directly into savings
accounts. These instruments are then given to the launderer who then begins the layering stage.
For example, ten smurfs could "place" $1 million into financial institutions using this technique in less
than two weeks
Image from UNODC

3. Case study:
Online or Internet Banking ( Special Case study how Money laundering 3 steps Happens):: Very
important
Placement — Launderers want to get their proceeds into legitimate repositories such as banks,
securities or real estate, with as little trace of the source and beneficial ownership as possible. Often,
cyberspace banks do not accept conventional deposits. However,cyberbanks could be organized to
take custodial-like forms — holding, reconciling and transferring rights to assets held in different forms
around the world. Money launderers can create their own systems shadowing traditional commercial
banks in order to acceptdeposits, perhaps as warehouses for cash or otherbulk commodities. Thus,
cyberspace banks have thepotential to offer highly secure, uncommonly private“placement” vehicles for
money launderersLayering — Electronic mail messages, aided by encryption and cyberspace banking
transfers, enablelaunderers to transfer assets around the world manytimes a day.
Integration — Once layered, cyberspace bankingtechnologies may facilitate integration in two ways.If
cyberbanking permits person-to-person cash-like transfers, with no actual cash involvement, existing
currency reporting regulations do not apply. Using“super smart-card” technologies, money can be
movedaround the world through ATM transactions. These smart cards permit easy retrieval of the
“account”balance by the use of an ATM card
5. Terrorism Financing are 3 types
A. State financing: Separate entities are created with organizational and financial support of the state
B. Legimate modes : Donations by business,individuals and charity funds
C. Private funding:by criminal activities by bank robberies, drug trafficking, kidnaps,exortion..
6. Money laundering can take several forms, although most methods can be categorized into one of a
few types. These include "bank methods, smurfing [also known as structuring], currency exchanges,
and double-invoicing".
Structuring: Often known as smurfing, this is a method of placement whereby cash is broken into
smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money
laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to
purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small
amounts.
 Bulk cash smuggling: This involves physically smuggling cash to another jurisdiction and
depositing it in a financial institution, such as an offshore bank, with greater bank secrecy or less
rigorous money laundering enforcement
 Cash-intensive businesses: In this method, a business typically expected to receive a large
proportion of its revenue as cash uses its accounts to deposit criminally derived cash. Such
enterprises often operate openly and in doing so generate cash revenue from incidental legitimate
business in addition to the illicit cash – in such cases the business will usually claim all cash
received as legitimate earnings. Service businesses are best suited to this method, as such
enterprises have little or no variable costs and/or a large ratio between revenue and variable costs,
which makes it difficult to detect discrepancies between revenues and costs. Examples are parking
structures, strip clubs, tanning salons, car washes, arcades, bars, restaurants, and casinos.
 Trade-based laundering: This involves under- or over-valuing invoices to disguise the
movement of money. For example, the art market has been accused of being an ideal vehicle for
money laundering due to several unique aspects of art such as the subjective value of artworks as
well as the secrecy of auction houses about the identity of the buyer and seller.
 Shell companies and trusts: Trusts and shell companies disguise the true owners of money.
Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true owner.
Sometimes referred to by the slang term rathole, though that term usually refers to a person acting
as the fictitious owner rather than the business entity.
 Round-tripping: Here, money is deposited in a controlled foreign corporation offshore,
preferably in a tax haven where minimal records are kept, and then shipped back as a foreign
direct investment, exempt from taxation. A variant on this is to transfer money to a law firm or
similar organization as funds on account of fees, then to cancel the retainer and, when the money
is remitted, represent the sums received from the lawyers as a legacy under a will or proceeds of
litigation.
 Bank capture: In this case, money launderers or criminals buy a controlling interest in a bank,
preferably in a jurisdiction with weak money laundering controls, and then move money through
the bank without scrutiny.

 Casinos: In this method, an individual walks into a casino and buys chips with illicit cash. The
individual will then play for a relatively short time. When the person cashes in the chips, they will
expect to take payment in a check, or at least get a receipt so they can claim the proceeds as
gambling winnings.
 Other gambling: Money is spent on gambling, preferably on high odds games. One way to
minimize risk with this method is to bet on every possible outcome of some event that has many
possible outcomes, so no outcome(s) have short odds, and the bettor will lose only
the vigorish and will have one or more winning bets that can be shown as the source of money.
The losing bets will remain hidden.
 Real estate: Someone purchases real estate with illegal proceeds and then sells the
property. To outsiders, the proceeds from the sale look like legitimate income. Alternatively, the
price of the property is manipulated: the seller agrees to a contract that underrepresents the value
of the property, and receives criminal proceeds to make up the difference.
 Black salaries: A company may have unregistered employees without written contracts and
pay them cash salaries. Dirty money might be used to pay them.
 Tax amnesties: For example, those that legalize unreported assets and cash in tax havens.
 Life insurance business: Assignment of policies to unidentified third parties and for which no
plausible reasons can be ascertained.
 By using national banking services smurfing, Muiltiple tier of accounts,funnel accounts,Contra
transactions,DD,cash depost and transfer fund connected accounts, front companies, legimate
accounts, dormant accounts(Mostly used by terrorists) and wire transfer
 Using remittance ,prepaid cards, money changers,credit and debit cards
By using The credit card industry includes: case study
Credit card associations, such as American Express,MasterCard and Visa, which license member
banks toissue bankcards, authorize merchants to accept thosecards, or bothIssuing banks, which
solicit potential customers and issue the credit cards.Acquiring banks, which process transactions for
merchants who accept credit cards.
Third-party processors, which contract with issuing or acquiring banks to provide transaction
processing andother credit card–related services for the banks.Credit card accounts are not likely to be
used in the initialplacement stage of money laundering because the industrygenerally restricts cash
payments. They are more likely to be usedin the layering or integration stages.
Example
Money launderer Josh prepays his credit card using illicit funds that he has already introduced into
thebanking system, creating a credit balance on his account. Josh then requests a credit refund,
whichenables him to further obscure the origin of the funds, which constitutes layering. Josh then uses
the illicitmoney he placed in his bank account and the creditcard refund to pay for a new kitchen that he
bought.Through these steps he has integrated his illicit fundsinto the financial system.
 A money launderer could put ill-gotten funds in accounts at banksoffshore and then access
these funds using credit and debitcards associated with the offshore account. Alternatively, he
couldsmuggle the cash out of one country into an offshore jurisdictionwith lax regulatory
oversight, place the cash in offshore banks and— again — access the illicit funds using credit
or debit cards.In a 2002 Report called “Extent of Money Laundering throughCredit Cards Is
Unknown,” the U.S. Government AccountabilityOffice, the Congressional watchdog of the
United States, offered hypothetical money laundering scenarios using credit cards. One
example was: “[Money launderers establish a legitimate businessin the U.S. as a ‘front’ for their
illicit activity. They establish a bank account with a U.S.-based bank and obtain credit cards
and ATM cards under the name of the ‘front business.’ Funds from theirillicit activities are
deposited into the bank account in the United States. While in another country, where their
U.S.-based bank hasaffiliates, they make withdrawals from their U.S. bank account,
using credit cards and ATM cards. Money is deposited by one of their cohorts in the U.S. and
is transferred to pay off the credit cardloan or even prepay the credit card. The bank’s online
services make it possible to transfer funds between checking and creditcard accounts.”
 Deposit Structuring/ smurfing:Deposting monet bewlow threshold . In india 10 lakh is

threshold for it
 Multiple Tier of Accounts Funds are passed through multiple accounts bt splitting them into 2 or
more portions at each stage
 Funnel accounts :Bank account is opened for the purpose of dirty money to be made by
several persons usually below threshold value

 Contra transactions : to show heavy turnover in accounts, some amount is transferred to one
account to another followed by an equal amount transferred from recipient account to the
originating account .with repeated several transactions during the day
 Connected accounts in names relatives ,associates or other persons like binami accounts
 Front companies : selling goods and providing services having large volume of business often
with cash dealing
 Legimate accounts: Individuals may run number of accounts with several banks
 Dormant accounts: 1stly to keep the account and 2nd ly to ensure that undue attention was not
drawn to it
 Back to back loans : a ML transfer his criminal proceeds to another country as security or
guarantee for a bank loan, which is then sent back to the original country .
6.ML Global measures can be achieved by
A. Engagement of international organizations

B. UNO initiatives like Vienna convention in 1988, Political declaration in 1998 , The
Palermo convention in 2003
C. International monetary fund
D. Financial intelligence units (In india 15th nov 2004 , Director EIU economic intelligence
council, Headed by finance Minister)
E. Egmont group of FIUs..1995 (151 FIUs)
7. FATF:::
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the
Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote
effective implementation of legal, regulatory and operational measures for combating money laundering,
terrorist financing and other related threats to the integrity of the international financial system. The
FATF is therefore a “policy-making body” which works to generate the necessary political will to bring
about national legislative and regulatory reforms in these areas.
The FATF has developed a series of Recommendations that are recognised as the international
standard for combating of money laundering and the financing of terrorism and proliferation of weapons
of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of
the financial system and help ensure a level playing field. First issued in 1990, the FATF
Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they
remain up to date and relevant, and they are intended to be of universal application.
The FATF monitors the progress of its members in implementing necessary measures, reviews money
laundering and terrorist financing techniques and counter-measures, and promotes the adoption and
implementation of appropriate measures globally. In collaboration with other international stakeholders,
the FATF works to identify national-level vulnerabilities with the aim of protecting the international
financial system from misuse.
The FATF's decision making body, the FATF Plenary, meets three times per year.
FATF HQ in Paris
FATF currently comprises 34 member jurisdictions and 12 regional organizations
FATF Recommendations. ::
Money laundering, terrorist financing, and the financing of the proliferation of weapons of mass
destruction are serious threats to security and the integrity of the financial system.
The FATF Standards have been revised to strengthen global safeguards and further protect the
integrity of the financial system by providing governments with stronger tools to take action against
financial crime. At the same time, these new standards will address new priority areas such as
corruption and tax crimes.
The revision of the Recommendations aims at achieving a balance:

On the one hand, the requirements have been specifically strengthened in areas which are higher risk
or where implementation could be enhanced. They have been expanded to deal with new threats such
as the financing of proliferation of weapons of mass destruction, and to be clearer on transparency and
tougher on corruption.
On the other, they are also better targeted – there is more flexibility for simplified measures to be
applied in low risk areas. This risk-based approach will allow financial institutions and other designated
sectors to apply their resources to higher risk areas.
The FATF Recommendations are the basis on which all countries should meet the shared objective of
tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all
countries to effectively implement these measures in their national systems.
FATF Recommendations 2012
A – AML/CFT POLICIES AND COORDINATION
1 - Assessing risks & applying a risk-based approach
2 - National cooperation and coordination
B – MONEY LAUNDERING AND CONFISCATION
3 - Money laundering offence
4 - Confiscation and provisional measures
C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION
5 - SRII Terrorist financing offence
6 - SRIII Targeted financial sanctions related to terrorism & terrorist financing
7 - Targeted financial sanctions related to proliferation
8 - Non-profit organisations
D – PREVENTIVE MEASURES
9 - Financial institution secrecy laws
Customer due diligence and record keeping
10 - Customer due diligence
11 - Record keeping
Additional measures for specific customers and activities
12 - Politically exposed persons
13 - Correspondent banking
14 - Money or value transfer services
15 - New technologies
16 - Wire transfers
Reliance, Controls and Financial Groups
17 - Reliance on third parties
18 - Internal controls and foreign branches and subsidiaries
19 - Higher-risk countries
Reporting of suspicious transactions
20 - Reporting of suspicious transactions
21 - Tipping-off and confidentiality
Designated non-financial Businesses and Professions (DNFBPs)
22 - DNFBPs: Customer due diligence
23 - DNFBPs: Other measures
E – TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND
ARRANGEMENTS
24 - Transparency and beneficial ownership of legal persons
25 - Transparency and beneficial ownership of legal arrangements
F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER
INSTITUTIONAL MEASURES
Regulation and Supervision
26 - Regulation and supervision of financial institutions
27 - Powers of supervisors
28 - Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 - Financial intelligence units
30 - Responsibilities of law enforcement and investigative authorities

31 - Powers of law enforcement and investigative authorities
32 - Cash couriers
General Requirements
33 - Statistics
34 - Guidance and feedback
Sanctions
35 - Sanctions
G – INTERNATIONAL COOPERATION
36 - International instruments
37 - Mutual legal assistance
38 - Mutual legal assistance: freezing and confiscation
39 - Extradition
40 - Other forms of international cooperation
8.FATF IX Special Recommendations on Terrorist Financing:::

Recognising the vital importance of taking action to combat the financing of terrorism, the FATF has
agreed these Recommendations, which, when combined with the FATF Forty Recommendations on
money laundering, set out the basic framework to detect, prevent and suppress the financing of
terrorism and terrorist acts.
I. Ratification and implementation of UN instruments
Each country should take immediate steps to ratify and to implement fully the 1999 United Nations
International Convention for the Suppression of the Financing of Terrorism.
Countries should also immediately implement the United Nations resolutions relating to the
prevention and suppression of the financing of terrorist acts, particularly United Nations Security
Council Resolution 1373.
II. Criminalising the financing of terrorism and associated money laundering
Each country should criminalise the financing of terrorism, terrorist acts and terrorist organisations.
Countries should ensure that such offences are designated as money laundering predicate offences.
III. Freezing and confiscating terrorist assets
Each country should implement measures to freeze without delay funds or other assets of terrorists,
those who finance terrorism and terrorist organisations in accordance with the United Nations
resolutions relating to the prevention and suppression of the financing of terrorist acts.
Each country should also adopt and implement measures, including legislative ones, which would
enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or
intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organisations.
IV. Reporting suspicious transactions related to terrorism
If financial institutions, or other businesses or entities subject to anti-money laundering obligations,
suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used
for
terrorism, terrorist acts or by terrorist organisations, they should be required to report promptly their
suspicions to the competent authorities.
V. International Co-operation
Each country should afford another country, on the basis of a treaty, arrangement or other mechanism
for mutual legal assistance or information exchange, the greatest possible measure of assistance in
connection with criminal, civil enforcement, and administrative investigations, inquiries and
proceedings relating to the financing of terrorism, terrorist acts and terrorist organisations.
Countries should also take all possible measures to ensure that they do not provide safe havens for
individuals charged with the financing of terrorism, terrorist acts or terrorist organisations, and should
have procedures in place to extradite, where possible, such individuals.
VI. Alternative Remittance
Each country should take measures to ensure that persons or legal entities, including agents, that
provide a service for the transmission of money or value, including transmission through an informal
money or value transfer system or network, should be licensed or registered and subject to all the
FATF Recommendations that apply to banks and non-bank financial institutions. Each country
should ensure that persons or legal entities that carry out this service illegally are subject to
administrative, civil or criminal sanctions.
VII. Wire transfers
Countries should take measures to require financial institutions, including money remitters, to include
accurate and meaningful originator information (name, address and account number) on funds
transfers and related messages that are sent, and the information should remain with the transfer or
related message through the payment chain.

Countries should take measures to ensure that financial institutions, including money remitters,
conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain
complete originator information (name, address and account number).
VIII. Non-profit organi
sations
Countries should review the adequacy of laws and regulations that relate to entities that can be
abused
for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries
should ensure that they cannot be misused:
(i) by terrorist organisations posing as legitimate entities;
(ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of
escaping asset freezing measures; and
(iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to
terrorist organisations.
IX. Cash Couriers
Countries should have measures in place to detect the physical cross-border transportation of
currency
and bearer negotiable instruments, including a declaration system or other disclosure obligation.
Countries should ensure that their competent authorities have the legal authority to stop or restrain
currency or bearer negotiable instruments that are suspected to be related to terrorist financing or
money laundering, or that are falsely declared or disclosed.
Countries should ensure that effective, proportionate and dissuasive sanctions are available to deal
with persons who make false declaration(s) or disclosure(s). In cases where the currency or bearer
negotiable instruments are related to terrorist financing or money laundering, countries should also
adopt measures, including legislative ones consistent with Recommendation 3 and Special
Recommendation III, which would enable the confiscation of such currency or instruments.
9.FATF Regional bodies
There are eight regional FATF-style bodies and FATF Associate

Members that have similar form and functions to those of FATF.
Many FATF member countries are also members of these bodies.
Asia/Pacific Group on Money Laundering (APG).
Caribbean Financial Action Task Force (CFATF).
Council of Europe Select Committee of Experts on
the Evaluation of Anti-Money Laundering Measures
(MONEYVAL) (formerly PC-R-EV).
Eastern and Southern Africa Anti-Money Laundering
Group (ESAAMLG).
Eurasian Group (EAG).
Financial Action Task Force of South America against
Money Laundering (GAFISUD – Grupo de Acción
Financiera de Sudamérica)
Intergovernmental Action Group against Money-
Laundering in West Africa (GIABA – Groupe
Intergouvernemental d’Action contre le Blanchiment
d’Argent en Afrique de l’Quest)
Middle East and North Africa Financial Action Task
Force (MENAFATF)
10. cuckoo smurfing.::
In 2005, FATF added a new term to the vast money laundering
lexicon – “cuckoo smurfing.
The term, mentioned in the organization’s 2005 Typologies Report,refers to a form of money laundering
linked to alternativeremittance systems, in which criminal funds are transferred through the accounts of
unwitting persons who are expecting genuinefunds or payments from overseas. The term cuckoo
smurfing firstoriginated in investigations in the United Kingdom, where it is asignificant money
laundering technique.The cuckoo is a European bird that is a parasite because it laysits eggs in the
nests of other birds, which hatch them and rearthe offspring. The main difference between traditional
structurerand cuckoo smurfing is that in the latter the third parties who holdthe bank accounts being
used are not aware of the fact that illicitmoney is being deposited into their accounts.Cuckoo smurfing

requires the work of an insider within a financialinstitution and is generally a four step process:
The first step occurs when a customer provides fundsto an alternative remitter for transfer to a
beneficiary,generally in another country.
The next step involves the insider, who will provide the transaction details (beneficiary name, bank,
accountnumber and amount) of the transfer to an associatein the foreign country where the beneficiary
of thetransfer is located. The associate in the foreign countrywill have cash that needs to be placed into
the financialsystem.
The associate in the foreign country will then depositcash into the bank account of the intended
beneficiary.The beneficiary will receive the full amount of thetransfer and the associate in the foreign
country will be able to place some of its cash into the financial system
The associate in the foreign country then arranges to get the funds from the alternate remitter, using
oneof the methods by which alternate remitters transferfunds. In this case, the associate in the foreign
countrywill have laundered the funds and will have legitimate funds to replace the criminally derived
ones depositedinto the beneficiary’s account.
11. Wolfsberg Group:: 13 Banks

Banco Santander
Bank of America
Bank of Tokyo-Mitsubishi UFJ
Barclays
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
J.P. Morgan Chase
Société Générale
Standard Chartered Bank
UBS
The Wolfsberg Group is an association of 13 global banks that aims to develop financial services
industry standards and related products for Know Your Customer, Anti-Money Laundering and
Counter Terrorist Financing policiesThe Group first came together in 2000 at the Wolfsberg castle in
Switzerland, accompanied by representatives of Transparency International, to draft anti-money
laundering guidelines for private banking that, when implemented, would mark an unprecedented
private-sector assault on the laundering of corruption proceeds. Their principles hold no force of law
and carry no penalties for those who do not abide by them. The Wolfsberg Anti-Money Laundering
Principles for Private Banking was published in October 2000 and was revised in May
2002. These principles recommend controls for private banking that range from the basic, such as
customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who
“have or have had positions of public trust.” The banks that released the principles with Transparency
International said that the principles would “make it harder for corrupt people to deposit their ill-gotten
gains in the world’s banking system.” The principles say banks will “endeavor to accept only those
clients whose source of wealth and funds can be reasonably established to be legitimate.” They
highlight the need to identify the beneficial owner of funds “for all accounts” when that person is
someone other than the client, and urge private bankers to perform due diligence on “money managers
and similar intermediaries” to determine that the middlemen have a “satisfactory” due diligence process
for their clients or a regulatory obligation to conduct such due diligence. The principles recommend that
“at least one person other than the private banker” should approve all new clients and accounts.
The principles list several situations that require further due diligence, including activities that involve:
Public officials, including individuals holding, or having held, positions of public trust, as well as their
families and close associates. High-risk countries, including countries “identified by credible sources
as having inadequate anti-moneylaundering standards or representing high-risk for crime and
corruption.” High-risk activities, involving clients and beneficial owners whose source of wealth
“emanates from activities known to be susceptible to money laundering.” The Wolfsberg principles say
that banks should have written policies on the “identification of and follow-up on unusual or
suspicious activities,” and should include a definition of what is suspicious, as well as examples of such
activity. They recommend a “sufficient” monitoring system that uses the private banker’s
knowledge of the types of activity that would be suspicious for particular clients. They also outline
mechanisms that can be used to identify suspicious activity, including meetings, discussions and
in-country visits with clients and steps that should be taken when suspicious activity is detected.
The principles also address: Reporting to manageMent of money laundering issues. AML training.
Retention of relevant documents. Deviations from policy. Creation of an anti-money laundering
department and
an AML policy.

In May 2002, the Wolfsberg Principles for Private Banking were revised. A section was added
prohibiting the use of internal non-client accounts (sometimes referred to as “concentration”
accounts) to keep clients from being linked to the movement of funds on their behalf (i.e., banks should
forbid the use of such internal accounts in a manner that would prevent officials from appropriately
monitoring movements of client funds). The Wolfsberg Group also issued guidelines in early 2002 on
“The Suppression of the Financing of Terrorism,” outlining the roles of financial institutions in the fight
against money laundering and terrorism financing. The Wolfsberg recommendations include:
Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities.
Including adequate information in the lists to help institutions search customer databases efficiently.
Providing prompt feedback to institutions following circulation of the official lists. Providing information
on the manner, means and
methods used by terrorists. Developing government guidelines for business sectors and activities
identified as high-risk for terrorism financing. Developing uniform global formats for funds transfers
that assist in the detection of terrorism financing. The group also recommends that financial institutions
be protected by a safe harbor immunity to encourage them to share information and to report to
authorities. The Wolfsberg Group also committed itself to recommending enhanced due diligence for
“business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de
change and money transfer agents…” and committed its members to taking enhanced due diligence
steps for high-risk customers or those in high-risk sectors, and activities “such as underground
banking businesses or alternative remittance systems.” In 2002, Wolfsberg issued guidelines on “Anti-
Money Laundering Principles for Correspondent Banking” that outlined steps financialinstitutions
should take to combat money laundering and terrorism financing through correspondent banking
12.AML/CFT legislation in Major countries

A. EUROPE a) European convention on the suppression of terrorism 1977 b)EC on
laundering ,search , Seizure from crime 1993
B.US a) Bank secrecy act 1970 b)Money laundering control Act 1986 c) Anti drug abuse act 1988
d)Annuzio –Wylie AML act 1992 d)ML Suppression Act 1994 f)ML and Financial crimes strategy act
1998 G) USA PETRIOT ACT 2001
C. UK
. Terrorism Act 2000
 Anti-terrorism, Crime and Security Act 2001

 Proceeds of Crime Act 2002
 Serious Organised Crime and Police Act 2005
 Money Laundering Regulations 2007
 Money Laundering Regulation, Terrorist Financing and Transfer of Funds (Information on the
Payer) Regulations 2017
 Sanctions and Anti-Money Laundering Act 2018
13.AML/CFT IN INDIA
In 2002, the Parliament of India passed an act called the Prevention of Money Laundering Act, 2002.
The main objectives of this act are to prevent money-laundering as well as to provide for confiscation of
property either derived from or involved in, money-laundering.
Section 12 (1) describes the obligations that banks, other financial institutions, and intermediaries have
to
(a) Maintain records that detail the nature and value of transactions, whether such transactions
comprise a single transaction or a series of connected transactions, and where these
transactions take place within a month.
(b) Furnish information on transactions referred to in clause (a) to the Director within the time
prescribed, including records of the identity of all its clients.

Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above,
must be maintained for ten years after the transactions finished. It is handled by the Indian
Income Tax Department.
The provisions of the Act are frequently reviewed and various amendments have been passed
from time to time.[
Most money laundering activities in India are through political parties, corporate companies
and the shares market. These are investigated by the Enforcement Directorate and Indian
Income Tax Department.[ According to Government of India, out of the total tax arrears
of ₹2,480 billion (US$37 billion) about ₹1,300 billion (US$19 billion) pertain to money
laundering and securities scam cases.
Bank accountants must record all transactions over Rs. 1 million and maintain such records for
10 years. Banks must also make cash transaction reports (CTRs) and suspicious transaction
reports over Rs. 1 million within 7 days of initial suspicion. They must submit their reports to
the Enforcement Directorate and Income Tax Department.[
14.The Prevention of Money Laundering Act

The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in
place by India to combat money laundering. PMLA and the Rules notified there under came into force
with effect from July 1, 2005 . Director, FIU-IND and Director (Enforcement) have been conferred with
exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the
Act.
The PMLA and rules notified thereunder impose obligation on banking companies, financial institutions
and intermediaries to verify identity of clients, maintain records and furnish information to FIU-IND.
PMLA defines money laundering offence and provides for the freezing, seizure and confiscation of the
proceeds of crime.
PMLA 2002 Overview::
Section 1 - Short title, extent and commencement
Section 2 - Definitions
Section 3 - Offence of Money-Laundering
Section 4 - Punishment for Money Laundering
Section 12 - Obligations-Reporting Entity to maintain records
Section 12A - Obligations-Access to information
Section 13 - Powers of the Director
Section 14 - No civil proceedings
Section 15 - Powers to prescribe procedure
Section 26 - Appellate Tribunal
Section 39 - Right of Appellant
Section 40 - Deemed to be Public Servants
Section 41 - Restriction on Civil Courts
Section 42 - Appeal to High Court
Section 44 - Offences triable by Special Courts
Section 48 - Authorities under the Act
Section 49 - Appointment of Authorities and Other Officers
Section 50 - Summons, production of documents etc.
Section 54 - Other authorities empowered and required to assist
Section 56 - Agreements with foreign countries
Section 66 - Disclosure of information
Section 69 - Recovery of fines
Section 75 - Power to remove difficulties
15.FIU –IND
Overview of FIU-IND
Financial Intelligence Unit – India (FIU-IND) was set by the Government of India vide O.M. dated 18th
November 2004 as the central national agency responsible for receiving, processing, analyzing and
disseminating information relating to suspect financial transactions. FIU-IND is also responsible for
coordinating and strengthening efforts of national and international intelligence, investigation and
enforcement agencies in pursuing the global efforts against money laundering and related crimes. FIU-
IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the
Finance Minister.

Functions of FIU-IND::
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them and, as
appropriate, disseminate valuable financial information to intelligence/enforcement agencies and
regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash Transaction reports
(CTRs), Cross Border Wire Transfer Reports (CBWTRs), Reports on Purchase or Sale of Immovable
Property (IPRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns of transactions
suggesting suspicion of money laundering and related crimes.
Sharing of Information:Share information with national intelligence/law enforcement agencies, national
regulatory authorities and foreign Financial Intelligence Units.
Act as Central Repository:Establish and maintain national data base on cash transactions and
suspicious transactions on the basis of reports received from reporting entities.
Coordination:Coordinate and strengthen collection and sharing of financial intelligence through an
effective national, regional and global network to combat money laundering and related crimes.
Research and Analysis:Monitor and identify strategic key areas on money laundering trends, typologies
and developments.
Organization Strength of FIU-IND

FIU-IND is a multi disciplinary body with a sanctioned strength of 74 personnel. These are being
inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central Board of
Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI),
Department of Legal Affairs and Intelligence agencies
Organizational structure
Financial Intelligence Unit – India (FIU-IND)

Financial Intelligence Unit – India (FIU-IND) was set by the Government of India in 2004 as

the central national agency responsible for receiving, processing, analyzing and disseminating
information relating to suspect financial transactions. FIU-IND is also responsible for
coordinating and strengthening efforts of national and international intelligence, investigation
and enforcement agencies in pursuing the global efforts against money laundering and related
crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence
Council (EIC) headed by the Finance Minister.
Functions of FIU-IND
The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them
and, as appropriate, disseminate valuable financial information to intelligence/enforcement
agencies and regulatory authorities . The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash
Transaction reports (CTRs) and Suspicious Transaction Reports (STRs) from various
reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns
of transactions suggesting suspicion of money laundering and related crimes.
Sharing of Information: Share information with national intelligence/law
enforcement agencies, national regulatory authorities and foreign Financial
Intelligence Units.
Act as Central Repository: Establish and maintain national data base on cash
transactions and suspicious transactions on the basis of reports received from
reporting entities.
Coordination: Coordinate and strengthen collection and sharing of financial
intelligence through an effective national, regional and global network to combat
money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money
laundering trends, typologies and developments.
Organisational Set-up
FIU-IND is a multi disciplinary body headed by a Director. Personnel in this Unit are being
inducted from different organizations namely Central Board of Direct Taxes (CBDT), Central
Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange
Board of India (SEBI), Department of Legal Affairs and Intelligence agencies.
Authorities at FIU-IND
According to Section 48 of the Prevention of Money Laundering Act, 2002
there shall be the following classes of authorities for the purposes of this Act, namely:-
(a) Director or Additional Director or Joint Director,
(b) Deputy Director,
(c) Assistant Director, and
(d) such other class of officers as may be appointed for the purposes of this Act.
Appointment of Authorities
As per Section 49 of the Prevention of Money Laundering Act, 2002:
(1) The Central Government may appoint such persons as it thinks fit to be authorities for the
purposes of this Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may
authorise the Director or an Additional Director or a Joint Director or a Deputy Director or an
Assistant Director appointed under that sub-section to appoint other authorities below the
rank of an Assistant Director.
(3) Subject to such conditions and limitations as the Central Government may impose, an
authority may exercise the powers and discharge the duties conferred or imposed on it under
this Act.
Director and officers subordinate to him deemed to be public servants
Section 40 of the Prevention of Money Laundering Act, 2002 declares the Chairperson,
Members and other officers and employees of the Appellate Tribunal, the Adjudicating
Authority, Director and the officers subordinate to him shall be deemed to be public servants
within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).
Powers of the Director
Section 13 of the Prevention of Money Laundering Act, 2002 confers following powers on
the Director to ensure compliance:
(1) The Director may, either of his own motion or on an application made by any authority,
officer or person, call for records referred to in sub-section (1) of section 12 and may make
such inquiry or cause such inquiry to be made, as he thinks fit.
(2) If the Director, in the course of any inquiry, finds that a banking company, financial
institution or an intermediary or any of its officers has failed to comply with the provisions
contained in section 12, then, without prejudice to any other action that may be taken under
any other provisions of this Act, he may, by an order, levy a fine on such banking company
or financial institution or intermediary which shall not be less than ten thousand rupees but

may extend to one lakh rupees for each failure.
(3) The Director shall forward a copy of the order passed under sub-section (2) to every
banking company, financial institution or intermediary or person who is a party to the
proceedings under that sub-section.
Powers of authorities regarding summons, production of documents and to give
evidence:
Section 50 of the Prevention of Money Laundering Act, 2002 confers following powers of
summons, production of documents and to give evidence etc.:
(1) The Director shall, for the purposes of section 13, have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect
of the following matters, namely:-
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company,
financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed
(2) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director
shall have power to summon any person whose attendance he considers necessary whether to
give evidence or to produce any records during the course of any investigation or proceeding
under this Act.
(3) All the persons so summoned shall be bound to attend in person or through authorised
agents, as such officer may direct, and shall be bound to state the truth upon any subject
which they are examined or make statements, and produce such documents as may be
required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of
1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred
to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit,
any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall not -
(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without
obtaining the prior approval of the Director.
Assistance from other authorities for enforcement of the Act
Section 54 of the Prevention of Money Laundering Act, 2002 empowers and requires various
authorities to assist in the enforcement of the act. The following officers are empowered and
required to assist the authorities in the enforcement of this Act, namely:-
(a) officers of the Customs and Central Excise Departments;
(b) officers appointed under sub-section (1) of section 5 of the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985);
(c) income-tax authorities under sub-section (1) of section 117 of the Income-tax Act, 1961
(43 of 1961);
(d) officers of the stock exchange recognised under section 4 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);
(e) officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(f) officers of Police;
(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign
Exchange Management Act, 1973 (40 of 1999);
(h) officers of the Securities and Exchange Board of India established under section 3 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992);
(i) officers of any other body corporate constituted or established under a Central Act or a
State Act;
(j) such other officers of the Central Government, State Government, local authorities or
banking companies as the Central Government may, by notification, specify, in this behalf.
Agreements with foreign countries
Section 56 of the Prevention of Money Laundering Act, 2002 provides for agreements with
foreign countries to facilitate exchange of information with them:
(1) The Central Government may enter into an agreement with the Government of any
country outside India for-
(a) enforcing the provisions of this Act;
(b) exchange of information for the prevention of any offence under this Act or under the

corresponding law in force in that country or investigation of cases relating to any offence
under this Act.
and may, by notification in the Official Gazette, make such provisions as may be necessary
for implementing the agreement.
(2) The Central Government may, by notification in the Official Gazette, direct that the
application of this Chapter in relation to a contracting State with which reciprocal
arrangements have been made, shall be subject to such conditions, exceptions or
qualifications as are specified in the said notification.
Disclosure of information
Section 66 of the Prevention of Money Laundering Act, 2002 provides for disclosure of
information to other officers, authority or body:
The Director or any other authority specified by him by a general or special order in this
behalf may furnish or cause to be furnished to-
(i) any officer, authority or body performing any functions under any law relating to
imposition of any tax, duty or cess or to dealings in foreign exchange, or prevention of illicit
traffic in the narcotic drugs and psychotropic substances under the Narcotic Drugs and
Psychotropic Substances Act, 1985 (61 of 1985); or
(ii) such other officer, authority or body performing functions under any other law as the
Central Government may, if in its opinion it is necessary so to do in the public interest,
specify by notification in the Official Gazette in this behalf, any information received or
obtained by such Director or any other authority, specified by him in the performance of
their functions under this Act, as may, in the opinion of the Director or the other authority so
specified by him, be necessary for the purpose of the officer, authority or body specified in
clause (i) or clause (ii) to perform his or its functions under that law.
Recovery of fines
Section 69 of the Prevention of Money Laundering Act, 2002 refers to recovery of fines.
Where any fine imposed on any person under section 13 or section 63 is not paid within six
months from the day of imposition of fine, the Director or any other officer authorised by him
in this behalf may proceed to recover the amount from the said person in the same manner as
prescribed in Schedule 11 of the Income-tax Act, 1961 (43 of 1961) for the recovery of
arrears and he or any officer authorised by him in this behalf shall have all the powers of the
Tax Recovery Officer mentioned in the said Schedule for the said purpose.
The new network, called FINnet (Financial Intelligence Network), is a technology-based
secure platform for bringing together investigative and enforcement agencies to collect,
analyse and disseminate valuable financial information for combating money laundering and
related crimes.
Restriction on Civil Court Jurisdiction
Section 41 of the Prevention of Money Laundering Act, 2002 says that no civil court shall
have jurisdiction to entertain any suit or proceeding in respect of any matter which the
Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this
Act to determine and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by or under this Act."
Appeal to Appellate Tribunal
Section 26 of the Prevention of Money Laundering Act, 2002 deals with appeal to Appellate
Tribunal.
(1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an
order made by the Adjudicating Authority under this Act, may prefer an appeal to the
Appellate Tribunal.
(2) Any banking company, financial institution or intermediary aggrieved by any order of the
Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate
Tribunal.
(3) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a
period of forty-five days from the date on which a copy of the order made by the
Adjudicating Authority or Director is received and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may, after giving an opportunity of being heard,
entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), or sub-section (2), the Appellate Tribunal
may, after giving the parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made
Right of Appellant
Section 39 of the Prevention of Money Laundering Act, 2002 provides for the right of the
appellant.

(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear
in person or take the assistance of an authorised representative of his choice to present his
case before the Appellate Tribunal.
Explanation - For the purposes of this sub-section, the expression "authorized
representative" shall have the same meaning as assigned to it under sub-section (2) of
section 288 of the Income Tax Act, 1961.
(2) The Central Government or the Director may authorise one or more authorised
representatives or any of its officers to act as presenting officers and every person so
authorised may present the case with respect to any appeal before the Appellate Tribunal.
Appeal to High Court
Section 42 of the Prevention of Money Laundering Act, 2002 provides for appeal to High
Court:
“Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal
to the High Court within sixty days from the date of communication of the decision or order
of the Appellate Tribunal to him on any question of law or fact arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.
Explanation.-For the purposes of this section, "High Court" means-
(i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain; and
(ii) where the Central Government is the aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a case where there are more than one respondent,
any of the respondents, ordinarily resides or carries on business or personally works for gain.
Offences which can be seen by Special Courts
Section 44 of the Prevention of Money Laundering Act, 2002 provides for trial by Special
Courts:
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of
1974),-
a. the schedule offence and the offence punishable under section 4 shall be tried only by the
Special Court constituted for the area in which the offence has been committed;
Provided that the Special Court , trying a schedule offence before the commencement of this
Act, shall continue to try such scheduled offence, or
b. a Special Court may, upon a complaint made by an authority authorised in this behalf
under this Act take cognizance of the offence for which the accused is committed to it for
trial.
(2) Nothing contained in this section shall be deemed to affect the special powers of the
High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of
1974) and the High Court may exercise such powers including the power under clause (b)
of sub-section (1) of that section as if the reference to "Magistrate" in that section includes
also a reference to a "Special Court" designated under section 43.

KYC short Notes:
1. The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used,

intentionally or unintentionally, by criminal elements for money laundering or terrorist
financing activities.
2. The PMLA came into effect from 1st July 2005. Necessary Notifications / Rules under the
said Act were published in the Gazette of India on 1st July, 2005 by the Department of
Revenue, Ministry of Finance, Government of India. The PMLA has been further amended
vide notification dated 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.
3. KYC procedures also enable banks/FIs to know/understand their customers and their
financial dealings better and manage their risks prudently.
4. For the purpose of KYC Norms, a ‘Customer’ is defined as a person who is engaged in
a financial transaction or activity with a reporting entity and includes a person on
whose behalf the person who is engaged in the transaction or activity, is acting.
5. “Designated Director" means a person designated by the reporting entity (bank, financial
institution, etc.) to ensure overall compliance with the obligations imposed under chapter IV
of the PML Act.
6. In terms of PML Act a ‘person’ includes: (i) an individual, (ii) a Hindu undivided family, (iii) a
company, (iv) a firm, (v) an association of persons or a body of individuals, whether
incorporated or not, (vi) every artificial juridical person, not falling within any one of the
above persons (i to v), and (vii) any agency, office or branch owned or controlled by any of
the above persons (i to vi).
7. “Transaction” means 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 contractual or other
legal obligation; or (vi) establishing or creating a legal person or legal arrangement.
8. Banks/FIs should frame their KYC policies incorporating the following four key elements: (i)
Customer Acceptance Policy (CAP); (ii) Customer Identification Procedures (CIP); (iii)
Monitoring of Transactions; and (iv) Risk Management.
9. Documents and other information to be collected from different categories of customers

depending on perceived risk and the requirements of PML Act, 2002 and
instructions/guidelines issued by Reserve Bank from time to time.

10. Customer Identification Procedure (CIP) : Customer identification means undertaking client
due diligence measures while commencing an account-based relationship including
identifying and verifying the customer and the beneficial owner on the basis of one of the
OVDs
11. Customer Due Diligence requirements (CDD) while opening accounts
12. introduction is not necessary for opening of accounts under PML Act and Rules or the
Reserve Bank’s extant instructions, banks/FIs should not insist on introduction for opening of bank
accounts
13. Small Accounts If an individual customer does not possess either any of the OVDs or the
documents applicable in respect of simplified procedure (as detailed at paragraph 2.3
above), then ‘Small Accounts’ may be opened for such an individual. A ‘Small Account'
means a savings account in which the aggregate of all credits in a financial year does not
exceed rupees one lakh; the aggregate of all withdrawals and transfers in a month does
not exceed rupees ten thousand and the balance at any point of time does not exceed
rupees fifty thousand. A ‘small account’ maybe opened on the basis of a self-attested
photograph and affixation of signature or thumb print.
14. a small account shall be opened only at Core Banking Solution (CBS) linked branches or in a
branch where it is possible to manually monitor and ensure that foreign remittances are not
credited to the account and that the stipulated monthly and annual limits on aggregate of
transactions and balance requirements in such accounts are not breached, before a
transaction is allowed to take place;
15. a small account shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months if the holder of such an account provides
evidence before the banking company of having applied for any of the officially valid
documents within twelve months of the opening of the said account, with the entire
relaxation provisions to be reviewed in respect of the said account after twenty four
months.
16. Where a customer categorised as low risk expresses inability to complete the
documentation requirements on account of any reason that the bank considers to be
genuine, and where it is essential not to interrupt the normal conduct of business, the bank
may complete the verification of identity within a period of six months from the date of
establishment of the relationship.
17. Procedure to be followed in respect of foreign students : Banks should follow the following
procedure for foreign students studying in India: 1) Banks may open a Non Resident
Ordinary (NRO) bank account of a foreign student on the basis of his/her passport (with visa
& immigration endorsement) bearing the proof of identity and address in the home country
together with a photograph and a letter offering admission from the educational institution in
India. 2) Banks should obtain a declaration about the local address within a period of 30 days
of opening the account and verify the said local address. 3) During the 30 days period, the
account should be operated with a condition of allowing foreign remittances not exceeding
USD 1,000 or equivalent into the account and a cap of monthly withdrawal to Rs. 50,000/-,

pending verification of address. 4) The account would be treated as a normal NRO account,
and will be operated in terms of instructions contained in the Reserve Bank of India’s
instructions on Non-Resident Ordinary Rupee (NRO) Account. Students with Pakistani and
Bangladesh nationality will need prior approval of the Reserve Bank for opening the account.
Where the customer is a company, one certified copy each of the following documents are required for
customer identification: (a) Certificate of incorporation; (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
19. Where the customer is a partnership firm, one certified copy of the following documents is
required for customer identification: (a) registration certificate; (b) partnership deed and (c)
an officially valid document in respect of the person holding an attorney to transact on its
behalf.
20. Where the customer is a trust, one certified copy of the following documents is required for
customer identification: (a) registration certificate; (b) trust deed and (c) an officially valid
document in respect of the person holding a power of attorney to transact on its behalf.
21. Where the customer is an unincorporated association or a body of individuals, one certified
copy of the following documents is required for customer identification: (a) resolution of the
managing body of such association or body of individuals; (b) power of attorney granted to
transact on its behalf; (c) an officially valid document in respect of the person holding an
attorney to transact on its behalf and (d) such information as may be required by the bank/FI
to collectively establish the legal existence of such an association or body of individuals.
22. Proprietary concerns: (1) For proprietary concerns, in addition to the OVD applicable to the
individual (proprietor), any two of the following documents in the name of the proprietary
concern are required to be submitted: (a) Registration certificate (b) Certificate/licence issued
by the municipal authorities under Shop and Establishment Act. (c) Sales and income tax
returns. (d) CST/VAT certificate. (e) Certificate/registration document issued by Sales
Tax/Service Tax/Professional Tax authorities. (f) Licence/certificate of practice issued in the
name of the proprietary concern by any professional body incorporated under a statute. (g)
Complete Income Tax Return (not just the acknowledgement) in the name of the sole
proprietor where the firm's income is reflected, duly authenticated/acknowledged by the
Income Tax authorities. (h) Utility bills such as electricity, water, and landline telephone bills.
23. When the client accounts are opened by professional intermediaries: When the bank has
knowledge or reason to believe that the client account opened by a professional
intermediary is on behalf of a single client, that client must be identified. Banks may hold
'pooled' accounts managed by professional intermediaries on behalf of entities like mutual
funds, pension funds or other types of funds. Banks, however, should not open accounts of
such professional intermediaries who are bound by any client confidentiality that prohibits
disclosure of the client details to the banks.
24. Where funds held by the intermediaries are not co-mingled at the bank and there are 'sub-
accounts', each of them attributable to a beneficial owner, all the beneficial owners must be
identified. Where such funds are co-mingled at the bank, the bank should still look into the

beneficial owners. Where the banks rely on the 'customer due diligence' (CDD) done by an
intermediary, they should satisfy themselves that the intermediary is a regulated and
supervised entity and has adequate systems in place to comply with the KYC requirements of
the customers. It should be understood that the ultimate responsibility for knowing the
customer lies with the bank.
25. Beneficial ownership :When a bank/FI identifies a customer for opening an account, it
should identify the beneficial owner(s) and take all reasonable steps in terms of Rule 9(3) of
the PML Rules to verify his identity, as per guidelines provided below:
(a) Where the client is a company, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical person, has/have a
controlling ownership interest or who exercises control through other meansExplanation-
For the purpose of this sub-clause- 1. “Controlling ownership interest” means ownership
of/entitlement to more than 25 per cent of the 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 through one or more juridical person, has/have
ownership of/entitlement to more than 15 per cent of capital or profits of the partnership.
(c) Where the client is an unincorporated association or body of individuals, the beneficial
owner is the natural person(s), who, whether acting alone or together, or through one or
more juridical person, has/have ownership of/entitlement to more than 15 per cent of the
property or capital or profits of the unincorporated association or body of individuals.
(d) Where no natural person is identified under (a), (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 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.
(f) Where the client or the owner of the controlling interest is a company listed on a stock
exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the
identity of any shareholder or beneficial owner of such companies.
26. KYC exercise should be done at least every two years for high risk customers, every eight
years for medium risk customers and every ten years for low risk customers. Such KYC
exercise may include all measures for confirming the identity and address and other
particulars of the customer that the bank/FI may consider reasonable and necessary based

on the risk profile of the customer, taking into account whether and when client due
diligence measures were last undertaken and the adequacy of data obtained.
27. Freezing and closure of accounts :
(i) In case of non-compliance of KYC requirements by the customers despite repeated

reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-
compliant accounts in a phased manner.
(ai) During the course of such partial freezing, the account holders can revive their
accounts by submitting the KYC documents as per instructions in force.
(bi) While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial
freezing’ is exercised after giving due notice of three months initially to the customers to
comply with KYC requirements to be followed by a reminder giving a further period of three
months.
(v) (iv) Thereafter, banks/FIs may impose ‘partial freezing’ by allowing all credits and
disallowing all debits with the freedom to close the accounts If the accounts are still KYC
non-compliant after six months of imposing initial ‘partial freezing’ banks/FIs should
disallow all debits and credits from/to the accounts thereby, rendering them inoperative.
(vi) Further, it would always be open to the bank/FI to close the account of such customers
after issuing due notice to the customer explaining the reasons for taking such a decision.
Such decisions, however, need to be taken at a reasonably senior level. In the
circumstances when a bank/FI believes that it would no longer be satisfied about the true
identity of the account holder, the bank/FI should file a Suspicious Transaction Report (STR)
with Financial Intelligence Unit – India (FIU-IND) under Department of Revenue, Ministry of
Finance, Government of India.
28. At-par cheque facility availed by co-operative banks : Some commercial banks have
arrangements with co-operative banks under which the latter open current accounts with the
commercial banks and use the cheque book facility to issue ‘at par’ cheques to their
constituents and walk-in- customers for effecting their remittances and payments. Since the
‘at par’ cheque facility offered by commercial banks to co-operative banks is in the nature of
correspondent banking arrangement, banks should monitor and review such arrangements to
assess the risks including credit risk and reputational risk arising there from. For this purpose,
banks should retain the right to verify the records maintained by the client cooperative banks/
societies for compliance with the extant instructions on KYC and AML under such
arrangements.
29. In this regard, Urban Cooperative Banks (UCBs) are advised to utilize the ‘at par’
cheque facility only for the following purposes:
(i) For their own use.

(ii) For their account holders who are KYC complaint provided that all transactions of
Rs.50,000/- or more should be strictly by debit to the customer’s account.
(iii) For walk-in customers against cash for less than Rs.50,000/- per individual. In order to
utilise the ‘at par’ cheque facility in the above manner, UCBs should maintain the following:
(i) Records pertaining to issuance of ‘at par’ cheques covering inter alia applicant’s name and
account number, beneficiary’s details and date of issuance of the ‘at par’ cheque. (ii)
Sufficient balances/drawing arrangements with the commercial bank extending such facility
for purpose of honouring such instruments. UCBs should also ensure that all ‘at par’ cheques
issued by them are crossed ‘account payee’ irrespective of the amount involved.
30. Simplified norms for Self Help Groups (SHGs) : KYC verification of all the members of SHG
need not be done while opening the savings bank account of the SHG and KYC verification
of all the office bearers would suffice. As regards KYC verification at the time of credit linking
of SHGs, no separate KYC verification of the members or office bearers is necessary
31. Walk-in Customer : In case of transactions carried out by a non-account based customer,
that is a walk in customer, where the amount of transaction is equal to or exceeds Rs.
50,000/-, whether conducted as a single transaction or several transactions that appear to
be connected, the customer's identity and address should be verified. If a bank has reason
to believe that a customer is intentionally structuring a transaction into a series of
transactions below the threshold of Rs.50,000/- the bank should verify the identity and
address of the customer and also consider filing a Suspicious Transactions Report (STR) to
Financial Intelligence Unit – India (FIU-IND). In terms of Clause (b) (ii) of sub-Rule (1) of
Rule
9 of the PML Rules, 2005 banks and financial institutions are required to verify the identity
of the customers for all international money transfer operations.
32. Issue of Demand Drafts, etc, for more than Rs.50,000/- : Banks should ensure that any
remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and
issue of travellers’ cheques for value of Rs.50,000/- and above is effected by debit to the
customer’s account or against cheques and not against cash payment. Banks should not
make payment of cheques/drafts/pay orders/banker’s cheques if they are presented beyond
the period of three months from the date of such instrument.
33. Unique Customer Identification Code : A Unique Customer Identification Code (UCIC) will
help banks to identify the customers, avoid multiple identities, track the facilities availed,
monitor financial transactions in a holistic manner and enable banks to have a better
approach to risk profiling of customers. Banks have been advised to allot UCIC while entering
into new relationships with individual customers as also the existing customers.
34. Banks/FIs should put in place a system of periodical review of risk categorization of accounts
and the need for applying enhanced due diligence measures. Such review of risk
categorisation of customers should be carried out at a periodicity of not less than once in six
months.

35. Banks should closely monitor the transactions in accounts of marketing firms, especially
accounts of Multi-level Marketing (MLM) Companies. Banks should analyse data in cases
where a large number of cheque books are sought by the company, there are multiple small
deposits (generally in cash) across the country in one bank account and where a large
number of cheques are issued bearing similar amounts/dates. Where such features are
noticed by the bank and in case they find such unusual operations in their accounts, the
matter should be immediately reported to Reserve Bank and other appropriate authorities
such as FIU-IND.
36. Banks/FIs 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 about the clients, their business and risk profile and where
necessary, the source of funds.
37. The Board of Directors should ensure that an effective AML/CFT programme is in place by
establishing appropriate procedures and ensuring their effective implementation. It should
cover proper management oversight, systems and controls, segregation of duties, training of
staff and other related matters.
38. Customers who are likely to pose a higher than average risk should be categorised as
medium or high risk depending on the background, nature and location of activity, country of
origin, sources of funds, customer profile, etc. Customers requiring very high level of
monitoring, e.g., those involved in cash intensive business, Politically Exposed Persons
(PEPs) of foreign origin, may, if considered necessary, be categorised as high risk.
39. Correspondent banking is the provision of banking services by one bank (the “correspondent
bank”) to another bank (the “respondent bank”). These services may include cash/funds
management, international wire transfers, drawing arrangements for demand drafts and mail
transfers, payable-through-accounts, cheques clearing etc.
40. In case of payable-through-accounts, the correspondent bank should be satisfied that the
respondent bank has verified the identity of the customers having direct access to the
accounts and is undertaking ongoing 'due diligence' on them. The correspondent bank
should ensure that the respondent bank is able to provide the relevant customer
identification data immediately on request.
41. Banks should ensure that their respondent banks have KYC/AML policies and procedures in
place and apply enhanced 'due diligence' procedures for transactions carried out through
the correspondent accounts. Banks should not enter into a correspondent relationship with a
“shell bank” (i.e., a bank which is incorporated in a country where it has no physical
presence and is not affiliated to any regulated financial group). The correspondent bank
should not permit its accounts to be used by shell banks.
42. Wire Transfer : Banks/FIs use wire transfers as an expeditious method for transferring funds
between bank accounts. Wire transfers include transactions occurring within the national
boundaries of a country or from one country to another. As wire transfers do not involve
actual movement of currency, they are considered as rapid and secure method for
transferring value from one location to another.

43. (a) The salient features of a wire transfer transaction are as under: (i) Wire transfer is a
transaction carried out on behalf of an originator person (both natural and legal) through a
bank by electronic means with a view to making an amount of money available to a
beneficiary person at a bank. The originator and the beneficiary could be the same person. (ii)
Domestic wire transfer means any wire transfer where the originator and receiver are located
in the same country. It may also include a chain of wire transfers that takes place entirely
within the borders of a single country even though the system used to effect the wire transfer
may be located in another country. (iii) Cross-border transfer means any wire transfer where
the originator and the beneficiary bank or financial institutions are located in different
countries. It may include any chain of wire transfers that has at least one cross-border
element. (iv) The originator is the account holder, or where there is no account, the person
(natural or legal) that places the order with the bank to perform the wire transfer.
44. Accordingly, banks/FIs must ensure that all wire transfers are accompanied by the following
information: 1. Cross-border wire transfers 2. Domestic wire transfers
45. Cross-border wire transfers (i) All cross-border wire transfers must be accompanied by
accurate and meaningful originator information. (ii) Information accompanying cross-border
wire transfers must contain the name and address of the originator and where an account
exists, the number of that account. In the absence of an account, a unique reference number,
as prevalent in the country concerned, must be included. (iii) Where several individual
transfers from a single originator are bundled in a batch file for transmission to beneficiaries
in another country, they may be exempted from including full originator information, provided
they include the originator’s account number or unique reference number as at (ii) above.
46. Domestic wire transfers (i) Information accompanying all domestic wire transfers of
Rs.50000/- (Rupees Fifty Thousand) and above must include complete originator information
i.e. name, address and account number etc., unless full originator information can be made
available to the beneficiary bank by other means. (ii) If a bank has reason to believe that a
customer is intentionally structuring wire transfer to below Rs.50,000/- (Rupees Fifty
Thousand) to several beneficiaries in order to avoid reporting or monitoring, the bank must
insist on complete customer identification before effecting the transfer. In case of non-
cooperation from the customer, efforts should be made to establish his identity and
Suspicious Transaction Report (STR) should be made to FIU-IND. (iii) When a credit or debit
card is used to effect money transfer, necessary information as at (i) above should be
included in the message.
47. ) Role of Ordering, Intermediary and Beneficiary banks
(i) Ordering Bank : An ordering bank is the one that originates a wire transfer as per the
order placed by its customer. The ordering bank must ensure that qualifying wire transfers
contain complete originator information. The bank must also verify and preserve the
information at least for a period of five years.
(ii) Intermediary bank : For both cross-border and domestic wire transfers, a bank processing
an intermediary element of a chain of wire transfers must ensure that all originator information
accompanying a wire transfer is retained with the transfer. Where technical limitations prevent
full originator information accompanying a cross-border wire transfer from remaining with a
related domestic wire transfer, a record must be kept at least for five years (as required under
Prevention of Money Laundering Act, 2002) by the receiving intermediary bank of all the
information received from the ordering bank.

(iii) Beneficiary bank :A beneficiary bank should have effective risk-based procedures in place
to identify wire transfers lacking complete originator information. The lack of complete
originator information may be considered as a factor in assessing whether a wire transfer or
related transactions are suspicious and whether they should be reported to the Financial
Intelligence Unit-India. The beneficiary bank should also take up the matter with the ordering
bank if a transaction is not accompanied by detailed information of the fund remitter. If the
ordering bank fails to furnish information on the remitter, the beneficiary bank should consider
restricting or even terminating its business relationship with the ordering bank.
48. Maintenance of records of transactions : Banks/FIs should introduce a system of maintaining

proper record of transactions prescribed under Rule 3 of Prevention of Money Laundering
(Maintenance of Records) Rules, 2005 (PML Rules, 2005), as mentioned below:
(i) All cash transactions of the value of more than Rupees Ten Lakh or its equivalent in
foreign currency.
(ii)Series of all cash transactions individually valued below Rupees Ten Lakh, or its
equivalent in foreign currency which are that have taken place within a month and the
monthly aggregate which exceeds rupees ten lakhs or its equivalent in foreign currency. It is
clarified that for determining ‘integrally connected transactions’ ‘all accounts of the same
customer’ should be taken into account.
(iii) All transactions involving receipts by non-profit organisations of value more than rupees
ten lakh or its equivalent in foreign currency [Ref: Government of India Notification dated
November 12, 2009- Rule 3,subrule (1) clause (BA) of PML Rules]
(iv) All cash transactions ; where forged or counterfeit currency notes or bank notes have
been used as genuine and where any forgery of a valuable security or a document has taken
place facilitating the transaction and

(v) All suspicious transactions, whether or not in cash, made as mentioned in the Rules
49. Banks/FIs are required to maintain all necessary information in respect of transactions prescribed
under PML Rule 3 so as to permit reconstruction of individual transaction, including the following
information: (i) the nature of the transactions; (ii) the amount of the transaction and the currency in
which it was denominated; (iii) the date on which the transaction was conducted; and (iv) the parties
to the transaction.
50. In terms of PML Amendment Act 2012, banks/FIs should maintain for at least five years from the date
of transaction between the bank/FI and the client, all necessary records of transactions, both
domestic or international, which will permit reconstruction of individual transactions (including the
amounts and types of currency involved, if any) so as to provide, if necessary, evidence for
prosecution of persons involved in criminal activity.
51. Banks/FIs should ensure that records pertaining to the identification of the customers and their
address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills,
etc.) obtained while opening the account and during the course of business relationship, are properly
preserved for at least five years after the business relationship is ended as required under Rule 10 of
the Rules ibid. The identification of records and transaction data should be made available to the
competent authorities upon request.
52. Banks/FIs may maintain records of the identity of their clients, and records in respect of
transactions referred to in Rule 3 in hard or soft format.
53. Combating Financing of Terrorism : The United Nations periodically circulates the following two lists
of individuals and entities, suspected of having terrorist links, and as approved by its Security Council
(UNSC).
(a) The “Al-Qaida Sanctions List”, includes names of individuals and entities associated with the Al-
Qaida.
(b) The “1988 Sanctions List”, consisting of individuals (Section A of the consolidated list) and entities.
54. The United Nations Security Council Resolutions (UNSCRs), received from Government of India, are
circulated by the Reserve Bank to all banks and FIs. Banks/FIs are required to update the lists and
take them into account for implementation of Section 51A of the Unlawful Activities (Prevention) (UAPA)
Act, 1967, discussed below. Banks/FIs should ensure that they do not have any account in the name of
individuals/entities appearing in the above lists. Details of accounts resembling any of the
individuals/entities in the list should be reported to FIUIND.
55. Freezing of Assets under Section 51A of Unlawful Activities (Prevention) Act, 1967 :
https://iibfadda.blogspot.com/ Facebook Group https://www.facebook.com/groups/iibfcertifications/ 33

Email: [email protected]
(a) The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended by the Unlawful
Activities (Prevention) Amendment Act, 2008. Government has issued an Order dated August 27,
2009 (Annex II of this circular) detailing the procedure for implementation of Section 51A of the
Unlawful Activities (Prevention) Act, 1967 for prevention of, and for coping with terrorist activities.
In terms of Section 51A, the Central Government is empowered to freeze, seize or attach funds and
other financial assets or economic resources held by, on behalf of or at the direction of the
individuals or entities listed in the Schedule to the Order, or any other person engaged in or
suspected to be engaged in terrorism and prohibit any individual or entity from making any funds,
financial assets or economic resources or related servicesavailable for the benefit of the individuals
or entities listed in the Schedule to the Order or any other person engaged in or suspected to be
engaged in terrorism.
57. Jurisdictions that do not or insufficiently apply the FATF Recommendations:
(a) Banks/FIs are required to take into account risks arising from the deficiencies in AML/CFT regime
of the jurisdictions included in the FATF Statement. In addition to FATF Statements circulated by
Reserve Bank of India from time to time, banks/FIs should also consider publicly available information
for identifying countries, which do not or insufficiently apply the FATF Recommendations. It is clarified
that banks/FIs should also give special attention to business relationships and transactions with
persons (including legal persons and other financial institutions) from or in countries that do not or
insufficiently apply the FATF Recommendations and jurisdictions included in FATF Statements. (b)
Banks/FIs should examine the background and purpose of transactions with persons (including legal
persons and other financial institutions) from jurisdictions included in FATF Statements and countries
that do not or insufficiently apply the FATF Recommendations. Further, if the transactions have no
apparent economic or visible lawful purpose, the background and purpose of such transactions should,
as far as possible be examined, and written findings together with all documents should be retained
and made available to Reserve Bank/other relevant authorities, on request.
58. In terms of the Rule 3 of the PML (Maintenance of Records) Rules, 2005, banks/FIs are required to
furnish information relating to cash transactions, cash transactions integrally connected to each other,
and all transactions involving receipts by non-profit organisations (NPO means any entity or
organisation that is registered as a trust or a society under the Societies Registration Act, 1860 or any
similar State legislation or a company registered (erstwhile Section 25 of Companies Act, 1956 ) under
Section 8 of the Companies Act, 2013), cash transactions ;where forged or counterfeit currency notes
or bank notes have been used as genuine, cross border wire transfer, etc. to the Director, Financial
Intelligence Unit-India (FIU-IND).
59. FIU-IND has released a comprehensive reporting format guide to describe the specifications of
prescribed reports to FIU-IND. FIU-IND has also developed a Report Generation Utility and Report
Validation Utility to assist reporting entities in the preparation of prescribed reports. The Office
Memorandum issued on Reporting Formats under Project FINnet dated 31st
March, 2011 by FIU containing all relevant details are available on FIU’s website. Banks/FIs should
carefully go through all the reporting formats prescribed by FIU-IND.
60. FIU-IND have placed on their website editable electronic utilities to file electronic Cash Transactions
Report (CTR)/ Suspicious Transactions Report (STR) to enable banks/FIs which are yet to
install/adopt suitable technological tools for extracting CTR/STR from their live transaction data base.
It is, therefore, advised that in cases of those banks/FIs, where all the branches are not fully
computerized, the Principal Officer of the bank/FI should cull out the transaction details from branches
which are not yet computerized and suitably arrange to feed the data into an electronic file with the
help of the editable electronic utilities of CTR/STR as have been made available by FIU-IND on their
website http://fiuindia.gov.in.
In terms of Rule 8, while furnishing information to the Director, FIU-IND, delay of each day in not
reporting a transaction or delay of each day in rectifying a misrepresented transaction beyond the time
limit as specified in the Rule shall constitute a separate violation. Banks/FIs are advised to take note of
the timeliness of the reporting requirements.
62. Reports to be furnished to FIU-IND :
1) Cash Transaction Report (CTR)
2) Suspicious Transaction Reports (STR)
3) Non-Profit Organisation
4) Cross-border Wire Transfer
63. The CTR for each month should be submitted to FIU-IND by 15th of the succeeding month. Cash
transaction reporting by branches to their controlling offices should, therefore, invariably be
submitted on monthly basis and banks/FIs should ensure to submit CTR for every month to FIU-IND
within the prescribed time schedule.
64. All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine
should be reported by the Principal Officer of the bank to FIU-IND in the specified format(Counterfeit
Currency Report – CCR), by 15thday of the next month. These cash transactions should also include
transactions where forgery of valuable security or documents has taken place and may be reported to
FIU-IND in plain text form.
65. While filing CTR, details of individual transactions below Rupees Fifty thousand need not be furnished.
CTR should contain only the transactions carried out by the bank on behalf of their clients/customers
excluding transactions between the internal accounts of the bank.
66. A summary of cash transaction reports for the bank as a whole should be compiled by the Principal
Officer of the bank every month in physical form as per the format specified. The summary should be
signed by the Principal Officer and submitted to FIU-IND. In case of CTRs compiled centrally by banks
for the branches having Core Banking Solution (CBS) at their central data centre, banks may generate
centralised CTRs in respect of the branches under core banking solution at one point for onward
transmission to FIU-IND, provided the CTR is to be generated in the format prescribed by FIU-IND.

67. A copy of the monthly CTR submitted to FIU-India in respect of the branches should be available at
the branches for production to auditors/inspectors, when asked for; and instruction on ‘Maintenance of
records of transactions’; and ‘Preservation of records’ should be scrupulously followed by the branches.
However, in respect of branches not under CBS, the monthly CTR should continue to be compiled and
forwarded by the branch to the Principal Officer for onward transmission to FIU-IND.
68. It is likely that in some cases transactions are abandoned/aborted by customers on being asked to
give some details or to provide documents. It is clarified that banks/FIs should report all such
attempted transactions in STRs, even if not completed by the customers, irrespective of the amount
of the transaction.
69. The STR should be furnished within seven days of arriving at a conclusion that any transaction,
whether cash or non-cash, or a series of transactions integrally connected are of suspicious nature.
The Principal Officer should record his reasons for treating any transaction or a series of transactions
as suspicious. It should be 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.
70. Banks/FIs should not put any restrictions on operations in the accounts where an STR has been
filed. Banks/FIs and their employees should keep the fact of furnishing of STR strictly
confidential, as required under PML Rules. It should be ensured that there is no tipping off to the
customer at any level.
71. The report of all transactions involving receipts by non- profit organizations of value more than rupees
ten lakh or its equivalent in foreign currency should be submitted every month to the Director, FIU-IND
by 15th of the succeeding month in the prescribed format.
72. Cross-border Wire Transfer Report (CWTR) is required to be filed with FIU-IND by 15th of
succeeding month for all cross border wire transfers of the value of more than five lakh rupees or its
equivalent in foreign currency where either the origin or destination of fund is in India.
73. Banks/FIs may nominate a Director on their Boards as “designated Director”, as required under
provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), to
ensure compliance with the obligations under the Act and Rules. The name, designation and address
of the Designated Director may be communicated to the FIU-IND. UCBs/ State Cooperative Banks /
Central Cooperative Banks can also designate a person who holds the position of senior management
or equivalent as a 'Designated Director'. However, in no case, the Principal Officer should be
nominated as the 'Designated Director'.
74. Principal Officer: Banks/FIs may appoint a senior officer as Principal Officer (PO). The PO should be
independent and report directly to the senior management or to the Board of Directors. The PO shall
be responsible for ensuring compliance, monitoring transactions, and sharing and reporting information
as required under the law/regulations. The name, designation and address of the Principal Officer may
be communicated to the FIU-IND.

75. The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended and notified on
31.12.2008, which, inter-alia, inserted Section 51A to the Act. Section 51A reads as under:-"51A. For
the prevention of, and for coping with terrorist activities, the Central Government shall have power to –
(a) freeze, seize or attach funds and other financial assets or economic resources held by, on behalf of
or at the direction of the individuals or entities Listed in the Schedule to the Order, or any other person
engaged in or suspected to be engaged in terrorism; (b) prohibit any individual or entity from making
any funds, financial assets or economic resources or related services available for the benefit of the
individuals or entities Listed in the Schedule to the Order or any other person engaged in or suspected
to be engaged in terrorism; (c) prevent the entry into or the transit through India of individuals Listed in
the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism.
76. The Unlawful Activities (Prevention) Act define "Order" as under:- "Order" means the Prevention and
Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007, as may be
amended from time to time. In order to expeditiously and effectively implement the provisions of
Section 51A, the following procedures shall be followed:-
77. Appointment and Communication of details of UAPA nodal officers
As regards appointment and communication of details of UAPA nodal officers -
(i) The UAPA nodal officer for IS-I division would be the Joint Secretary (IS.I), Ministry of
Home Affairs. His contact details are 01123092736(Tel), 011-23092569(Fax) and e-mail. (ii) The
Ministry of External Affairs, Department of Economic Affairs, Foreigners Division of MHA, FIU-IND;
and RBI, SEBI, IRDA (hereinafter referred to as Regulators) shall appoint a UAPA nodal officer and
communicate the name and contact details to the IS-I Division in
MHA. (iii) The States and UTs should appoint a UAPA nodal officer preferably of the rank of the
Principal Secretary/Secretary, Home Department and communicate the name and contact details to
the IS-I Division in MHA. (iv) The IS-I Division in MHA would maintain the consolidated list of all UAPA
nodal officers and forward the list to all other UAPA nodal officers. (v) The RBI, SEBI, IRDA should
forward the consolidated list of UAPA nodal officers to the banks, stock exchanges/depositories,
intermediaries regulated by SEBI and insurance companies respectively. (vi) The consolidated list of
the UAPA nodal officers should be circulated to the nodal officer of IS-I Division of MHA in July every
year and on every change. Joint Secretary(IS-I), being the nodal officer of IS-I Division of MHA, shall
cause the amended list of UAPA nodal officers to be circulated to the nodal officers of Ministry of
External Affairs, Department of Economic Affairs, Foreigners Division of MHA, RBI, SEBI, IRDA and
FIU-IND.
78. Regarding funds, financial assets or economic resources or related services held in the form of bank
accounts, stocks or insurance policies etc.
(i) Maintain updated designated lists in electronic form and run a check on the given parameters on a
regular basis to verify whether individuals or entities listed in the schedule to the Order (referred to as
designated individuals/entities) are holding any funds, financial assets or economic resources or
related services held in the form of bank accounts, stocks or insurance policies etc. with them.

(ii) In case, the particulars of any of their customers match with the particulars of designated
individuals/entities, the banks, stock exchanges/ depositories, intermediaries regulated by SEBI and
insurance companies shall immediately, not later than 24 hours from the time of finding out such
customer, inform full particulars of the funds, financial assets or economic resources or related
services held in the form of bank accounts, stocks or insurance policies etc.
(iii) The banks, stock exchanges/ depositories, intermediaries regulated by SEBI and insurance
companies shall also send by post a copy of the communication mentioned in (ii) above to the UAPA
nodal officer of the state/ UT where the account is held and Regulators and FIU-IND, as the case may
be.
(iv) In case, the match of any of the customers with the particulars of designated individuals/entities
is beyond doubt, the banks stock exchanges / depositories, intermediaries regulated by SEBI and
insurance companies would prevent designated persons from conducting financial transactions,
under intimation to Joint Secretary (IS.I), Ministry of Home Affairs.
(v) The banks, stock exchanges/depositories, intermediaries regulated by SEBI and insurance
companies shall file a Suspicious Transaction Report (STR) with FIU-IND covering all transactions in
the accounts
79. In case, the results of the verification indicate that the properties are owned by or held for the benefit
of the designated individuals/entities, an order to freeze these assets under section 51A of the UAPA
would be issued within 24 hours of such verification and conveyed electronically to the concerned
bank branch, depository, branch of insurance company branch under intimation to respective
Regulators and FIU-IND.
80. In case, the designated individuals/entities are holding financial assets or economic resources
of the nature of immovable property and if any match with the designated individuals/entities is
found, the UAPA nodal officer of the State/UT would cause
communication of the complete particulars of such individual/entity along with complete details of the
financial assets or economic resources of the nature of immovable property to the Joint Secretary
(IS.I), Ministry of Home Affairs, immediately within 24 hours.
81. The UAPA nodal officer of the State/UT may cause such inquiry to be conducted by the State Police
so as to ensure that the particulars sent by the Registrar performing the work of registering immovable
properties are indeed of these designated individuals/entities. This verification would be completed
within a maximum of 5 working days and should be conveyed within 24 hours of the verification, if it
matches with the particulars of the designated individual/entity to Joint Secretary(IS-I), Ministry of
Home Affairs at the Fax telephone numbers and also on the e-mail id given below.
82. In case, the results of the verification indicate that the particulars match with those of designated
individuals/entities, an order under Section 51A of the UAPA would be issued within 24 hours, by the
nodal officer of IS-I Division of MHA and conveyed to the concerned Registrar performing the work of
registering immovable properties and to FIU-IND under intimation to the concerned UAPA nodal
officer of the State/UT.

83. Implementation of requests received from foreign countries under U.N. Security Council
Resolution 1373 of 2001. : U.N. Security Council Resolution 1373 obligates countries to freeze
without delay the funds or other assets of persons who commit, or attempt to commit, terrorist acts or
participate in or facilitate the commission of terrorist acts; of entities owned or controlled directly or
indirectly by such persons; and of persons and entities acting on behalf of, or at the direction of such
persons and entities, including funds or other assets derived or generated from property owned or
controlled, directly or indirectly, by such persons and associated persons and entities. Each individual
country has the authority to designate the persons and entities that should have their funds or other
assets frozen. Additionally, to ensure that effective cooperation is developed among countries,
countries should examine and give effect to, if appropriate, the actions initiated under the freezing
mechanisms of other countries.
To give effect to the requests of foreign countries under U.N. Security Council Resolution 1373, the
Ministry of External Affairs shall examine the requests made by the foreign countries and forward it
electronically, with their comments, to the UAPA nodal officer for IS-I Division for freezing of funds or
other assets. The UAPA nodal officer of IS-I Division of MHA, shall cause the request to be examined,
within 5 working days so as to satisfy itself that on the basis of applicable legal principles, the
requested designation is supported by reasonable grounds, or a reasonable basis, to suspect or
believe that the proposed designee is a terrorist, one who finances terrorism or a terrorist
organization, and upon his satisfaction, request would be electronically forwarded to the nodal
officers in Regulators. FIU-IND and to the nodal officers of the States/UTs. The proposed designee,
as mentioned above would be treated as designated individuals/entities. The freezing orders shall
take place without prior notice to the designated persons involved.
84. Procedure for unfreezing of funds, financial assets or economic resources or related services of
individuals/entities inadvertently affected by the freezing mechanism upon verification that the person
or entity is not a designated person
Any individual or entity, if it has evidence to prove that the freezing of funds, financial assets
or economic resources or related services, owned/held by them has been inadvertently frozen,
they shall move an application giving the requisite
evidence, in writing, to the concerned bank, stock exchanges/depositories, intermediaries

regulated by SEBI, insurance companies, Registrar of Immovable Properties and the
State/UT nodal officers.
The banks stock exchanges/depositories, intermediaries regulated by SEBI, insurance

companies, Registrar of Immovable Properties and the State/UT nodal officers shall inform
and forward a copy of the application together with full details of the asset frozen given by
any individual or entity informing of the funds, financial assets or economic resources or
related services have been frozen inadvertently, to the nodal officer of IS-I Division of MHA
as per the contact details within two working days.
The Joint Secretary (IS-I), MHA, being the nodal officer for (IS-I) Division of MHA, shall cause
such verification as may be required on the basis of the evidence furnished by the
individual/entity and if he is satisfied, he shall pass an order, within 15 working days,
unfreezing the funds, financial assets or economic resources or related services, owned/held
by such applicant under intimation to the concerned bank, stock exchanges/depositories,

intermediaries regulated by SEBI, insurance company and the nodal officers of States/UTs.
However, if it is not possible for any reason to pass an order unfreezing the assets within
fifteen working days, the nodal officer of IS-I Division shall inform the applicant.
85. Communication of Orders under section 51A of Unlawful Activities (Prevention) Act.: All Orders
under section 51A of Unlawful Activities (Prevention) Act, relating to funds, financial assets or
economic resources or related services, would be communicated to all banks, depositories/stock
exchanges, intermediaries regulated by SEBI, insurance companies through respective Regulators,
and to all the Registrars performing the work of registering immovable properties, through the
State/UT nodal officer by IS-I Division of MHA.
86. Regarding prevention of entry into or transit through India :As regards prevention of entry into or
transit through India of the designated individuals, the Foreigners Division of MHA, shall forward the
designated lists to the immigration authorities and security agencies with a request to prevent the entry
into or the transit through India. The order shall take place without prior notice to the designated
individuals/entities. The immigration authorities shall ensure strict compliance of the Orders and also
communicate the details of entry or transit through India of the designated individuals as prevented by
them to the Foreigners' Division of MHA.
87. Procedure for communication of compliance of action taken under Section 51A :
The nodal officers of IS-I Division and Foreigners Division of MHA shall furnish the details of funds,
financial assets or economic resources or related services of designated individuals/entities frozen by
an order, and details of the individuals whose entry into India or transit through India was prevented,
respectively, to the Ministry of External Affairs for onward communication to the United Nations.
88. Clients of special category (CSC): Such clients include the following-
i. Non resident clients
ii. High net-worth clients,
iii. Trust, Charities, Non-Governmental Organizations (NGOs) and organizations receiving

donations
v. Companies having close family shareholdings or beneficial ownershipPolitically Exposed Persons

(PEP) are individuals who are or have been entrusted with prominent public functions in a foreign
country, e.g., Heads of States or of Governments, senior politicians, senior
government/judicial/military officers, senior executives of state-owned corporations, important political
party officials, etc.
vi. Companies offering foreign exchange offerings

vii. Clients in high risk countries where existence / effectiveness of money laundering controls is
suspect, where there is unusual banking secrecy, countries active in narcotics production, countries
where corruption (as per Transparency International Corruption Perception Index) is highly prevalent,
countries 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
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
AMLKYC Recollected Questions and Exam Tips::::
Kindly focus on case studies in Macmillan, international organization for AML, FATF latest
recommendations,PMLA act latest developments, Reports sent to FIU_IND
1.high medium low risk categories kyc review period 3 questions came directly
2.Gave example of transactions and asked wat type of money laundering is that-funnel accts,deposit
structuring,multiple tier account 3ques
3.IBA study group paper published 3 questions from that
4.Placment,layering, integration 1 case study each topic
5.hawala is wat type of ml
6.ml word is coined by the guardian in -watergate scandal
7.FIU IND based questions 6-8
8.5-7case studies one came from text book itself
9.OVD based questions 3
10.given options with type of customer and the documents they submit and asked which customer is eligible for
opening sb
11.reporting entity have-designated director
12.designated director is appointed by
13.report submission questions 3
STR within 7 days
CTR within 15th of next month
14.kyc policy is revised by n within
15.key elements of STR
All 2 marks from case studies.
(Placement
Layering
Integration)
Funnel account
Copy of byelaws
Trust company percentage in shars or.profits
Ration card valid or not
Money laundering acts
Str
Ccr
Ftr
Max punishment for money laundering
Wolfsburg principle
Penality for pmla maintainance of records
How many years records to be maintained
Counterfeit notes more than 5
Dormant accounts
Customer not giving info abt the account, what action we have to take
Fatf
Banks under Wolfsburg grp
Small accounts max limits
Thresholds 3 questions
Reports around 4 to 5

Fiu ind, fatf around 5
Wire transfer direct questions like max limit, originator information
Front company
Red flag indicator
Risk category 3 questions around
Some direct questions like
Customer definition in kyc norms
Key elements in kyc policy
Non profit organization
Ckycr
Company trust partnership
Overall if we go though MacMillan book it's good enough to clear the exam..
Case studies are scoring part
MCQs
1.The amount beyond which cash transactions (Receipts & Payments) are to be monitored by the Commercial
Banks as stipulated by the RBI in its guidelines is -
A.Rs.5 lacs & above B. Rs.8 lacs & above C. Rs.10 lacs & above D. No such limit
13. Submission of details of PAN (Permanent Account Number) is compulsory for Fixed Deposits,
Remittances, such as, DDs / TTs/ Rupee TCs,
etc., if the amount exceeds –
A. Rs.10,000/- B. Rs.25,000/- C. Rs.50,000/- D. No such limit

14. Branches should not open deposit/advances accounts of banned/ terrorist organisations as circulated
by -
A.IRDA B. SEBI C. AMFI D. FIU
18. FCRA means - Foreign Contribution Regulation Act
19. Maximum punishment by way of imprisonment for the offence committed under Money Laundering
Act is -
A. 7 years B. 9 years C. 10 years D. 12 years
26. “Smurfing” means -
A. large number of cash deposits into same account
B. one voucher for high

value deposit C. low value D. None of the above
denominations of cash
2 The objective of verifying the employee life-styles by the employer is -
a to know the source of income
b to ascertain whether the employee is having any contacts with illegal organisations
C. to ascertain whether the employee is assisting organisations banned by statutory authorities D. All of
these
2 Role of the concurrent auditors / Internal auditors with KYC is to -
(c) Review of compliance of KYC guidelines
a Effectiveness of the implementation of the KYC
b Verification of newly opened accounts and their transactions

c All of the above
3 Strict adherence to KYC norms is achieved through -
(c) following the statutory authority guidelines
a identification of customers with appropriate documents
b strict Implementation of the Banks Systems and procedures while opening the accounts
D. All of the above
10.Name the software available in the market for KYC implementation -
A. Bank Master B. Tally C. Bank Alert D. Bank Call
28. Which of the following transactions is/are not consistent with a salaried customer’s account?
a Frequent deposits of cash in large sums by third parties
b Deposit of cheques issued by foreign companies
c High value transactions routed through the account with high frequency
D. All of the above
29. Which of the following transactions is/are suspicious from AML angle -
a Large volume of credits happen through DDs/TTs/BC etC.,
b Deposit of several small values of cheques
c Frequent deposits of cash into the account by persons other than the account holder or his authorised
representative

d All of the above
30. While accounts are transferred from one branch to another, the receiving branch is expected to
comply with KYC Norms. Which one of the following is/are correct in this regard?
a Detailed verification of Customer Profile as received from the earlier branch is to be done with caution
b Detailed verification is not needed but the account is opened immediately and informed to the customer
c Fresh details are to be obtained and a fresh customer profile is to be prepared
d No transaction is to be permitted for the first six months till the customer is fully know to the bank
14.One of the sources that is available to identify the correctness of the information given by the New
Customer of the Commercial Bank is - A.Introduction given by the existing customer of the Bank

B. By studying the account opening form
C. By providing information by the agencies like CRISIL
D. None of the above
2 Which of the following is a source of identification of new customer who is not having any valid documents
such as, passport, etC.
a Introduction from the third person having an account with the bank /branch
b Introduction given the Safe deposit locker holder of the bank
c Self–declaration given by the new customer along with other opening forms
d None of the above
3 Is India a member of FATF?
A. Yes B. No C. Has applied for D. Is likely to be made a member

inclusion
17. Is adopting Anti Money Laundering practices compulsory for Banks in India?
A. Yes B. No C. Not SureD. Will be made compulsory soon
2 Letter of thanks is sent to introducer/s because it is -
(bi) laid down in the banks’ manual
(bj) a routine practice followed by

banks for years C. recommended
by the Auditors of banks
D. assisting banks in verification of genuineness or otherwise of the address

19. Which of the following is the cardinal rule for bankers in anti-money laundering efforts -
A. Know Your Customer & Know Your Employee
B Know the Customer of the other Banks
C. Know the income of the Customers of your Bank
D. Know the Assets Position of the customers of the Bank
2 Money Laundering means -
(v) Conversion of assets to invest in Laundromats
(vi) Conversion of money which is illegally obtained to make them legitimate
(vii) Conversion of cash into gold to make them legitimate
(viii)Conversion of assets into cash to make them legitimate
3 While opening an account in the name of a company, the following document/s is/are to be obtained -
(v) Organisation Chart of the company
(vi) Roles and responsibilities of the Company
(vii) Memorandum and Articles of Association of the Company
(viii)Instructions of the Registrar of the Compan
4 How many recommendations were made by FATF on anti money laundering -
A. 65 recommendations B. NIL C. 40 recommendations D. Yet to be finalised

30. For opening accounts in the case of Joint Hindu Undivided Family (JHUF), the following document/s
is/are important -
(ii) Declaration of all family members
(iii) Declaration of the Karta of the family
(iv) Declaration of all guardians on behalf of minors
(v) Declaration can be exempted as per Hindu Succession Act
31. While opening an account in case of partnership firm, one of the vital document to be produced by the
firm is -
B. Partnership
A. Partners MOU Deed
C. Registration certificate of Partnership D. Signatures of the partners
25
. Cash cannot be accepted for issue of DDs/TTs/Rupee TCs from the customers for Rs. ____
A. Rs.50,000/- &
above B. Rs.75,000/- & above
C. Rs.1,00,000/- &
above D. Rs.1,50,000/- & above
26
. The branches of commercial banks should report suspicious transactions to -
A. Bank’s respective
authority B. RBI C. Ministry of Finance D. None of the above
27
. Maximum punishment by way of imprisonment for the offence committed under Money Laundering Act is -
C. 10
A. 7 years B.9 years years D. 12 years

29. Maximum retention period of the bank records in case of suspicious transactions is -
30.Four eyes concept means -
A. opening and verifying of account by one person

two times
B. opening and verifying of account by electronic

device/s
C. opening and verifying of account by two different persons
D. none of the above
2 Role of the concurrent auditors / Internal auditors with KYC is to -
(i) Review of compliance of KYC guidelines
(ii) Effectiveness of the implementation of the KYC
(iii) Verification of newly opened accounts and their transactions
(iv) All of the above
3 Role of the front line employees of a bank in respect of KYC guidelines is to -
(i) Identify customers as per the existing instructions
(ii) Serve with Smile while opening the customer accounts
(iii) Assist the customer in filling-up the account opening forms
(iv) Provide efficient customer service

4 Which of the following transactions is/are not consistent with a salaried customer’s account?
(i) Frequent deposits of cash in large sums by third parties
(ii) Deposit of cheques issued by foreign companies
(iii) High value transactions routed through the account with high frequency
(iv) All of the above
34.Which of the following transactions is/are suspicious

from AML angle - A. Large volume of credits
happen through DDs/TTs/BC etC., B. Deposit of
several small values of cheques
C. Frequent deposits of cash into the account by persons other than the account holder or
his authorized representative D. All of the above
32. While accounts are transferred from one branch to another, the receiving branch is expected to
comply with KYC Norms. Which one of the following is/are correct in this regard?
i Detailed verification of Customer Profile as received from the earlier branch is to be done with caution
ii Detailed verification is not needed but the account is opened immediately and informed to the customer
iii Fresh details are to be obtained and a fresh customer profile is to be prepared
iv No transaction is to be permitted for the first six months till the customer is fully know to the bank
33. Unusual activities in respect of an customers account is/are -
i Opening of account at a place other than the place of work
ii Frequent deposits of large sums of money bearing labels of other banks into the account

C. Request for closure of newly opened accounts where high value transactions are routed through
D. All of the above
41. For effective implementation of “Know Your Employee”, measures to be adopted by the banks are -
Verification of the life-styles of the employees
Proper Job-rotation in work environment
Not allowing frequent cheque purchase to the employees by the employer
All of the above
39.Indicator/s about the suspicious transactions of a customer accounts is/are -
A. Depositing high value third party cheques endorsed in favour

the account holder B. Sudden increase in cash deposits
C. Receipt or payment of large sums of cash, which have

no obvious purpose D. All of the above
40.Which of the following document/s that can be accepted by the Banks as a proof of Customer Identification -
A. Electricity Bill B. Salary Slip
C. Income/Wealth Tax
Assessment Order D. All of the above

41.Which of the following is a source of identification of new customer who is not having any valid documents
A. Introduction from the third person having an account with the bank /branch
B. Introduction given the Safe deposit locker holder of the bank
C. Self–declaration given by the new customer along with other opening forms
D. None of the above
42
. KYC is --
A. A One-time B. To be carried out every 5

project years
C. To be carried out every 2 D. An ongoing

years process
43 Is India a member of
. FATF?
A. Yes B. No C. Has applied for D. Is likely to be made a

inclusion member
44.What is the level of risk of Money Laundering in a Liability product

(e.g., deposits)?
B. D. Cannot
A. Generally High Medium C. Generally Low say
45.Letter of thanks is sent to introducer/s because it is -
A. laid down in the banks’ manual B. a routine practice followed by banks for years
C. recommended by the Auditors of banks
46.While company

opening name of a company, the following document/s is/are to be obtained - B.
an Roles and responsibilities of the Company
account A. Organisation Chart
in the of the
C. Memorandum and Articles of Association of the Company
D. Instructions of the Registrar of the Company
47.Due diligence is done at the time of opening an account to

enable banks to ensure - A. identification of the customer
at the time of opening an account
B. correctness of the various denominations of notes given by the customer while opening an account
C. authenticity of the signatures of the customer at the time of opening an account
D. speeding up the process of account opening of the new customers
47. For opening accounts in the case of Joint Hindu Undivided Family (JHUF), the following
document/s is/are important - A. Declaration of all family members B. Declaration of
the Karta of the family
C. Declaration of all guardians on behalf of minors
D. Declaration can be exempted as per Hindu Succession Act
49. While opening an account in case of partnership firm, one of the vital document to be produced by the firm is
-
A. Partners MOU B. Partnership Deed C. Registration certificate of

Partnership D. Signatures of the partners
49. The amount beyond which cash transactions (Receipts & Payments) are to be monitored by the
Commercial Banks as stipulated by the RBI in its guidelines is -

A. Rs.5 lacs & above B. Rs.8 lacs & above C. Rs.10 lacs & above D. No such
limit
(vi) Submission of details of PAN (Permanent Account Number) is compulsory for Fixed Deposits,
Remittances, such as, DDs / TTs/ Rupee TCs,
etc., if the amount exceeds -
A. Rs.10,000/- B. Rs.25,000/- C. Rs.50,000/- D. No such limit
(vii) The branches of commercial banks should report suspicious transactions to -
A. Bank’s respective authority B. RBI C. Ministry of Finance D. None of the above
53 Banks are made accountable for opening an account in the name of terrorist
. organisation under ------ of POTA 2002
A. Section 16 B.
Section 20 C. Section 18 D. None of the above
54.Which of the following is/are the terrorist organisation/s notified under POTA,
2002
A. Khalistan Zindabad B. Deendar C. All Tripura Tiger Forc D. All

Force Anjuman of these
55
. FCRA means -
A. Foreign Currency B. Foreign Contribution Regulation

Regulation Act Act
C. Foreign Cheques / Commodities

Regulation Act D. None of the above

56. Dormant / In-operative account means -
(a) No debits / credits in account for certain period
(b) A dead account not operated for over 10 years
(c) No debit entries, but certain credit entries

for certain period D. A fixed asset account
57. The objective of verifying the employee life-styles by the employer is -
(a) to know the source of income
(b) to ascertain whether the employee is having any contacts with illegal organisations
(c) to ascertain whether the employee is assisting organisations banned by statutory authorities
(d) All of these
61. Role of the front line employees of a bank in respect of KYC guidelines is to -
(a) Identify customers as per the existing instructions
(b) Serve with Smile while opening the customer accounts
(c) Assist the customer in filling-up the account opening forms
(d) Provide efficient customer service
62. Name the software available in the market for KYC implementation -

A. Bank Master B. Tally C. Bank Alert D. Bank Call
71. Unusual activities in respect of an customers account is/are -
1) Opening of account at a place other than the place of work
2)Frequent deposits of large sums of money bearing labels of other banks into the account
C. Request for closure of newly opened accounts where high value transactions D. All of the
are routed through above
63. A new customer may be identified through -
A. Passport B. Election ID C, PAN D. All of the above

Card Card
78. One of the sources that is available to identify the correctness of the information given by the New
Customer of the Commercial Bank is -
(i) Introduction given by the existing customer of the Bank
(ii) By studying the account opening form
(iii) By providing information by the agencies like CRISIL D. None of the above
79. Objective of KYC guidelines issued by RBI is -
(i) To control the financial frauds/money laundering
(ii) To discourage opening of new accounts
(iii) To increase competition among the public sector and private sector banks
(iv) To check / control over the new accounts
80. Which of the following document/s that can be accepted by the Banks as a proof of Customer
Identification -
(i) Electricity Bill B. Salary Slip C. Income/Wealth Tax Assessment OrderD. All of the above
81. Which of the following is a source of identification of new customer who is not having any valid
documents such as, passport, etC.
(i) Introduction from the third person having an account with the bank /branch
(ii) Introduction given the Safe deposit locker holder of the bank
(iii) Self–declaration given by the new customer along with other opening forms
(iv) None of the above
A. Yes B. No C. Not Sure D. Will be made compulsory soon
81. Letter of thanks is sent to introducer/s because it is -
(i) laid down in the banks’ manual
(ii) a routine practice followed by banks for years
(iii) recommended by the Auditors of banks
(iv) assisting banks in verification of genuineness or otherwise of the address
82. Which of the following is the cardinal rule for bankers in anti-money laundering efforts -

A. Know Your Customer & Know Your Employee
B. Know the Customer of the other Banks
71. While opening an account in the name of a company, the following

document/s is/are to be obtained - A. Organisation Chart of the company
B. Roles and responsibilities of the Company
C. Memorandum and Articles of Association of the Company
D. Instructions of the Registrar of the Company
85. FATF means - Financial Action Task force
86. One of the important steps to be taken while opening NRI accounts is ……… by the bank branch
Authentication / verification of signature by Indian Embassy
Authentication / verification of signature made by the relative of NRI in India
C. Authentication / verification of signature made by friends of the NRI abroad D.

who are staying
All of the above
74.In case of societies, the important document to be verified is -
A. Copy of Bye-Laws B. Certificate given by the ROC
C. Certificate given by the Local Authorities

D. No document is to be verified in case of societies, as it is exempted
89. The amount beyond which cash transactions (Receipts & Payments) are to be monitored by the
Commercial Banks as stipulated by the RBI in its guidelines is -
A. Rs.5 lacs & above B. Rs.8 lacs & above C. Rs.10 lacs & above D. No
such limit
76.In computerised branches, suitable filters are required in the software for the purpose of -
A. calculating the correct rate of interest B. printing out the customer profiles
C. monitoring the suspicious transactions D. sharing information/data to the Head Office
77.Banks are made accountable for opening an account in the name of terrorist of POTA
organisation under ------ 2002
A. Section B. Section C. Section

16 20 18 D. None of the above
78
. FCRA means -
A. Foreign Currency B. Foreign Contribution Regulation

Regulation Act Act
C. Foreign Cheques / Commodities

Regulation Act D. None of the above
79 Maximum punishment by way of imprisonment for the offence committed under Money
. Laundering Act is -
A. 7 years B.9 years C.10 years D. 12 years
ii Dormant / In-operative account means -
v. No debits / credits in account for certain period
vi. A dead account not operated for over 10 years
vii. No debit entries, but certain credit entries

for certain period D. A fixed asset account

82.The objective of verifying the employee life-styles by the employer is -
A. to know the source of income
B. to ascertain whether the employee is having any contacts with

illegal organisations
D. All of these
C. to ascertain whether the employee is assisting organisations banned by

statutory authorities
84 Role of the concurrent auditors / Internal auditors with KYC

. is to -
A. Review of compliance of KYC guidelines
B. Effectiveness of the implementation of the KYC
C. Verification of newly opened accounts and their

transactions D. All of the above
85
. Strict adherence to KYC norms is achieved through -
A. following the statutory authority guidelines

B. identification of customers with appropriate documents
C. strict Implementation of the Banks Systems and procedures while opening the accounts
D. All of the above
ix. For effective implementation of “Know Your Employee”, measures to be adopted by the banks are -
A. Verification of the life-styles of the employees
B. Proper Job-rotation in work environment
C. Not allowing frequent cheque purchase to the employees by the employer
D. All of the above
f) Indicator/s about the suspicious transactions of a customer accounts is/are -
a Depositing high value third party cheques endorsed in favour the account holder
b Sudden increase in cash deposits
c Receipt or payment of large sums of cash, which have no obvious purpose
d All of the above
g) Which of the following objective/s is/are important under new KYC Norms?
A. To curb Money Laundering B. To curb the specious activities
C. To monitor/check the transactions of the bank customers
D. All of the above

89.The main objective of KYC is to -
A. Prevent Money Laundering activities B. Improve Customer Service
C. Improve Customer Documentation Standards D. None of these
A. Yes B. No C. Not Sure D. Will be made compulsory soon
91. Letter of thanks is sent to introducer/s because it is -
A. laid down in the banks’ manual B. a routine practice followed by

banks for years C. recommended by the Auditors of banks
92. Money Laundering measures were originally

introduced by? A. DICGC B. EXIM Bank C.
FDIC D. SEBI
93.FATF is located at -
A. B. New C. D. Japan
Mumbai York Paris
a One of the important steps to be taken while opening NRI accounts is ……… by the bank branch
ii) Authentication / verification of signature by Indian Embassy
iii) Authentication / verification of signature made by the relative of NRI in India
iv) Authentication / verification of signature made by friends of the NRI who are staying abroad
v) All of the above

b In case of societies, the important document to be verified is -
ii) Copy of Bye-Laws B. Certificate given by the ROC
Certificate given by the Local Authorities
No document is to be verified in case of societies, as it is exempted
96.For opening accounts in the case of Joint Hindu Undivided Family (JHUF), the following
document/s is/are important - A. Declaration of all family members B. Declaration of
the Karta of the family
97. In computerised branches, suitable filters are required in the software for the purpose of -
A. calculating the correct rate of interest B. printing out the customer profiles
C. monitoring the suspicious transactions
D. sharing information/data to the Head Office
g) The objective of verifying the employee life-styles by

the employer is - A. to know the source of income

B. to ascertain whether the employee is having any contacts with illegal organisations
C. to ascertain whether the employee is assisting organisations banned by statutory authorities
D. All of these
j) Strict adherence to KYC norms is achieved through -
following the statutory authority guidelines
identification of customers with appropriate documents
strict Implementation of the Banks Systems and procedures while opening the accounts
All of the above
k) Role of the front line employees of a bank in respect of KYC guidelines is to -
Identify customers as per the existing instructions
Serve with Smile while opening the customer accounts
Assist the customer in filling-up the account opening forms
Provide efficient customer service
l) While accounts are transferred from one branch to another, the receiving branch is expected to comply with
KYC Norms. Which one of the following is/are correct in this regard?
Detailed verification of Customer Profile as received from the earlier branch is to be done with caution
Detailed verification is not needed but the account is opened immediately and informed to the customer
Fresh details are to be obtained and a fresh customer profile is to be prepared
No transaction is to be permitted for the first six months till the customer is fully know to the bank

m) Unusual activities in respect of an customers account is/are -
Opening of account at a place other than the place of work
Frequent deposits of large sums of money bearing labels of other banks into the account
Request for closure of newly opened accounts where high value

transactions are routed through D. All of the above
n) For effective implementation of “Know Your Employee”, measures to be adopted by the banks are -
Verification of the life-styles of the employees B. Proper Job-rotation in work environment
C. Not allowing frequent cheque purchase to the

employees by the employer D. All of the above
i) Objective of KYC guidelines issued by RBI is -
To control the financial frauds/money laundering
To discourage opening of new accounts
To increase competition among the public sector and private sector banks
To check / control over the new accounts
ii) Which of the following is a source of identification of new customer who is not having any valid documents
Introduction from the third person having an account with the bank /branch
Introduction given the Safe deposit locker holder of the bank
Self–declaration given by the new customer along with other opening forms
None of the above

iii) Which of the following is the cardinal rule for bankers in anti-money laundering efforts -
Know Your Customer & Know Your Employee B. Know the Customer of the other Banks
iii) Money Laundering means -
Conversion of assets to invest in Laundromats
Conversion of money which is illegally obtained to make them legitimate
Conversion of cash into gold to make them legitimate
Conversion of assets into cash to make them legitimate
iv) Due diligence is done at the time of opening an account to enable banks to ensure -
identification of the customer at the time of opening an account
correctness of the various denominations of notes given by the customer

while opening an account C. authenticity of the signatures of the customer
at the time of opening an account
D. speeding up the process of account opening of the new customers

109 The term “Hawala” is an -----
. word
A. Telugu B. English C. Arabic D. Islamic
110 Money Laundering measures were originally

. introduced by?
B. EXIM
A. DICGC Bank C. FDIC D. SEBI
(a) One of the important steps to be taken while opening NRI accounts is ……… by the bank branch
Authentication / verification of signature by Indian Embassy
Authentication / verification of signature made by the relative of NRI in India
Authentication / verification of signature made by friends of the NRI who are staying abroad
All of the above
(b) For opening accounts in the case of Joint Hindu Undivided Family (JHUF), the following document/s
is/are important -
Declaration of all family members B. Declaration of the Karta of the family

Test 2:
1. Money Laundering measures were originally introduced by?

1. DICGC
2. EXIM Bank
3. FDIC
4. SEBI*
2. Strict adherence to KYC norms is achieved through
1. following the statutory authority guidelines
2. identification of customers with appropriate documents
3. strict Implementation of the Banks Systems and procedures while opening the accounts
4. All of the above*
3. The term “Hawala” is an —– word
1. Telugu
2. English
3. Arabic*
4. Islamic
4. FATF is located at
1. Mumbai
2. New York
3. Paris*
4. Japan
5. The main objective of KYC is to
1. Prevent Money Laundering activities*
2. Improve Customer Service
3. Improve Customer Documentation Standards
4. None of these
6. Maximum retention period of the bank records in case of suspicious transactions is –
1. 5 years
2. 7 years
3. 10 years*
4. 15 years
7. FCRA means
1. Foreign Currency Regulation Act
2. Foreign Contribution Regulation Act*
3. Foreign Cheques / Commodities Regulation Act
4. None of the above
1. Yes
2. Will be made compulsory soon*
3. Not Sure
4. No
9. Objective of KYC guidelines issued by RBI is –
1. To control the financial frauds/money laundering
2. To discourage opening of new accounts
3. To increase competition among the public sector and private sector banks
4. To check / control over the new accounts*
10. Strict adherence to KYC norms is achieved through –
1. following the statutory authority guidelines
2. identification of customers with appropriate documents
3. strict Implementation of the Banks Systems and procedures while opening the accounts
4. All of the above*
11. While opening an account in case of partnership firm, one of the vital document to be produced by the
firm is –
1. Partners MOU

2. Partnership Deed*
3. Registration certificate of Partnership
4. Signatures of the partners
12.Name the software available in the market for KYC implementation –
1. Bank Master
2. Tally
3. Bank Alert*
4. Bank Call
13. Smurfing means –
1. large number of cash deposits into same account*
2. one voucher for high value deposit
3. low value denominations of cash
14. Which of the following is a source of identification of new customer who is not having any valid
documents such as, passport, etc.
1. Introduction from the third person having an account with the bank /branch*
2. Introduction given the Safe deposit locker holder of the bank
3. Self–declaration given by the new customer along with other opening forms
15. Banks are made accountable for opening an account in the name of terrorist organisation under ——
of POTA 2002
1. Section 16
2. Section 20
3. Section 18*
16.In case of societies, the important document to be verified is ____________.
1. Certificate given by the Local Authorities
2. Certificate given by ROC
3. Copy of bye laws*
4. No document is to be verified in case of societies
17.Dormant/ in operative account means ____________.
1. No debits/credits in account for a certain period*
2. Dead Account without any operation for long
3. No debit entries
4. Fixed asset account of the bank
18. PAN (Permanent Account Number) is compulsory for Fixed Deposits, Remittances like
DDs/TTs/RTCs, etc _____.
1. if the amount exceeds Rs 50,000*
2. if the amount exceeds Rs.25
3. if the amount exceeds Rs.10
4. no such limit is fixed by income tax authorities
19. ________________ are fake companies that appear on paper, but may not physically exist.
1. Front Companies
2. Offshore Banking
3. Hawala Systems
4. Shell Companies*
20. Which of the following are methods of layering?
1. Deposits and withdrawals are made continuously in their accounts to vary the amount of balance in the
accounts
2. Transferring money through various financial institutions among different names in different financial
institutions
3. Changeover to different currencies
4.All of the above*
21.Money Laundering refers to ____________.
1. Conversion of assets into cash to avoid income tax
2. Tansfer of assets/cash from one account to another
3. Conversion of illegal money through banking channels*
4. Conversion of cash into gold for hoarding

22. While opening an account of a Public Limited company, which of the following is a must?
1. Introduction by ROC
2. Certificate of incorporation/Certificate of commencement of business*
3. Introduction by a customer known to the banker
23. ___________ is the process of keeping the amount lower than that fixed for reporting and building
similar transactions till the amount planned to be laundered is reached fully.
1. Slushing
2. Lading
3. Smurfing*
4. Entrailing
24.What is not audited by Internal Audit and Control teams of the banks
1. adequacy of policies
2. adequacy of procedures
3. system support to detect suspicious and potential money laundering transaction
4. None of the above*
25.Which section of PMLA, 2012 provides for Powers of Director to impose fine
1. sec 11
2. sec 12
3. sec 13*
4. sec 14
26.What are not the responsibility of the senior management
1. Appointment of PO
2. Managing the risk of money laundering
3. Internal Reporting Procedures
4. None of the above*
27. Which PMLA rule along with rule 8 requires the reporting of all cash transactions where forged or
counterfeit Indian currency notes have been used as genuine
1. 1
2. 2
3. 3*
4. 4
28.Who enlists the format of CTR
1. SEBI
2. RBI*
3. Ministry of Finance
4. Ministry of Company Affairs
29. Which of these activities might require a suspicious activity report?
1. A customer cancels a transaction and requests to do a second transaction for less amount in order to
avoid providing ID
2. A customer requests an unusually high value transaction and cannot explain the reason for the
transaction or the source of cash
3. Both A and B above*
30.Which part of the STR is the ‘Soul’ of the STR
1. POS
2. GOS*
3. TOS
4. LOS
KYC aml:: Very important

1. Cash receipt or cash payment of more than Rs 10 lakh are reported to FIU on CTR statement
which should be sent to FIU within _____ from the close of the month: 15 days.

2. Suspicious Transaction report is sent to FIU within: 7 days from confirmation of
suspicion.
3. In case of transactions carried out by a non-account based customer, that is a walk-in customer,
where the amount of transaction is equal to or exceeds rupees whether conducted as a single
transaction or several transactions that appear to be connected, the customer's identity and
address should be verified: fifty thousand
4. As per KYC norms, banks are required to periodical update data. In respect of High risk
customers, full KYC exercise will be required to be done at least every: two years
5. As per KYC norms, for how much period banks are required to preserve records in respect of
photograph and proof of address or identity?: 5 years from date of close of account
6. As per KYC norms, in the event of change in this address due to relocation or any other
reason, customers may intimate the new address for correspondence to the bank within: two
weeks of such a change
7. As per KYC norms, risk classification of customers should be reviewed in every: 6 Months
8. Banks are required to FIU, cash transactions which are integrally connected to each other and
total amount of receipt or total amount of payment in a month is more than: Rs 10 lac
9. Cash Transaction Report (CTR) in respect of cash receipt or cash payment of more than Rs 10
lac is to be sent to Director – FIU. What is the periodicity of the report – Fortnightly, Monthly,
Quarterly, half yearly: Monthly, within 15 days of the close of the month.
10.FIR to be filed if number of Counterfeit notes in a single deposit is: 5 or above
11. If a customer does not comply with KYC requirements despite repeated reminders
by banks, banks should impose ‘partial freezing’ by allowing all credits and
disallowing all debits with the freedom to close the accounts after ____ months
notice followed by a reminder for further period of ____months. If the accounts are
still KYC non-compliant after _____months of imposing initial ‘partial freezing’
banks may disallow all debits and credits from/to the accounts, rendering them
inoperative: 3, 3, 6 months.
12.In a cash deposit made by a customer, one piece of counterfeit note is detected. What should
the bank do - (i) It should be impounded and acknowledgement to be issued(ii) Should be
destroyed (iii) Should be returned back: It should be impounded and acknowledgement
to be issued to depositor signed by cashier.
13. In case of counterfeit notes received in a deposit by a person with bank, FIR is not lodged
and only a monthly consolidated report is sent if counterfeit notes in one remittance is up
to: 4
14.In case of Non-KYC compliant customer, after how much time notice, account should be
freezed?: 3 months notice
15.In respect of Low Risk customers, KYC norms relating to obtaining photograph and proof of
address and ID should be applied once in: 10 Years
16.In respect of Medium Risk customers, KYC norms relating to obtaining photograph and proof of
address and ID should be applied once in: 8 Years
17.Process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean") is
called: Money Laundering
18.RBI has allowed banks to accept at least _____ of the documents prescribed by RBI as activity
proof by a proprietary concern, for opening a bank account in respect of a sole proprietary
firm: One
19. What is the Risk category of Trust account High/Low/medium risk?: High Risk
20.When in case of deposit of cash over counter, two counterfeit notes are detected by bank,
what should the bank do – (a) To be returned to customer, (b) impounded immediately, (c)
call the police, (d) destroy it: impound immediately and issue acknowledgement totender signed by the
cashier
21.While opening bank account, as per KYC norms, what another document is taken by bank in
addition to proof of ID?: proof of address ( Both can be same also)
22.Relaxation in KYC norms is permitted if the depositor undertakes that the balance outstanding
in his account will not be more than and credits in a financial year will not exceed
. Rs 50,000; Rs 100,000

23.Why KYC guidelines have been issued by RBI under section 35 A of the Banking Regulation
Act: To prevent Money Laundering -
24. The terms used for hiding money to avoid tax is : Money laundering
25. Money laundering: conversion of illegal money into legal through banking channels.
26. For the purpose of KYC rules any addition & modification on which recommendation: Financial
Action Task Force
27.Risk type for customer having political exposed person: High Risk
28.As per KYC Guidelines, Records of transactions to be maintained for at least ten years from the
dateof transaction, instead of _________from the date of cessation of transactions, and
records pertaining to identification of the customer and his address to be preserved for at least
ten years after the business relationship is ended: ten years
29.A customer who does not complete all KYC norms, what type of account is opened for him? No
Frill account in which cannot be more than Rs.50000 and credits in the Financial Year cannot
be more than Rs.100000.
30. There were three cash withdrawals of Rs 5.80 lac ,Rs 4.90 lac & 0.25 lacs from an account in a
month. Which of these transactions is/are will be reported to Financial Intelligence Unit as part
of CTR? Cash withdrawals of Rs 5.8 lac and Rs 4.9 lac.
31. Under Prevention of Money Laundering Act, banks are required to preserve records relating to
opening the account for how much period?: 10 years from date of closure of account.
32.Which of the following is not the key element of KYC policy a) Customer Acceptance Policy; b)
Customer Identification Procedures; c) Monitoring of Transactions; d) Risk Management e)
Customer Awareness Policy: Ans is E i.e. Customer Awareness Policy.
33. On whose recommendations, KYC norms came into force? (a) Goiporia Committee (b) Ghosh
Committee (c) FATF: Ans is FATF
34. Under KYC Norms, Documents relating to opening the account like proof of address and
identity and photograph should be taken again at what interval? (a) once in 10 years for low
risk customer (b) once in 8 years for medium risk customers (c) once in 1 year for high risk
customers (d) Both (a) and (b): Ans is (d)
35.Record of cash receipt and payment under KYC to be maintained if cash receipt or payment in
a single day from one account is more than Rs 10 lakh.
36. For Low Risk customers, periodical up-dation of KYC data: Once in 10 years.
Case Study
As we know banks and financial institutions are constantly committed to stop money
laundering by fulfilling the KYC norms of the customers. It helps in banks to know the
customer as well as help them to satisfy their needs. By KYC norms bank can cross sale
and up sale their product to the targeted group segment.
Q.1 What are the minimum time to revise KYC in A/c= 2 Years
Q.2 What is the time period for revise KYC to Low risk, Medium risk and High risk
customer consecutively- Ans : 10 : 8 : 2 Years
Q.3 What can be used as an official valid document for KYC purposes?
i) PAN CARD ii) JOB CARD issued by NREGA iii) RATION CARD
Q.4 If a customer opens a small saving bank account without fulfilling KYC Norms. His
annually dr. cr kitne honge
Note::Below cases for analysis for knowledge only. Its not a question and answers
KYC AML CASE STUDIES analysis:::

Intermediaries – case study 1
A person (later arrested for drug trafficking) made a financial investment (life insurance) of USD 250,000
by means of an insurance broker. He acted as follows. He contacted an insurance broker and delivered a
total amount of USD 250,000 in three cash instalments. The insurance broker did not report the delivery
of that amount and deposited the three instalments in the bank. These actions raised no suspicion at the
bank, since the insurance broker was known to them as being connected to the insurance branch. The
insurance broker delivered, afterwards, to the insurance company responsible for making the financial
investment, three cheques from a bank account under his name, totalling USD 250,000, thus avoiding
raising suspicions with the insurance company.
Intermediaries – case study 2
Clients in several countries used the services of an intermediary to purchase insurance policies.
Identification was taken from the client by way of an ID card, but these details were unable to be clarified
by the providing institution locally, which was reliant on the intermediary doing due diligence checks. The
policy was put in place and the relevant payments were made by the intermediary to the local institution.
Then, after a couple of months had elapsed, the institution would receive notification from the client
stating that there was now a change in circumstances, and they would have to close the policy suffering
the losses but coming away with a clean cheque from the institution. On other occasions the policy would
be left to run for a couple of years before being closed with the request that the payment be made to a
third party. This was often paid with the receiving institution, if local, not querying the payment as it had
come from another reputable local institution.
Collusion – case study 3
An insurer in collusion with an insured person attempted to launder money through insurance
transactions. The manager of an insurance company sold health and personal injury insurance policies
insuring against the liability from accidents to dummy persons, normally in the names of friends and
relatives. These persons paid a low premium rate. Subsequently claims were received, supported by
false documentation and medical certificates to substantiate the losses and the insurer paid the claims
promptly. The claims for damages were considerable. The manager then sought to legalise this scheme
and recover the damages paid out. Under subrogation rights, the insurance company took legal action
against all businesses where the alleged accidents had occurred. The businesses involved (restaurants,
clubs etc.) responded that they had not been aware of the alleged accidents and that no such accidents
had occurred at the times stated.
Collusion – case study 4
A drug trafficker purchased a life insurance policy with a value of USD 80,000. The policy was purchased
through an agent of a large life insurance company using a cashier’s cheque. The investigation showed
that the client had made it known that the funds used to finance the policy were the proceeds of drug
trafficking. In light of this fact, the agent charged significantly higher commission. Three months following
this transaction, the investigation showed that the drug dealer cashed in his policy.
Reinsurance – case study 5
An insurer in Country A sought reinsurance with a reputable reinsurance company in Country B for its
directors and officers cover of an investment firm in Country A. The insurer was prepared to pay four
times the market rate for this reinsurance cover. This raised the suspicion of the reinsurer which
contacted law enforcement agencies. Investigation made clear that the investment firm was bogus and
controlled by criminals with a drug background. The insurer had ownership links with the investment firm.
The impression is that – although drug money would be laundered by a payment received from the
reinsurer – the main purpose was to create the appearance of legitimacy by using the name of a
reputable reinsurer. By offering to pay above market rate the insurer probably intended to assure
continuation of the reinsurance arrangement.
Reinsurance – case study 6
A group of persons with interests in home construction effected a payment in favour of construction
company A under contracts connected with their participation in investment construction (at cost price).
Insurance company P accepted possible financial risks to these contracts under a contract of financial
risks insurance and received an insurance premium. At the same time the insurance company P
concluded with the construction company A a secret agreement providing that the difference between the
market cost of housing and the cost price was transferred in favour of the insurance company as a
premium under the contract of financial risks insurance. When the funds were received by the insurance
company P they were transferred as insurance premium under the general reinsurance contract in favour
of insurance company X. By way of fictitious service contracts and commission payments made under an

agency contract, insurance company X channelled the funds to several off-shore shell firms. Beneficiaries
of the actual profit, being withdrawn abroad, were owners and directors of the construction company A.
KYC AML CASE STUDY ANALYSIS:

A drug trafficker purchased a life insurance policy with a value of USD 80,000. The policy was purchased
through an agent of a large life insurance company using a cashier’s cheque. The investigation showed
that the client had made it known that the funds used to finance the policy were the proceeds of drug
trafficking. In light of this fact, the agent charged significantly higher commission. Three months following
this transaction, the investigation showed that the drug dealer cashed in his policy.

Two life insurance policies were bought for a large amount in the names of Mr X and Mr Y. The payments
were made by cheque, originating from the account of a investment company. Both polices were used as
security for a mortgage loan with a company that specialised in leasing. As the beneficiaries were not the
policyholders and in light of the unusual financing being provided by a leasing company, the insurer
contacted the investment company in order to understand the origin of the money that had been
deposited in the account. It appeared that the money was deposited with the company in cash by random
clients. Following the disclosure of suspicion by the insurance company it became evident that Mr X and
Mr Y were known by the customs authorities for the illegal importation and exportation of cars

A 34 year old car dealer received a loan through a broker of a life insurance company to purchase a
house. He invested around 25% of the loan in a single-premium life insurance policy. He later
surrendered the policy early to pay back the loan (capital and interest), making up the shortfall through
other funds. The use of a substantial proportion of the loan to purchase a policy combined with the
unexpectedly early repayment of the loan led to the FIU being contacted. The FIU’s investigation revealed
that the policyholder was known for stealing and receiving stolen cars. Moreover, he had used false
documents to prove the sources of his income and wealth

Two life insurance policies were bought for a large amount in the names of Mr X and Mr Y. The payments
were made by cheque, originating from the account of a investment company. Both polices were used as
security for a mortgage loan with a company that specialised in leasing. As the beneficiaries were not the
policyholders and in light of the unusual financing being provided by a leasing company, the insurer
contacted the investment company in order to understand the origin of the money that had been
deposited in the account. It appeared that the money was deposited with the company in cash by random
clients. Following the disclosure of suspicion by the insurance company it became evident that Mr X and
Mr Y were known by the customs authorities for the illegal importation and exportation of cars

Mrs T (teacher) from country A, entered into a life insurance policy with a small initial premium being paid.
The transaction was arranged by Mr B who was the agent of insurance company C and a cousin of Mrs T.
Two days later, company C made a payment of an additional premium, in excess of 540,000, on behalf of
Mrs T. After one month, Mrs T cancelled her policy and transferred the refund of contributions to three
different accounts:
a) Mr MD (Managing Director of Company C) – 240,000;
b) Mrs N (niece of Mr MD) – 150,000; and
c) Mr U – 150,000.
All of them subsequently transferred the money onwards to other accounts in different banks. Following

an investigation it appeared that the money being laundered was linked to fuel smuggling. The accounts
were blocked by the Financial Intelligence Unit (FIU) and the case was forwarded to the public prosecutor.
Additional and important material::

Index
1 Introduction
1.1 KYC/AML/CFT/Obligation of banks under PMLA, 2002
1.2 Definition of Customer
2 Guidelines
2.1 General
2.2 KYC Policy
2.3 Customer Acceptance Policy
2.4 Customer Identification Procedure
2.5 Customer Identification Requirements – Indicative guidelines
2.6 Selling Third Party Products
2.7 Due Diligence in correspondent banking relationship
2.8 KYC norms for Foreign Portfolio Investors (FPIs)
2.9 Small Accounts
2.10 Officially Valid Document under Government of India notification
2.11 Operation of bank account and Money Mules

2.12 Bank no longer knows the true identity
2.13 Monitoring of Transactions
2.14 Closure of accounts
2.15 Risk Management
2.16 Introduction of new technology – credit/debit/smart/gift card
2.17 Combating Financing of Terrorism
2.18 Freezing of Assets under Section 51A of Unlawful Activities
(Prevention) Act, 1967
2.19 Jurisdictions that do not or insufficiently apply the FATF
Recommendations
2.20 Correspondent Banking
2.21 Applicability to branches and subsidiaries outside India
2.22 Wire Transfers
2.23 Designated Director and Principal Officer
2.24 Maintenance of records of transactions/Information to be preserved/

5
maintenance and preservation of records/Cash and Suspicious
transactions reporting to Financial Intelligence Unit-India (FIU-IND)
2.25 Cash and Suspicious Transaction Report
2.26 Customer Education/Training of Employees/Hiring of Employees
Annexures
Annex - I - Indicative List of documents required for opening of
accounts
Annex-II – UAPA Order dated August 27, 2009
Annex-III – Government of India, Notification dated December 16,
2010
Annex – IV – List of circulars consolidated in the Master Circular

6
27. Introduction
1.1. Know Your Customer (KYC) Norms/Anti-Money Laundering (AML)

Measures/Combating of Financing of Terrorism (CFT)/Obligations of banks under
PMLA, 2002
The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC
procedures also enable banks to know/understand their customers and their financial dealings
better which in turn help them manage their risks prudently.
1.2. Definition of Customer
For the purpose of KYC policy, a ‘Customer’ is defined as:
c a person or entity that maintains an account and/or has a business relationship with the
bank;
d one on whose behalf the account is maintained (i.e. the beneficial owner). [Ref:
Government of India Notification dated February 12, 2010 - Rule 9, sub-rule (1A) of
PMLA Rules - 'Beneficial Owner' means the natural person who ultimately owns or
controls a client and or the person on whose behalf a transaction is being conducted,
and includes a person who exercise ultimate effective control over a juridical person]
e beneficiaries of transactions conducted by professional intermediaries, such as Stock

Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and

f any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.
3 Guidelines
4 1.General
(c) Banks should keep in mind that the information collected from the customer for
the purpose of opening of account is to be treated as confidential and details thereof
are not to be divulged for cross selling or any other like purposes. Banks should,
therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not intrusive, and is in
conformity with the guidelines issued in this regard. Any other information from the
customer should be sought separately with his/her consent and after opening the
account
31. Banks should ensure that any remittance of funds by way of demand draft,
mail/telegraphic transfer or any other mode and issue of travellers’ cheques for value
of Rupees fifty thousand and above is effected by debit to the customer’s account or
against cheques and not against cash payment
32. With effect from April 1, 2012, banks should not make payment of cheques/drafts/pay
orders/banker’s cheques bearing that date or any subsequent date, if they are
presented beyond the period of three months from the date of such instrument.
33. Banks should ensure that the provisions of Foreign Contribution (Regulation) Act,
2010, wherever applicable, are strictly adhered to.
2.2. KYC Policy
Banks should frame their KYC policies incorporating the following four key elements:
4 Customer Acceptance Policy;
5 Customer Identification Procedures;

6 Monitoring of Transactions; and
iv)Risk Management.
2.3. Customer Acceptance Policy (CAP)
3 Every bank should develop a clear Customer Acceptance Policy laying down explicit criteria
for acceptance of customers. The Customer Acceptance Policy must ensure that explicit
guidelines are in place on the following aspects of customer relationship in the bank.
(bi) No account is opened in anonymous or fictitious/benami name.
[Ref: Government of India Notification dated June 16, 2010 Rule 9, sub-rule (1C) -
Banks should not allow the opening of or keep any
anonymous account or accounts in fictitious name or account on behalf of other

persons whose identity has not been disclosed or cannot be verified].
5 Parameters of risk perception are clearly defined in terms of the nature of business
activity, location of customer and his clients, mode of payments, volume of turnover,
social and financial status etc. to enable categorisation of customers into low, medium
and high risk (banks 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 PML Act, 2002 and instructions/guidelines issued by Reserve Bank
from time to time;
iv)Not to open an account where the bank is unable to apply appropriate customer due
diligence measures, i.e., bank is unable to verify the identity and /or obtain documents
required as per the risk categorisation due to non-cooperation of the customer or non-
reliability of the data/information furnished to the bank. Bank may also consider closing
an existing account under similar circumstances. It is, however, necessary to have
suitable built in safeguards to avoid harassment of the customer. For example, decision
by a bank to close an account should be taken at a reasonably high level after giving
due notice to the customer explaining the reasons for such a decision.

32.Circumstances, in which a customer is permitted to act on behalf of another
person/entity, should be clearly spelt out in conformity with the established law and
practice of banking as there could be occasions when an account is operated by a
mandate holder or where an account is opened by an intermediary in fiduciary capacity
and
(v) Necessary checks before opening a new account so as to ensure that the identity of the
customer does not match with any person with known criminal background or with
banned entities such as individual terrorists or terrorist organisations etc.
34. Banks should prepare a profile for each new customer based on risk categorisation. The
customer profile may contain information relating to customer’s identity, social/financial status,
nature of business activity, information about his clients’ business and their location etc. The
nature and extent of due diligence will depend on the risk perceived by the bank. However,
while preparing customer profile banks should take care to seek only such information from
the customer, which is relevant to the risk category and is not intrusive. The customer profile
is a confidential document and details contained therein should not be divulged for cross
selling or any other purposes.
35. For the purpose of risk categorisation, individuals (other than High Net Worth) and entities
whose identities and sources of wealth can be easily identified and transactions in whose
accounts by and large conform to the known profile, may be categorised as low risk.
Illustrative examples of low risk
customers could be salaried employees whose salary structures are well
defined, people belonging to lower economic strata of the society whose accounts show
small balances and low turnover, Government Departments and Government owned
companies, regulators and statutory bodies etc. In such cases, the policy may require that
only the basic requirements of verifying the identity and location of the customer are to be
met. Customers that are likely to pose a higher than average risk to the bank should be
categorised as medium or high risk depending on customer's background, nature and
location of activity, country of origin, sources of funds and his client profile, etc. Banks should
apply enhanced due diligence measures based on the risk assessment, thereby requiring
intensive ‘due diligence’ for higher risk customers, especially those for whom the sources of
funds are not clear. In view of the risks involved in cash intensive businesses, accounts of

10
bullion dealers (including sub-dealers) & jewelers should also be categorized by banks as
'high risk' requiring enhanced due diligence. Other examples of customers requiring higher
due diligence include (a) nonresident customers;
42. high net worth individuals; (c) trusts, charities, NGOs and organizations receiving
donations; (d) companies having close family shareholding or beneficial ownership; (e) firms
with 'sleeping partners';
(f) politically exposed persons (PEPs) of foreign origin, customers who are close relatives of
PEPs and accounts of which a PEP is the ultimate beneficial owner; (g) non-face to face
customers and (h) those with dubious reputation as per public information available etc.
However, NPOs/NGOs promoted by United Nations or its agencies may be classified as low
risk customers.
48. In addition to what has been indicated above, banks/FIs should take steps to identify and
assess their ML/TF risk for customers, countries and geographical areas as also for products/
services/ transactions/delivery channels. Banks/FIs should have policies, controls and
procedures, duly approved by their boards, in place to effectively manage and mitigate their
risk adopting a risk-based approach. As a corollary, banks would be required to adopt
enhanced measures for products, services and customers with a medium or high risk rating.
In this regard, banks may use for guidance in their own risk assessment, a Report on
Parameters for Risk-Based Transaction Monitoring (RBTM) dated March 30, 2011 which was
issued by Indian Banks' Association as a supplement to their guidance note on Know Your
Customer (KYC) norms / Anti-Money Laundering (AML) standards issued in July 2009. The
IBA guidance also provides an indicative list of high risk customers, products, services and
geographies.
49. 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 banking
services to general public, especially to those, who are financially or socially disadvantaged.

11
2.4. Customer Identification Procedure (CIP)
50. The policy approved by the Board of banks should clearly spell out the Customer
Identification Procedure to be carried out at different stages, i.e., while establishing a banking
relationship; carrying out a financial transaction or when the bank 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. Banks need to obtain sufficient
information necessary to establish, to their satisfaction, the identity of each new customer,
whether regular or occasional, and the purpose of the intended nature of banking relationship.
Being satisfied means that the bank must be able to satisfy the competent authorities that
due diligence was observed based on the risk profile of the customer in compliance with the
extant guidelines in place. Such risk-based approach is considered necessary to avoid
disproportionate cost to banks and a burdensome regime for the customers. Besides risk
perception, the nature of information/documents required would also depend on the type of
customer (individual, corporate etc.). For customers that are natural persons, the banks
should obtain sufficient identification data to verify the identity of the customer, his
address/location, and also his recent photograph. For customers that are legal persons or
entities, the bank should (i) verify the legal status of the legal person/entity through proper
and relevant documents;
(i) verify that any person purporting to act on behalf of the legal person/entity is so
authorised and identify and verify the identity of that person; (iii)
understand the ownership and control structure of the customer and determine who are the
natural persons who ultimately control the legal person.
(viii) Banks may seek ‘mandatory’ information required for KYC purpose which the customer is
obliged to give while opening an account or during periodic updation. Other ‘optional’
customer details/additional information, if required may be obtained separately after the
account is opened only with the explicit

12
consent of the customer. The customer has a right to know what is the information required
for KYC that she/he is obliged to give, and what is the additional information sought by the
bank that is optional. Further, it is reiterated that banks should keep in mind that the
information (both ‘mandatory’ – before opening the account as well as ‘optional’- after
opening the account with the explicit consent of the customer) collected from the customer is
to be treated as confidential and details thereof are not to be divulged for cross selling or any
other like purposes.
59. Customer identification requirements in respect of a few typical cases, especially, legal
persons requiring an extra element of caution are given in paragraph 2.5 below for guidance
of banks. Banks may, however, frame their own internal guidelines based on their experience
of dealing with such persons/entities, normal bankers’ prudence and the legal requirements
as per established practices. If the bank decides to accept such accounts in terms of the
Customer Acceptance Policy, the bank should take reasonable measures to identify the
beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it
knows who the beneficial owner(s) is/are [Ref: Government of India Notification dated June
16, 2010 - Rule 9 sub-rule (1A) of PML Rules].
d) In this connection, a reference may be made to the circular DBOD.AML.BC. No.

71/14.01.001/2012-13 dated January 18, 2013 wherein the procedure for determination of
Beneficial Ownership, as advised by Government of India has been specified.
63. The increasing complexity and volume of financial transactions necessitate that customers do
not have multiple identities within a bank, across the banking system and across the financial
system. This can be achieved by introducing a unique identification code for each customer.
The Unique Customer Identification Code (UCIC) will help banks to identify customers, track
the facilities availed, monitor financial transactions in a holistic manner and enable banks to
have a better approach to risk profiling of customers. It would also smoothen banking
operations for the customers. While some

banks already use UCIC for their customers by providing them a relationship number, etc.,
other banks have not adopted this practice. Banks were therefore, advised to initiate steps for
allotting UCIC to all their customers while entering into any new relationships for individual
customers to begin with. Existing individual customers were required to be allotted UCIC by
end-May 2013. However, in view of difficulties expressed by some banks in implementing
UCIC for their customers, for various reasons, and keeping in view the constraints, the time
for completing the process of allotting UCIC to existing customers was extended up to March
31, 2014. In this regard a further extension upto December 31, 2014 has been allowed.
Banks have been advised to expedite the procedure and complete the work of allotting UCIC
to all the existing individual customers, within the stipulated timeframe. They may chalk out a
plan for completing the work and furnish the monthly progress report to their Board.
Considering the fact that a period of two years has been allotted for completion of the task,
no further extension in this regard would be considered. Further, it is reiterated that UCIC
should be allotted to all customers while entering into new relationships.
72. When there are suspicions of money laundering or financing of the activities relating to
terrorism or where there are doubts about the adequacy or veracity of previously obtained
customer identification data, banks should review the due diligence measures including
verifying again the identity of the client and obtaining information on the purpose and
intended nature of the business relationship. [Ref: Government of India Notification dated
June 16, 2010- Rule 9 sub-rule (1D) of PML Rules].
73. It has been observed that some close relatives, e.g. wife, son, daughter and parents, etc.
who live with their husband, father/mother and son, as the case may be, are finding it difficult
to open account in some banks as the utility bills required for address verification are not in
their name. It is clarified, that in such cases, banks can obtain an identity document and a
utility bill of the relative with whom the prospective customer is living along with a declaration
from the relative that the said person (prospective customer) wanting to open
an account is a relative and is staying with him/her. Banks can use any supplementary
evidence such as a letter received through post for further verification of the address. While
issuing operational instructions to the branches on the subject, banks 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.
83. Norms for furnishing proof of address have been relaxed to allow submitting only one
documentary proof of address (either current or permanent) while opening a bank account or
while undergoing periodic updation. In case the address mentioned as per ‘proof of address’
undergoes a change, fresh proof of address may be submitted to the branch within a period

of six months. In case the proof of address furnished by the customer is not the local address
or address where the customer is currently residing, the bank may take a declaration of the
local address on which all correspondence will be made by the bank with the customer. No
proof is required to be submitted for such address for correspondence/local address. This
address may be verified by the bank through ‘positive confirmation’ such as acknowledgment
of receipt of (i) letter, cheque books, ATM cards; (ii) telephonic conversation;
(i) visits; etc. In the event of change in this address due to relocation or any
other reason, customers may intimate the new address for correspondence to the bank within
two weeks of such a change.
83. Some banks insist on opening of fresh accounts by customers when customers approach
them for transferring their account from one branch of the bank to another branch of the
same bank. Banks are advised that KYC once done by one branch of the bank should be
valid for transfer of the account within the bank as long as full KYC has been done for the
concerned account. The customer should be allowed to transfer his account from one branch
to another branch without restrictions.Banks may transfer existing accounts at the transferor
branch to the transferee branch without insisting on fresh proof of address and on the basis
of a self-declaration from the account holder about his/her current address.
87. Banks should carry out periodical updation of KYC information of every customer, which may
include the following:
Full KYC exercise may be done at least every two years for high risk customers, every
eight years for medium risk customers and every ten years for low risk customers. Full
KYC may include all measures for confirming identity and address and other particulars
of the customer that the bank may consider reasonable and necessary based on the
risk profile of the customer.
Positive confirmation (obtaining KYC related updates through e-mail/ letter/

telephonic conversation/ forms/ interviews/ visits, etc.), may be completed at least
every two years for medium risk and at least every three years for low risk
individuals and entities.
Fresh photographs to be obtained from minor customer on becoming major.
The time limits prescribed above would apply from the date of opening of the account/
last verification of KYC.

88. An indicative list of the nature and type of documents/information that may be may be relied
upon for customer identification is given in Annex-I to this Master Circular.
89. If the address on the document submitted for identity proof by the prospective customer is
same as that declared by him/her in the account opening form, the document may be
accepted as a valid proof of both identity and address.
90. A rent agreement indicating the address of the customer duly registered with State
Government or similar registration authority may also be accepted as a proof of address.
n) It has been brought to our notice that the said indicative list furnished in Annex - I, is being
treated by some banks as an exhaustive list as a result of which a section of public is being
denied access to banking services. Banks are, therefore, advised to take a review of their
extant internal instructions in this regard.
2.5. Customer Identification Requirements – Indicative Guidelines
90. Walk-in Customers
In case of transactions carried out by a non-account based customer, that is a walk-in customer,
where the amount of transaction is equal to or exceeds rupees fifty thousand, whether conducted
as a single transaction or several transactions that appear to be connected, the customer's
identity and address should be verified. However, if a bank has reason to believe that a customer
is intentionally structuring a transaction into a series of transactions below the threshold of
Rs.50,000/- the bank should verify the identity and address of the customer and also consider
filing a suspicious transaction report (STR) to FIU-IND.
NOTE: In terms of Clause (b) (ii) of sub-Rule (1) of Rule 9 of the PML Rules,
2005 banks and financial institutions are required to verify the identity
of the customers for all international money transfer operations
b) Salaried Employees

In case of salaried employees, it is clarified that with a view to containing the risk of fraud, banks
should rely on certificate/letter of identity and/or address issued only from corporate and other
entities of repute and should be aware of the competent authority designated by the concerned
employer to issue such certificate/letter. Further, in addition to the certificate/letter issued by the
employer, banks should insist on at least one of the officially valid documents as provided in the
Prevention of Money Laundering Rules (viz. passport, driving licence, PAN Card, Voter’s Identity
card, etc.) or utility bills for KYC purposes for opening bank accounts of salaried employees of
corporate and other entities.
c) Trust/Nominee or Fiduciary Accounts
There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent
the customer identification procedures. Banks should determine whether the customer is acting
on behalf of another person as trustee/nominee or any other intermediary. If so, banks should
insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons
on whose behalf they are acting, as also obtain details of the nature of the trust or other
arrangements in place. While opening an account for a trust, banks should take reasonable
precautions to verify the identity of the trustees and the settlors of trust (including any person
settling assets into the trust), grantors, protectors, beneficiaries and signatories. Beneficiaries
should be identified when they are defined. In the case of a 'foundation', steps should be taken to
verify the founder managers/ directors and the beneficiaries, if defined.
d) Accounts of companies and firms
Banks need to be vigilant against business entities being used by individuals as a ‘front’ for
maintaining accounts with banks. Banks should examine the control structure of the entity,
determine the source of funds and identify the natural persons who have a controlling interest
and who comprise the management. These requirements may be moderated according to the
risk perception e.g. in the case of a public company it will not be necessary to identify all the
shareholders.
iii Client accounts opened by professional intermediaries
v. When the bank has knowledge or reason to believe that the client account opened by a
professional intermediary is on behalf of a single client, that client must be identified.

Banks may hold 'pooled' accounts managed by professional intermediaries on behalf of
entities like mutual funds, pension funds or other types of funds. Banks also maintain
'pooled' accounts managed by lawyers/chartered accountants or stockbrokers for funds
held 'on deposit' or 'in escrow' for a range of clients. Where funds held by the
intermediaries are not co-mingled at the bank and there are 'sub-accounts', each of
them attributable to a beneficial owner, all the beneficial owners must be identified.
Where such funds are co-mingled at the bank, the bank should still look through to the
beneficial owners. Where the banks rely on the 'customer due diligence' (CDD) done by
an intermediary, they should satisfy themselves that the intermediary is regulated and
supervised and has adequate systems in place to comply
with the KYC requirements. It should be understood that the ultimate responsibility for
knowing the customer lies with the bank.
ix. Under the extant AML/CFT framework, therefore, it is not possible for professional
intermediaries like Lawyers and Chartered Accountants, etc. who are bound by any
client confidentiality that prohibits disclosure of the client details, to hold an account on
behalf of their clients. It is reiterated that banks should not allow opening and/or holding
of an account on behalf of a client/s by professional intermediaries, like Lawyers and
Chartered Accountants, etc., who are unable to disclose true identity of the owner of the
account/funds due to any professional obligation of customer confidentiality. Further,
any professional intermediary who is under any obligation that inhibits bank's ability to
know and verify the true identity of the client on whose behalf the account is held or
beneficial ownership of the account or understand true nature and purpose of
transaction/s, should not be allowed to open an account on behalf of a client.
h) Accounts of Politically Exposed Persons (PEPs) resident outside India
i) Politically exposed persons are individuals who are or have been entrusted with
prominent public functions in a foreign country, e.g., Heads of States or of
Governments, senior politicians, senior government/judicial/military officers, senior
executives of state-owned corporations, important political party officials, etc. Banks
should gather sufficient information on any person/customer of this category intending
to establish a relationship and check all the information available on the person in the
public domain. Banks should verify the identity of the person and seek information
about the sources of funds before accepting the PEP as a customer. The decision to
open an account for a PEP should be taken at a senior level which should be clearly
spelt out in Customer Acceptance Policy. Banks should also subject such accounts to
enhanced monitoring on an ongoing basis. The above norms may also

be applied to the accounts of the family members or close relatives of PEPs.
iii) In the event of an existing customer or the beneficial owner of an existing account,
subsequently becoming a PEP, banks should obtain senior management approval to
continue the business relationship and subject the account to the CDD measures as
applicable to the customers of PEP category including enhanced monitoring on an
ongoing basis. These instructions are also applicable to accounts where a PEP is the
ultimate beneficial owner.
iv) Further, banks should have appropriate ongoing risk management procedures for
identifying and applying enhanced CDD to PEPs, customers who are close relatives of
PEPs, and accounts of which a PEP is the ultimate beneficial owner.
h) Accounts of non-face-to-face customers
With the introduction of telephone and electronic banking, increasingly accounts are being
opened by banks for customers without the need for the customer to visit the bank branch. In the
case of non-face-to-face customers, apart from applying the usual customer identification
procedures, there must be specific and adequate procedures to mitigate the higher risk involved.
Certification of all the documents presented should be insisted upon and, if necessary, additional
documents may be called for. In such cases, banks may also require the first payment to be
effected through the customer's account with another bank which, in turn, adheres to similar KYC
standards. In the case of cross-border customers, there is the additional difficulty of matching the
customer with the documentation and the bank may have to rely on third party
certification/introduction. In such cases, it must be ensured that the third party is a regulated and
supervised entity and has adequate KYC systems in place.
h) Accounts of proprietary concerns
Apart from following the extant guidelines on customer identification procedure as applicable to
the proprietor, banks should call for and verify the following documents before opening of
accounts in the name of a proprietary concern:

Proof of the name, address and activity of the concern, like registration certificate (in the
case of a registered concern), certificate/licence issued by the Municipal authorities under
Shop & Establishment Act, sales and income tax returns, CST/VAT certificate,
certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities, Licence issued by the Registering authority like Certificate of Practice issued
by Institute of Chartered Accountants of India, Institute of Cost Accountants of India,
Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control
Authorities, registration/licensing document issued in the name of the proprietary concern
by the Central Government or State Government Authority/Department. Banks may also
accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of
DGFT, the complete Income Tax Return (not just the acknowledgement) in the name of
the sole proprietor where the firm's income is reflected, duly authenticated/acknowledged
by the Income Tax authorities and utility bills such as electricity, water, and landline
telephone bills in the name of the proprietary concern as required documents for opening
of bank accounts of proprietary concerns.
Any two of the above documents would suffice. These documents should be in the name of the
proprietary concern.
o) Procedure to be followed in respect of foreign students:
Banks may follow the following procedure for foreign students studying in India.
iv) Banks may open a Non Resident Ordinary (NRO) bank account of a foreign student
on the basis of his/her passport (with appropriate visa & immigration endorsement)
which contains the proof of identity and address in the home country along with a
photograph and a letter offering admission from the educational institution.
v) Within a period of 30 days of opening the account, the foreign student should submit
to the branch where the account is opened, a valid address proof giving local address,
in the form of a rent agreement or a letter from the educational institution as a proof of
living in a facility

provided by the educational institution. Banks should not insist on the landlord visiting
the branch for verification of rent documents and alternative means of verification of
local address may be adopted by banks.
v) During the 30 days period, the account should be operated with a condition of
allowing foreign remittances not exceeding USD 1,000 into the account and a cap of
monthly withdrawal to Rs. 50,000/-, pending verification of address.
vi) On submission of the proof of current address, the account would be treated as a
normal NRO account, and will be operated in terms of instructions contained in the
Reserve Bank of India’s instructions on Non-Resident Ordinary Rupee (NRO)
Account, and the provisions of Schedule 3 of FEMA Notification 5/2000 RB dated
May 3, 2000.
vii) Students with Pakistani nationality will need prior approval of the
Reserve Bank for opening the account.
2.6. Selling Third party products
When banks sell third party products as agents, the responsibility for ensuring compliance with
KYC/AML/CFT regulations lies with the third party. However, to mitigate reputational risk to bank and
to enable a holistic view of a customer’s transactions, banks are advised as follows:
(c) Even while selling third party products as agents, banks should verify the identity and address
of the walk-in customer.
(d) Banks should also maintain transaction details with regard to sale of third party products and
related records for a period and in the manner prescribed in paragraph 2.24 below.
(e) Bank’s AML software should be able to capture, generate and analyse alerts for the purpose of
filing CTR/STR in respect of transactions relating to third party products with customers
including walk-in customers.
(f) Sale of third party products by banks as agents to customers, including walk-in customers, for
Rs.50,000 and above must be (a) by debit to customers’ account or against cheques and (b)
obtention & verification of the PAN given

by the account based as well as walk-in customers. This instruction would also apply to sale of
banks’ own products, payment of dues of credit cards/sale and reloading of prepaid/travel
cards and any other product for Rs. 50,000/- and above.
2.7. Due Diligence in correspondent banking relationship
Some commercial banks have arrangements with co-operative banks wherein the latter open current
accounts with the commercial banks and use the cheque book facility to issue ‘at par’ cheques to
their constituents and walk-in- customers for facilitating their remittances and payments. Since the ‘at
par’ facility offered by commercial banks to co-operative banks is in the nature of correspondent
banking arrangements, banks should monitor and review such arrangements to assess the risks
including credit risk and reputational risk arising therefrom. For this purpose, banks should retain the
right to verify the records maintained by the client cooperative banks/ societies for compliance with
the extant instructions on KYC and AML under such arrangements.
2.8. Simplified KYC norms for Foreign Portfolio Investors (FPIs)
In terms of Rule 9 (14)(i) of the PML Rules, simplified norms have been prescribed for those FPIs
who have been duly registered in accordance with SEBI guidelines and have undergone the required
KYC due diligence/verification prescribed by SEBI through a Custodian/Intermediary regulated by
SEBI. Such eligible/registered FPIs may approach a bank for opening a bank account for the purpose
of investment under Portfolio Investment Scheme (PIS) for which KYC documents prescribed by the
Reserve Bank (as detailed in Annex II of the circular DBOD.AML.BC.No.103/14.01.001/2013-14
dated April 3, 2014) would be required. For this purpose, banks may rely on the KYC verification
done by the third party (i.e. the Custodian/SEBI Regulated Intermediary) subject to the conditions laid
down in Rule 9 (2) [(a) to (e)] of the Rules.
2.9. Small Accounts
In terms of Government of India, Notification No. 14/2010/F.No.6/2/2007-E.S dated December 16,

2010, (Annex - III a 'small account' means a savings account in a banking company where-

i.the aggregate of all credits in a financial year does not exceed rupees one lakh;
ii.the aggregate of all withdrawals and transfers in a month does not exceed rupees ten
thousand; and
iii. the balance at any point of time does not exceed rupees fifty thousand.
(a) A ‘small account’ may be opened on the basis of a self-attested photograph and affixation of
signature or thumb print. Such accounts may be opened and operated subject to the following
conditions:
i) the designated officer of the bank, while opening the small account, certifies under his
signature that the person opening the account has affixed his signature or thumb print,
as the case may be, in his presence;
ii) a small account shall be opened only at Core Banking Solution linked bank branches or
in a branch where it is possible to manually monitor and ensure that foreign remittances
are not credited to the account and that the stipulated limits on monthly and annual
aggregate of transactions
and balance in such accounts are not breached, before a transaction is allowed to take
place;
iii)a small account shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months if the holder of such an account provides
evidence before the banking company of having applied for any of the officially valid
documents within twelve months of the opening of the said account, with the entire
relaxation provisions to be reviewed in respect of the said account after twenty four
months;
iv)a small account shall be monitored and when there is suspicion of money laundering or
financing of terrorism or other high risk scenarios, the identity of customer shall be
established through the production of “officially valid documents”; and

v) foreign remittance shall not be allowed to be credited into a small account unless the
identity of the customer is fully established through the production of “officially valid
documents”.
2.10. Officially Valid Documents under Government of India notifications
(a) The notifications further state that job card issued by NREGA duly signed by an officer of the
State Government and the letters issued by the Unique Identification Authority of India
containing details of name, address and Aadhaar number can now be accepted as an ‘Officially
Valid Document’.
(b) E-KYC service of Unique Identification Authority of India (UIDAI) may be accepted as a valid
process for KYC verification under the PML Rules. The information containing demographic
details and photographs made available from UIDAI as a result of e-KYC process may be
treated as an ‘Officially Valid Document’. However, the individual user has to authorize to
UIDAI, by explicit consent, to release her or his identity/address through biometric
authentication to the bank branches/business correspondents.
(c) Further, e-Aadhaar downloaded from UIDAI website may be accepted as an officially valid
document subject to the following:
i. If the prospective customer knows only his/her Aadhaar number, the bank may print the
prospective customer’s e-Aadhaar letter in the bank directly from the UIDAI portal; or
adopt e-KYC procedure as mentioned in paragraph (b) above.
ii. If the prospective customer carries a copy of the e-Aadhaar downloaded elsewhere, the
bank may print the prospective customer’s e-Aadhaar letter in the bank directly from
the UIDAI portal; or adopt e-KYC procedure as mentioned in paragraph (b) above; or
confirm identity and
address of the resident through simple authentication service of UIDAI.
2.11. Operation of Bank Accounts & Money Mules
a) It has been brought to our notice that “Money Mules” can be used to launder the proceeds of
fraud schemes (e.g., phishing and identity theft) by criminals who gain illegal access to
deposit accounts by recruiting third parties to act as “money mules.” In some cases these
third parties may be innocent while in others they may be having complicity with the criminals.

b) In a money mule transaction, an individual with a bank account is recruited to receive cheque
deposits or wire transfers and then transfer these funds to accounts held on behalf of another
person or to other individuals, minus a certain commission payment. Money mules may be
recruited by a variety of methods, including spam e-mails, advertisements on genuine
recruitment web sites, social networking sites, instant messaging and advertisements in
newspapers. When caught, these money mules often have their bank accounts suspended,
causing inconvenience and potential financial loss, apart from facing likely legal action for
being part of a fraud. Many a times the address and contact details of such mules are found
to be fake or not up to date, making it difficult for enforcement agencies to locate the account
holder.
c) The operations of such mule accounts can be minimised if banks follow the guidelines on
opening of accounts and monitoring of transactions contained in this Master Circular. Banks
are, therefore, advised to strictly adhere to the guidelines on KYC/AML/CFT issued from time
to time and to those relating to periodical updation of customer identification data after the
account is opened and also to monitoring of transactions in order to protect themselves and
their
customers from misuse by such fraudsters.
2.12. Bank No Longer Knows the True Identity
In the circumstances when a bank believes that it would no longer be satisfied that it knows the
true identity of the account holder, the bank should also file an STR with FIU-IND.
2.13. Monitoring of Transactions
a) Ongoing monitoring is an essential element of effective KYC procedures. Banks can

effectively control and reduce their risk only if they have an understanding of the normal and
reasonable activity of the customer so that they have the means of identifying transactions
that fall outside the regular pattern of activity. However, the extent of monitoring will depend
on the risk sensitivity of the account. Banks should pay special attention to all complex,
unusually large transactions and all unusual patterns which have no apparent economic or
visible lawful purpose. Banks may prescribe

threshold limits for a particular category of accounts and pay particular attention to the
transactions which exceed these limits. Transactions that involve large amounts of cash
inconsistent with the normal and expected activity of the customer should particularly attract
the attention of the bank. Very high account turnover inconsistent with the size of the balance
maintained may indicate that funds are being 'washed' through the account. High-risk
accounts have to be subjected to intensified monitoring. Every bank should set key indicators
for such accounts, taking note of the background of the customer, such as the country of
origin, sources of funds, the type of transactions involved and other risk factors. High risk
associated with accounts of bullion dealers (including sub-dealers) & jewelers should be
taken into account by banks to identify suspicious transactions for filing Suspicious
Transaction Reports (STRs) to Financial Intelligence Unit- India (FIU-IND). Banks should put
in place a system of periodical review of risk categorization of accounts and the need for
applying enhanced due diligence measures. Such review of risk categorisation of customers
should be carried out at a periodicity of not less than once in six months.
b) It has come to our notice that accounts of Multi-level Marketing (MLM) Companies were
misused for defrauding public by luring them into depositing their money with the MLM
company by promising a high return. Such depositors are assured of high returns and issued
post-dated cheques for interest and repayment of principal. So long as money keeps coming
into the MLM company’s account from new depositors, the cheques are honoured but once
the chain breaks, all such post-dated instruments are dishonoured. This results in fraud on
the public and is a reputational risk for banks concerned. Further, banks should closely
monitor the transactions in accounts of marketing firms. In cases where a large number of
cheque books are sought by the company, there are multiple small deposits (generally in
cash) across the country in one bank account and where a large number of cheques are
issued bearing similar amounts/dates, the bank should carefully analyse such data and in
case they find such unusual operations in accounts, the matter
should be immediately reported to Reserve Bank and other appropriate authorities such as
Financial Intelligence Unit India (FIU-Ind) under Department of Revenue, Ministry of Finance.
c) Banks 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 client, his business and risk profile and where necessary, the
source of funds [Ref: Government of India Notification dated June 16, 2010 -Rule 9, sub-rule
(1B)]
d) The risk categorization of customers as also compilation and periodic updation of customer
profiles and monitoring and closure of alerts in accounts by banks are extremely important for
effective implementation of KYC/AML/CFT measures. It is, however, observed that there are

laxities in effective implementation of the Reserve Bank’s guidelines in this area, leaving
banks vulnerable to operational risk. Banks should, therefore, ensure compliance with the
regulatory guidelines on KYC/AML/CFT both in letter and spirit. Accordingly, banks were
advised to complete the process of risk categorization and compiling/updating profiles of all of
their existing
customers in a time-bound manner, by end-March 2013.
2.14. Closure of accounts
Where the bank is unable to apply appropriate KYC measures due to non-furnishing of
information and /or non-cooperation by the customer, the bank should consider closing the
account or terminating the banking/business relationship after issuing due notice to the customer
explaining the reasons for taking such a decision. Such decisions need to be taken at a
reasonably senior level.
2.15. Risk Management
a) The Board of Directors of the bank should ensure that an effective KYC programme is put in
place by establishing appropriate procedures and ensuring their effective implementation. It
should cover proper management oversight, systems and controls, segregation of duties,
training and other related matters. Responsibility should be explicitly allocated within the bank
for ensuring that the bank’s policies and procedures are implemented effectively. Banks
should, in consultation with their boards, devise procedures for creating risk profiles of their
existing and new customers, assess risk in dealing with various countries, geographical areas
and also the risk of various products, services, transactions, delivery channels, etc. Banks’
policies should address effectively managing and mitigating these risks adopting a risk-based
approach as discussed in Para 2.3 (d) above.
b) Banks’ internal audit and compliance functions have an important role in evaluating and
ensuring adherence to the KYC policies and procedures. As a general rule, the compliance
function should provide an independent evaluation of the bank’s own policies and procedures,
including legal and regulatory requirements. Banks should ensure that their audit machinery
is staffed adequately with individuals who are well-versed in such policies and procedures.
Concurrent/ Internal Auditors should specifically check and verify the application of KYC
procedures at the branches and comment on the lapses observed in this regard. The

compliance in this regard should be put up before the Audit Committee of the Board on
quarterly intervals.
2.16. Introduction of New Technologies – Credit Cards/Debit Cards/ Smart Cards/Gift

Cards
Banks should pay special attention to any money laundering threats that may arise from new or
developing technologies including internet banking that might favour anonymity, and take
measures, if needed, to prevent their use in money laundering schemes. Many banks are
engaged in the business of issuing a variety of Electronic Cards that are used by customers for
buying goods and services, drawing cash from ATMs, and can be used for electronic transfer of
funds. Banks are required to ensure full compliance with all KYC/AML/CFT guidelines issued
from time to time, in respect of add-on/ supplementary cardholders also. Further, marketing of
credit cards is generally done through the services of agents. Banks should ensure that
appropriate KYC procedures are duly applied before issuing the cards to the customers. It is also
desirable that agents are also subjected to KYC measures.

2.17. Combating Financing of Terrorism
In terms of PMLA Rules, suspicious transaction should include, inter alia,
a. Transactions, which give rise to a reasonable ground of suspicion that these may involve
financing of the activities relating to terrorism. Banks are, therefore, advised to develop
suitable mechanism through appropriate policy framework for enhanced monitoring of
accounts suspected of having terrorist links and swift identification of the transactions and
making suitable reports to FIU-Ind on priority.
b. As and when list of individuals and entities, approved by Security Council Committee
established pursuant to various United Nations' Security Council Resolutions (UNSCRs), are
received from Government of India, Reserve Bank circulates these to all banks and financial
institutions. Banks/Financial Institutions should ensure to update the lists of individuals and
entities as circulated by Reserve Bank. The UN Security Council has adopted Resolutions
1988 (2011) and 1989 (2011) which have resulted in splitting of the 1267 Committee's
Consolidated List into two separate lists, namely:
i) “Al-Qaida Sanctions List”, which is maintained by the 1267 / 1989 Committee. This list
shall include only the names of those individuals, groups, undertakings and entities
associated with Al-Qaida. The Updated
Al-Qaida Sanctions List is available at

http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml
ii) “1988 Sanctions List”, which is maintained by the 1988 Committee. This list consists of
names previously included in Sections A (“Individuals associated with the Taliban”) and B
(“Entities and other groups and undertakings associated with the Taliban”) of the
Consolidated List. The
Updated 1988 Sanctions list is available at http://www.un.org/sc/committees/

1988/list.shtml
It may be noted that both “Al-Qaida Sanctions List” and “1988 Sanctions List” are to be taken into
account for the purpose of implementation of Section 51A of the Unlawful Activities (Prevention)
Act, 1967.
Banks are advised that before opening any new account it should be ensured that the name/s of
the proposed customer does not appear in the lists. Further, banks

should scan all existing accounts to ensure that no account is held by or linked to any of the
entities or individuals included in the list. Full details of accounts bearing resemblance with any of
the individuals/entities in the list should immediately be intimated to RBI and FIU-IND.
2.18. Freezing of Assets under Section 51A of Unlawful Activities (Prevention) Act,
1967
a) The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended by the Unlawful
Activities (Prevention) Amendment Act, 2008. Government has issued an Order dated August
27, 2009 detailing the procedure for implementation of Section 51A of the Unlawful Activities
(Prevention) Act, 1967 relating to the purposes of prevention of, and for coping with terrorist
activities. In terms of Section 51A, the Central Government is empowered to freeze, seize or
attach funds and other financial assets or economic resources held by, on behalf of or at the
direction of the individuals or entities Listed in the Schedule to the Order, or any other person
engaged in or suspected to be engaged in terrorism and prohibit any individual or entity from
making any funds, financial assets or economic resources or related services available for
the benefit of the individuals or entities Listed in the Schedule to the Order or any other
person engaged in or suspected to be engaged in terrorism.
b) Banks are required to strictly follow the procedure laid down in the UAPA Order dated August
27, 2009 (Annex II) and ensure meticulous compliance to the Order issued by the
Government.
c) On receipt of the list of individuals and entities subject to UN sanctions (referred to as

designated lists) from RBI, banks should ensure expeditious and effective implementation of
the procedure prescribed under Section 51A of UAPA in regard to freezing/unfreezing of
financial assets of the designated individuals/entities enlisted in the UNSCRs and especially,
in regard to funds, financial assets or economic resources or related services held in the form
of bank accounts.
d) In terms of Para 4 of the Order, in regard to funds, financial assets or economic

resources or related services held in the form of bank accounts, the RBI would forward
the designated lists to the banks requiring them to:
i) Maintain updated designated lists in electronic form and run a check on the given
parameters on a regular basis to verify whether individuals or entities listed in the
schedule to the Order (referred to as designated individuals/entities) are holding any
funds, financial assets or economic resources or related services held in the form of
bank accounts with them.

ii) In case, the particulars of any of their customers match with the
particulars of designated individuals/entities, the banks shall immediately, not later than
24 hours from the time of finding out such customer, inform full particulars of the funds,
financial assets or economic resources or related services held in the form of bank
accounts, held by such customer on their books to the Joint Secretary (IS.I), Ministry of
Home Affairs, at Fax No.011-23092569 and also convey over telephone on 011-
23092736. The particulars apart from being sent by post should necessarily be
conveyed on e-mail.
iii) Banks shall also send by post, a copy of the communication mentioned in (ii) above to
the UAPA nodal officer of RBI, Chief General Manager, Department of Banking
Operations and Development, Central Office, Reserve Bank of India, Anti Money
Laundering Division, Central Office Building, 13th Floor, Shahid Bhagat Singh Marg,
Fort, Mumbai - 400 001 and also by fax at No.022-22701239. The particulars, apart
from being sent by post/fax should necessarily be conveyed on e-mail.
iv) Banks shall also send a copy of the communication mentioned in (ii) above to the
UAPA nodal officer of the state/UT where the account is held as the case may be and
to FIU-India.
v) In case, the match of any of the customers with the particulars of designated
individuals/entities is beyond doubt, the banks would
prevent designated persons from conducting financial transactions, under intimation to

Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No. 011-23092569 and also
convey over telephone on 011-23092736. The particulars apart from being sent by post
should necessarily be conveyed on e-mail.
vi) Banks shall also file a Suspicious Transaction Report (STR) with FIU-IND covering all
transactions in the accounts covered by paragraph (ii ) above, carried through or
attempted, as per the prescribed format.
e) Freezing of financial assets
i) On receipt of the particulars as mentioned in paragraph d(ii)) above, IS-I Division of MHA
would cause a verification to be conducted by the State Police and /or the Central
Agencies so as to ensure that the individuals/ entities identified by the banks are the
ones listed as designated individuals/entities and the funds, financial assets or
economic resources or related services , reported by banks are held by the designated

individuals/entities. This verification would be completed within a period not exceeding
five working days from the date of receipt of such particulars.
ii) In case, the results of the verification indicate that the properties are owned by or held
for the benefit of the designated individuals/entities, an order to freeze these assets
under section 51A of the UAPA would be issued within 24 hours of such verification
and conveyed electronically to the concerned bank branch under intimation to Reserve
Bank of India and FIU-IND.
iii) The order shall take place without prior notice to the designated individuals/entities.
f) Implementation of requests received from foreign countries under U.N. Security

Council Resolution 1373 of 2001.
i) U.N. Security Council Resolution 1373 obligates countries to freeze without delay
the funds or other assets of persons who commit, or attempt to commit, terrorist
acts or participate in or facilitate the commission of terrorist acts; of entities or
controlled directly or indirectly

by such persons; and of persons and entities acting on behalf of, or at the direction of
such persons and entities, including funds or other assets derived or generated from
property owned or controlled, directly or indirectly, by such persons and associated
persons and entities.
ii) To give effect to the requests of foreign countries under U.N. Security Council
Resolution 1373, the Ministry of External Affairs shall examine the requests made by
the foreign countries and forward it electronically, with their comments, to the UAPA
nodal officer for IS-I Division for freezing of funds or other assets.
iii) The UAPA nodal officer of IS-I Division of MHA, shall cause the request to be
examined, within five working days so as to satisfy itself that on the basis of applicable
legal principles, the requested designation is supported by reasonable grounds, or a
reasonable basis, to suspect or believe that the proposed designee is a terrorist, one
who finances terrorism or a terrorist organization, and upon his satisfaction, request
would be electronically forwarded to the nodal officers in RBI. The proposed designee,
as mentioned above would be treated as designated individuals/entities.
iv) Upon receipt of the requests from the UAPA nodal officer of IS-I Division, the list would
be forwarded to banks and the procedure as enumerated at paragraphs 2.18[(c), (d)
and (e)] shall be followed.
v) The freezing orders shall take place without prior notice to the designated persons
involved.
g) Procedure for unfreezing of funds, financial assets or economic resources or

related services of individuals/entities inadvertently affected by the freezing
mechanism upon verification that the person or entity is not a designated person
Any individual or entity, if it has evidence to prove that the freezing of funds, financial
assets or economic resources or related services, owned/held by them has been
inadvertently frozen, they shall move an application giving the requisite evidence, in
writing, to the concerned bank. The banks shall inform and forward a copy of the
application together with

full details of the asset frozen given by any individual or entity informing of the funds,
financial assets or economic resources or related services have been frozen
inadvertently, to the nodal officer of IS-I Division of MHA as per the contact details given
in paragraph (d)(ii) above within two working days. The Joint Secretary (IS-I), MHA, being
the nodal officer for (IS-I) Division of MHA, shall cause such verification as may be
required on the basis of the evidence furnished by the individual/entity and if he is
satisfied, he shall pass an order, within fifteen working days, unfreezing the funds,
financial assets or economic resources or related services, owned/held by such applicant
under intimation to the concerned bank. However, if it is not possible for any reason to
pass an order unfreezing the assets within fifteen working days, the nodal officer of IS-I
Division shall inform the applicant.
h) Communication of Orders under Section 51A of Unlawful Activities (Prevention)

Act.
All Orders under Section 51A of Unlawful Activities (Prevention) Act,
relating to funds, financial assets or economic resources or related services, would be

communicated to all banks through RBI.
2.19. Jurisdictions that do not or insufficiently apply the FATF Recommendations
a) Banks are required to take into account risks arising from the deficiencies in AML/CFT regime
of the jurisdictions included in the FATF Statement. In addition to FATF Statements circulated
by Reserve Bank of India from time to time, (latest as on June 30, 2014, being our circular
DBOD. AML.No.15245/14.01.001/2013-14 dated March 05, 2014) banks should also
consider publicly available information for identifying countries, which do not or insufficiently
apply the FATF Recommendations. It is clarified that banks should also give special attention
to business relationships and transactions with persons (including legal persons and other
financial institutions) from or in countries that do not or insufficiently apply the FATF
Recommendations and jurisdictions included in FATF Statements.

b) Banks should examine the background and purpose of transactions with persons (including
legal persons and other financial institutions) from jurisdictions included in FATF Statements
and countries that do not or insufficiently apply the FATF Recommendations. Further, if the
transactions have no apparent economic or visible lawful purpose, the background and
purpose of such transactions should, as far as possible be examined, and written findings
together with all documents should be retained and made
available to Reserve Bank/other relevant authorities, on request.
2.20. Correspondent Banking and Shell Bank
a) Correspondent banking is the provision of banking services by one bank (the “correspondent
bank”) to another bank (the “respondent bank”). These services may include cash/funds
management, international wire transfers, drawing arrangements for demand drafts and mail
transfers, payable-through-accounts, cheques clearing etc. Banks should gather sufficient
information to understand fully the nature of the business of the correspondent/respondent
bank. Information on the other bank’s management, major business activities, level of
AML/CFT compliance, purpose of opening the account, identity of any third party entities that
will use the correspondent banking services, and regulatory/supervisory framework in the
correspondent's/respondent’s country may be of special relevance. Similarly, banks should
try to ascertain from publicly available information whether the other bank has been subject to
any money laundering or terrorist financing investigation or regulatory action. While it is
desirable that such relationships should be established only with the approval of the Board, in
case the Boards of some banks wish to delegate the power to an administrative authority,
they may delegate the power to a committee headed by the Chairman/CEO of the bank while
laying down clear parameters for approving such relationships. Proposals approved by the
Committee should invariably be put up to the Board at its next meeting for post facto approval.
The responsibilities of each bank with whom correspondent banking relationship is
established should be clearly documented. In the case

of payable-through-accounts, the correspondent bank should be satisfied that the respondent
bank has verified the identity of the customers having direct access to the accounts and is
undertaking ongoing 'due diligence' on them. The correspondent bank should also ensure
that the respondent bank is able to provide the relevant customer identification data
immediately on request.
b) Correspondent relationship with a “Shell Bank”
Banks should refuse to enter into a correspondent relationship with a “shell bank” (i.e. a bank
which is incorporated in a country where it has no physical presence and is unaffiliated to any
regulated financial group). Shell banks are not permitted to operate in India. Banks should not
enter into relationship with shell banks and before establishing correspondent relationship with
any foreign institution, banks should take appropriate measures to satisfy themselves that the
foreign respondent institution does not permit its accounts to be used by shell banks. Banks
should be extremely cautious while continuing relationships with correspondent banks located in
countries with poor KYC standards and countries identified as 'non-cooperative' in the fight
against money laundering and terrorist financing. Banks should ensure that their respondent
banks have anti money laundering policies and procedures in place and apply enhanced 'due
diligence' procedures for transactions carried out through the correspondent accounts.
2.21. Applicability to branches and subsidiaries outside India
The guidelines contained in this master circular shall apply to the branches and majority owned
subsidiaries located abroad, especially, in countries which do not or insufficiently apply the FATF
Recommendations, to the extent local laws permit. When local applicable laws and regulations
prohibit implementation of these guidelines, the same should be brought to the notice of Reserve
Bank. In case there is a variance in KYC/AML standards prescribed by the Reserve Bank and the
host country regulators, branches/overseas subsidiaries of banks are required to adopt the more
stringent regulation of the two.

2.22. Wire Transfer
Banks use wire transfers as an expeditious method for transferring funds between bank
accounts. Wire transfers include transactions occurring within the national boundaries of a
country or from one country to another. As wire transfers do not involve actual movement of
currency, they are considered as rapid and secure method for transferring value from one
location to another.
a) The salient features of a wire transfer transaction are as under:
i) Wire transfer is a transaction carried out on behalf of an originator person (both natural
and legal) through a bank by electronic means with a view to making an amount of
money available to a beneficiary person at a bank. The originator and the beneficiary
may be the same person.
ii) Cross-border transfer means any wire transfer where the originator and the beneficiary
bank or financial institutions are located in different countries. It may include any chain
of wire transfers that has at least one cross-border element.
iii) Domestic wire transfer means any wire transfer where the originator and receiver are
located in the same country. It may also include a chain of wire transfers that takes
place entirely within the borders of a single country even though the system used to
effect the wire transfer may be located in another country.
iv) The originator is the account holder, or where there is no account, the person (natural
or legal) that places the order with the bank to perform the wire transfer.
b) Wire transfer is an instantaneous and most preferred route for transfer of funds across the
globe and hence, there is a need for preventing terrorists and other criminals from having
unfettered access to wire transfers for moving their funds and for detecting any misuse when
it occurs. This can be achieved if basic information on the originator of wire transfers is
immediately available to appropriate law enforcement and/or prosecutorial authorities in order
to assist them in detecting, investigating, prosecuting terrorists or other criminals and

tracing their assets. The information can be used by Financial Intelligence Unit - India (FIU-
IND) for analysing suspicious or unusual activity and disseminating it as necessary. The
originator information can also be put to use by the beneficiary bank to facilitate identification
and reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing
threat posed by small wire transfers, the objective is to be in a position to trace all wire
transfers with minimum threshold limits. Accordingly, banks must ensure that all wire
transfers are accompanied by the following information:
1. Cross-border wire transfers
i) All cross-border wire transfers must be accompanied by accurate and

meaningful originator information.
ii) Information accompanying cross-border wire transfers must contain the name
and address of the originator and where an account exists, the number of that
account. In the absence of an account, a unique reference number, as
prevalent in the country concerned, must be included.
iii) Where several individual transfers from a single originator are bundled in a
batch file for transmission to beneficiaries in another country, they may be
exempted from including full originator information, provided they include the
originator’s account number or unique reference number as at (ii) above.
2. Domestic wire transfers
i) Information accompanying all domestic wire transfers of Rs.50000/- (Rupees

Fifty Thousand) and above must include complete originator information i.e.
name, address and account number etc., unless full originator information can
be made available to the beneficiary bank by other means.
ii) If a bank has reason to believe that a customer is intentionally structuring wire
transfer to below Rs. 50000/- (Rupees Fifty Thousand) to several beneficiaries
in order to avoid reporting or

monitoring, the bank must insist on complete customer identification before
effecting the transfer. In case of non-cooperation from the customer, efforts
should be made to establish his identity and Suspicious Transaction Report
(STR) should be made to FIU-IND.
bi) When a credit or debit card is used to effect money transfer, necessary
information as (i) above should be included in the message.
c) Exemptions
Interbank transfers and settlements where both the originator and beneficiary are banks or
financial institutions would be exempted from the above requirements.
d) Role of Ordering, Intermediary and Beneficiary banks
i) Ordering Bank
An ordering bank is the one that originates a wire transfer as per the order placed by its
customer. The ordering bank must ensure that qualifying wire transfers contain complete
originator information. The bank must also verify and preserve the information at least for
a period of ten years.
ii) Intermediary bank
For both cross-border and domestic wire transfers, a bank processing an intermediary
element of a chain of wire transfers must ensure that all originator information
accompanying a wire transfer is retained with the transfer. Where technical limitations
prevent full originator information accompanying a cross-border wire transfer from
remaining with a related domestic wire transfer, a record must be kept at least for ten
years (as required under Prevention of Money Laundering Act, 2002) by the receiving
intermediary bank of all the information received from the ordering bank.
iii) Beneficiary bank

A beneficiary bank should have effective risk-based procedures in place to identify wire
transfers lacking complete originator information. The lack
of complete originator information may be considered as a factor in assessing whether a

wire transfer or related transactions are suspicious and whether they should be reported
to the Financial Intelligence Unit-India. The beneficiary bank should also take up the
matter with the ordering bank if a transaction is not accompanied by detailed information
of the fund remitter. If the ordering bank fails to furnish information on the remitter, the
beneficiary bank should consider restricting or even terminating its business relationship
with the ordering bank.
2.23. Designated Director and Principle Officer
a) Designated Director
Banks are required to nominate a Director on their Boards as “Designated Director”, as per the
provisions of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), to
ensure overall compliance with the obligations under the Act and Rules. The name, designation and
address of the Designated Director is to be communicated to the Director, Financial Intelligence
Unit – India (FIU-IND).
b) Principal Officer
Banks should appoint a senior management officer to be designated as Principal Officer. 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. Principal Officer shall be located at the head/corporate
office of the bank and shall be responsible for monitoring and reporting of all transactions and sharing
of information as required under the law. He will maintain close liaison with enforcement agencies,
banks and any other institution which are involved in the fight against money laundering and
combating financing of terrorism
Further, the role and responsibilities of the Principal Officer should include overseeing and ensuring
overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and
obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made
thereunder, as amended form time to time. The Principal Officer will also be responsible for timely
submission of CTR, STR and reporting of counterfeit notes and all transactions involving

receipts by non-profit organisations of value more than Rupees Ten Lakh or its equivalent in foreign
currency to FIU-IND.With a view to enabling the Principal Officer to discharge his responsibilities
effectively, 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.
2.24. 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 PMLA, 2002 casts certain obligations on the banking companies in regard to
preservation and reporting of customer account information. Banks are, therefore, advised to go
through the provisions of PMLA, 2002 and the Rules notified there under and take all steps
considered necessary to ensure compliance with the requirements of Section 12 of the Act ibid.
a) Maintenance of records of transactions
Banks should introduce a system of maintaining proper record of transactions prescribed under
Rule 3 of PML Rules, 2005, 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;
Explanation - Integrally connected cash transactions referred to at (ii) above
The following transactions have taken place in a branch during the month of April 2008:
Date Mode Dr (in Rs.) Cr (in Rs.) Balance (in
Rs.) BF -
8,00,000.00

02/04/2008 Cash 5,00,000.00 3,00,000.00 6,00,000.00
07/04/2008 Cash 40,000.00 2,00,000.00 7,60,000.00
08/04/2008 Cash 4,70,000.00 1,00,000.00 3,90,000.00
Monthly 10,10,000.00 6,00,000.00
summation
iii) As per above clarification, the debit transactions in the above example are integrally
connected cash transactions because total cash debits during the calendar month
exceeds Rs. 10 lakhs
iv) All transactions involving receipts by non-profit organisations of value more than
rupees ten lakh or its equivalent in foreign currency [Ref: Government of India
Notification dated November 12, 2009- Rule 3,sub-rule (1) clause (BA) of PML Rules]
v) All cash transactions where forged or counterfeit currency notes or bank notes have
been used as genuine and where any forgery of a valuable security or a document has
taken place facilitating the transaction and
vi) All suspicious transactions whether or not made in cash and by way of as mentioned in
the Rules.
vii) All the credit transactions in the above example would not be treated as integrally
connected, as the sum total of the credit transactions during the month does not
exceed Rs.10 lakh and hence credit transaction dated 02, 07 & 08/04/2008 should not
be reported by banks.
b) Information to be preserved

Banks are required to maintain all necessary information in respect of transactions referred to in
PML Rule 3 to permit reconstruction of individual transaction, including the following information:
i) the nature of the transactions;
ii) the amount of the transaction and the currency in which it was denominated;
iii) the date on which the transaction was conducted; and
iv) the parties to the transaction.
c) Maintenance and Preservation of Records
i) Banks are required to maintain the records containing information of all transactions
including the records of transactions detailed in Rule 3 above. Banks should take
appropriate steps to evolve a system for
proper maintenance and preservation of account information in a manner that allows

data to be retrieved easily and quickly whenever required or when requested by the
competent authorities. Further, in terms of PML Amemdment Act 2012 notified on
February 15, 2013, banks should maintain for at least five years from the date of
transaction between the bank and the client, all necessary records of transactions,
both domestic or international, which will permit reconstruction of individual
transactions (including the amounts and types of currency involved if any) so as to
provide, if necessary, evidence for prosecution of persons involved in criminal activity.
ii) Banks should ensure that records pertaining to the identification of the customer and
his address (e.g. copies of documents like passports, identity cards, driving licenses,
PAN card, utility bills etc.) obtained while opening the account and during the course
of business relationship, are properly preserved for at least five years after the
business relationship is ended as required under Rule 10 of the Rules ibid. The
identification records and transaction data should be made available to the
competent authorities upon request.
iii) In paragraph 2.13 of this Master Circular, banks 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/memorandums

pertaining to such transactions and purpose thereof should, as far as possible, be
examined and the findings at branch as well as Principal Officer 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 to be preserved
for ten years as is required under PMLA, 2002.
d) Reporting to Financial Intelligence Unit - India
i) In terms of the PMLA Rules, banks are required to report information relating to cash
and suspicious transactions and all transactions
involving receipts by non-profit organisations of value more than rupees ten lakh or
its equivalent in foreign currency to the Director, Financial Intelligence Unit-India
(FIU-IND) in respect of transactions referred to in Rule 3 at the following address:
Director, FIU-IND,
Financial Intelligence Unit-India,
6th Floor, Hotel Samrat,
Chanakyapuri,
New Delhi -110021
Website - http://fiuindia.gov.in/
Explanation: Government of India Notification dated November 12, 2009- Rule 2 sub-rule (1)
clause (ca) defines Non-Profit Organization (NPO). NPO means any entity or
organisation that is registered as a trust or a society under the Societies
Registration Act, 1860 or any similar State legislation or a company registered
under section 25 of the Companies Act, 1956.
ii) The earlier prescribed multiple data files reporting format has been replaced by a
new single XML file format. FIU-IND has released a comprehensive reporting format
guide to describe the specifications of prescribed reports to FIU-IND. FIU-IND has
also developed a Report Generation Utility and Report Validation Utility to assist
reporting entities in the preparation of prescribed reports. The OM issued on
Reporting Formats under Project FINnet dated 31st March,2011 by FIU containing all

relevant details are available on FIU’s website. Banks In this regard, a reference is
also invited to
circulars DBOD.AML.BC.No.39/14.01.001/2012-13 and

DBOD.AML.BC.No.49/14.01.001/2012-13 dated September 7, 2012 and October 11,
2012 respectively. Accordingly, banks should carefully go through all the reporting
formats prescribed by FIU-IND. Accordingly, banks should carefully go through all the
reporting formats prescribed by FIU-IND.
iii) FIU-IND have placed on their website editable electronic utilities to enable banks to
file electronic CTR/STR who are yet to install/adopt suitable technological tools for
extracting CTR/STR from their live transaction data base. It is, therefore, advised that
in cases of banks, where all the branches are not fully computerized, the Principal
Officer of the bank should cull out the transaction details from branches which are not
yet computerized and suitably arrange to feed the data into an
electronic file with the help of the editable electronic utilities of CTR/STR as have
been made available by FIU-IND on their website http://fiuindia.gov.in
In terms of instructions contained in paragraph 2.3(b) of this Master Circular, banks are required
to prepare a profile for each customer based on risk categorisation. Further, vide paragraph
2.13(d), the need for periodical review of risk categorisation has been emphasized. It is, therefore,
reiterated that banks, as a part of transaction monitoring mechanism, are required to put in place
an appropriate software application to throw alerts when the transactions are inconsistent with
risk categorization and updated profile of customers. It is needless to add that a robust software
throwing alerts is essential for effective identification and reporting of suspicious transaction.
2.25. Various Reporting Formats
a) Cash Transaction Report (CTR)
While detailed instructions for filing all types of reports are given in the instructions part of the
related formats, banks should scrupulously adhere to the following:
i) The Cash Transaction Report (CTR) for each month should be submitted to FIU-
IND by 15th of the succeeding month. Cash transaction reporting by branches to
their controlling offices should, therefore, invariably be submitted on monthly basis

(not on fortnightly basis) and banks should ensure to submit CTR for every month
to FIU-IND within the prescribed time schedule.

ii) All cash transactions, where forged or counterfeit Indian currency notes have been
used as genuine should be reported by the Principal Officer to FIU-IND in the
specified format not later than seven working days from the date of occurrence of
such transactions (Counterfeit Currency Report – CCR). These cash transactions
should also include transactions where forgery of valuable security or documents
has taken place and may be reported to FIU-IND in plain text form.
iii) While filing CTR, details of individual transactions below Rupees Fifty thousand
need not be furnished.
iv) CTR should contain only the transactions carried out by the bank on behalf of their
clients/customers excluding transactions between the internal accounts of the bank.
v) A summary of cash transaction report for the bank as a whole should be compiled
by the Principal Officer of the bank every month in physical form as per the format
specified. The summary should be signed by the Principal Officer and submitted to
FIU-India.
vi) In case of Cash Transaction Reports (CTR) compiled centrally by banks for the
branches having Core Banking Solution (CBS) at their central data centre level,
banks may generate centralised Cash Transaction Reports (CTR) in respect of
branches under core banking solution at one point for onward transmission to FIU-
IND, provided:
a) The CTR is to be generated in the format prescribed by FIU-IND;
b) A copy of the monthly CTR submitted on its behalf to FIU-India is available at the
concerned branch for production to auditors/inspectors, when asked for; and
c) The instruction on ‘Maintenance of records of transactions’; ‘Information to

be preserved’ and ‘Maintenance and Preservation of records’ as contained
above in this Master Circular at Para 2.24

(a), (b) and (c) respectively are scrupulously followed by the branch.
However, in respect of branches not under CBS, the monthly CTR should continue to be
compiled and forwarded by the branch to the Principal Officer for onward transmission to FIU-
IND.
b) Suspicious Transaction Reports (STR)
i) While determining suspicious transactions, banks should be guided by definition of

suspicious transaction contained in PMLA Rules as amended from time to time.
ii) It is likely that in some cases transactions are abandoned/aborted by customers on

being asked to give some details or to provide documents. It is clarified that banks
should report all such attempted transactions in STRs, even if not completed by
customers, irrespective of the amount of the transaction.
iii) Banks should make STRs if they have reasonable ground to believe that the
transaction involve proceeds of crime generally irrespective of the amount of
transaction and/or the threshold limit envisaged for predicate offences in part B of
Schedule of PMLA, 2002.
iv) The STR should be furnished within seven days of arriving at a conclusion that any
transaction, whether cash or non-cash, or a series of transactions integrally
connected are of suspicious nature. The Principal Officer should record his reasons
for treating any transaction or a series of transactions as suspicious. It should be
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, banks may consider the indicative list of
suspicious activities contained in Annex-E of the 'IBA's
Guidance Note for Banks, January 2012’.
vi)
Banks should not put any restrictions on operations in the accounts where an STR
has been made. Banks and their employees should keep

the fact of furnishing of STR strictly confidential, as required under PML Rules. It
should be ensured that there is no tipping off to the customer at any level.
c) Non-Profit Organisation
The report of all transactions involving receipts by non- profit organizations of value more than
rupees ten lakh or its equivalent in foreign currency should be submitted every month to the
Director, FIU-IND by 15th of the succeeding month in the prescribed format.
d) Cross-border Wire Transfer
Cross-border Wire Transfer Report (CWTR) is required to be filed by 15th of succeeding month for all
cross border wire transfers of the value of more than five lakh rupees or its equivalent in foreign
currency where either the origin or destination of fund is in India.
2.26. Customer Education/Employee's Training/Employee's Hiring
a) Customer Education
Implementation of KYC procedures requires banks to demand certain information from customers
which may be of personal nature or which has hitherto never been called for. This can sometimes
lead to a lot of questioning by the customer as to the motive and purpose of collecting such
information. There is, therefore, a need for banks to prepare specific literature/ pamphlets etc. so
as to educate the customer of the objectives of the KYC programme. The front desk staff needs
to be specially trained to handle such situations while dealing with customers.
b) Employees’ Training
Banks must have an ongoing employee training programme so that the members of the staff are
adequately trained in KYC procedures. Training requirements should have different focuses for
frontline staff, compliance staff and staff dealing with new customers. It is crucial that all those
concerned fully understand the rationale behind the KYC policies and implement them
consistently.
c) Hiring of Employees

It may be appreciated that KYC norms/AML standards/CFT measures have been prescribed to
ensure that criminals are not allowed to misuse the banking
channels. It would, therefore, be necessary that adequate screening mechanism
is put in place by banks as an integral part of their recruitment/hiring process of
personnel.
Annex- I
Customer Identification Procedure
Documents that may be obtained from customers
Features Documents
Accounts of individuals
(i) Passport (ii) PAN card (iii) Voter’s
Proof of Identity Identity Card (iv) Driving License (v)Job Card issued by NREGA duly
signed by an officer of the State Govt (vi) The letter issued by the Unique
Identification Authority of India ( UIDAI) containing details of name, address and
Aadhaar number (vii) Identity card (subject to the bank’s satisfaction) (viii) Letter from
a recognized public authority or public servant verifying the identity and residence of
the customer to the satisfaction of bank

- Proof of Address Any one of the documents from the
above submitted as proof of identity
which contains an address or any of
the following:
(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 bank) ((vii) A rent agreement
indicating the address of the customer

50
duly registered with State Government
or similar registration authority.
Accounts of companies (i) Certificate of incorporation and
- Name of the company Memorandum & Articles of Association
- Principal place of business (ii) Resolution of the Board of Directors
- Mailing address of the to open an account and identification of
company those who have authority to operate
- Telephone/Fax Number the account (iii) Power of Attorney
granted to its managers, officers or
employees to transact business on its
behalf (iv) Copy of PAN allotment letter
(v) Copy of the telephone bill
Accounts of partnership firms (i) Registration certificate, if registered
- Legal name (ii) Partnership deed (iii) Power of
- Address Attorney granted to a partner or an
- Names of all partners and employee of the firm to transact
their addresses business on its behalf (iv) Any officially
- Telephone numbers of the valid document identifying the partners
firm and partners and the persons holding the Power of
Attorney and their addresses (v)
Telephone bill in the name of
firm/partners
Accounts of trusts & foundations (i) Certificate of registration, if
- Names of trustees, settlors, registered (ii) Power of Attorney
beneficiaries and signatories granted to transact business on its

behalf (iii) Any officially valid document
- Names and addresses of the to identify the trustees, settlors,
founder, the beneficiaries and those holding Power
managers/directors and the of Attorney, founders/managers/
beneficiaries directors and their addresses (iv)
Resolution of the managing body of the
foundation/association (v) Telephone
- Telephone/fax numbers
bill
Accounts of Proprietorship · Registration certificate (in the
Concerns case of a registered concern)
Proof of the name, address and · Certificate/licence issued by the
activity of the concern Municipal authorities under
Shop & Establishment Act,
· Sales and income tax returns
· CST/VAT certificate

51
· Certificate/registration document
issued by Sales Tax/Service
Tax/Professional Tax authorities
· Licenceissuedbythe
Registering authority like Certificate of

Practice issued by
Institute of Chartered Accountants of

India, Institute of Cost Accountants of
India, Institute of Company Secretaries
of India, Indian Medical Council, Food
and Drug Control Authorities,
registration/licensing document issued
in the name of the proprietary concern
by the Central Government or State
Government Authority/ Department, etc.

Banks may also accept IEC (Importer
Exporter Code) issued to the
proprietary concern by the office of
DGFT as an identity document for
opening of the bank account etc.
· The complete Income Tax return (not

just the acknowledgement) in the name
of the sole proprietor where the firm's
income is reflected, duly authenticated/
acknowledged by the Income Tax
Authorities.
· Utility bills such as electricity, water,

and landline telephone bills in the
name of the proprietary concern.

Any two of the above documents would
suffice. These documents should be in
the name of the proprietary concern.
Annex -II
File No.17015/10/2002-IS-VI
Government of India
Ministry of Home Affairs
Internal Security-I Division
New Delhi, dated 27th August, 2009
ORDER
Subject : Procedure for implementation of Section 51A of the Unlawful Activities (Prevention)Act,
1967
The Unlawful Activities (Prevention) Act, 1967 (UAPA) has been amended and notified
on 31.12.2008, which, inter-alia, inserted Section 51A to the Act. Section 51A reads as under:-
"51A. For the prevention of, and for coping with terrorist activities, the Central
Government shall have power to –
(a) freeze, seize or attach funds and other financial assets or economic resources
held by, on behalf of or at the direction of the individuals or entities Listed in the Schedule
to the Order, or any other person engaged in or suspected to be engaged in terrorism;

(b) prohibit any individual or entity from making any funds, financial assets or
economic resources or related services available for the benefit of the individuals or
entities Listed in the Schedule to the Order or any other person engaged in or suspected
to be engaged in terrorism;
(c) prevent the entry into or the transit through India of individuals Listed in the
Schedule to the Order or any other person engaged in or suspected to be engaged in
terrorism",
The Unlawful Activities (Prevention) Act define "Order" as under:-

53
"Order" means the Prevention and Suppression of Terrorism (Implementation of Security

Council Resolutions) Order, 2007, as may be amended from time to time.
In order to expeditiously and effectively implement the provisions of Section 51A, the
following procedures shall be followed:-
Appointment and Communication of details of UAPA nodal officers
2. As regards appointment and communication of details of UAPA nodal officers -
(i) The UAPA nodal officer for IS-I division would be the Joint Secretary (IS.I),
Ministry of Home Affairs. His contact details are 011-23092736(Tel), 011-
23092569(Fax) and e-mail.
(ii) The Ministry of External Affairs, Department of Economic Affairs, Foreigners

Division of MHA, FIU-IND; and RBI, SEBI, IRDA (hereinafter referred to as Regulators)
shall appoint a UAPA nodal officer and communicate the name and contact details to
the IS-I Division in MHA.
(iii) The States and UTs should appoint a UAPA nodal officer preferably of the rank
of the Principal Secretary/Secretary, Home Department and communicate the name
and contact details to the IS-I Division in MHA.
(iv) The IS-I Division in MHA would maintain the consolidated list of all UAPA nodal
officers and forward the list to all other UAPA nodal officers.
(v) The RBI, SEBI, IRDA should forward the consolidated list of UAPA nodal officers
to the banks, stock exchanges/depositories, intermediaries regulated by SEBI and
insurance companies respectively.
(vi) The consolidated list of the UAPA nodal officers should be circulated to the nodal
officer of IS-I Division of MHA in July every year and on every change. Joint

Secretary(IS-I), being the nodal officer of IS-I Division of MHA, shall cause the
amended list of UAPA nodal officers to be circulated to the nodal officers of Ministry of
External Affairs, Department of Economic Affairs, Foreigners Division of MHA, RBI,
SEBI, IRDA and FIU-IND.
Communication of the list of designated individuals/entities
3. As regards communication of the list of designated individuals/entities-
(i) The Ministry of External Affairs shall update the list of individuals and entities
subject to UN sanction measures on a regular basis. On any revision, the Ministry of
External Affairs would electronically forward

54
this list to the Nodal Officers in Regulators, FIU-IND, IS-I Division and Foreigners'
Division in MHA.
(ii) The Regulators would forward the list mentioned in (i) above (referred to as
designated lists) to the banks, stock exchanges/depositories, intermediaries regulated
by SEBI and insurance companies respectively.
(iii) The IS-I Division of MHA would forward the designated lists to the UAPA
nodal officer of all States and UTs.
(iv) The Foreigners Division of MHA would forward the designated lists to the
immigration authorities and security agencies.
Regarding funds, financial assets or economic resources or related services held in the
form of bank accounts, stocks or insurance policies etc.
4. As regards funds, financial assets or economic resources or related services held in

the form of bank accounts, stocks or insurance policies etc., the Regulators would forward the
designated lists to the banks, stock exchanges/depositories, intermediaries regulated by SEBI
and insurance companies respectively. The RBI, SEBI and IRDA would issue necessary
guidelines to banks, stock exchanges/depositories, intermediaries regulated by SEBI and
insurance companies requiring them to -
(i) Maintain updated designated lists in electronic form and run a check on the given
parameters on a regular basis to verify whether individuals or entities listed in the
schedule to the Order (referred to as designated individuals/entities) are holding any
funds, financial assets or economic resources or related services held in the form of bank
accounts, stocks or insurance policies etc. with them.
(ii) In case, the particulars of any of their customers match with the particulars of
designated individuals/entities, the banks, stock exchanges/ depositories, intermediaries
regulated by SEBI and insurance companies shall immediately, not later than 24 hours
from the time of finding out such customer, inform full particulars of the funds, financial
assets or economic resources or related services held in the form of bank accounts,
stocks or insurance policies etc. held by such customer on their books to the Joint

Secretary (IS.I), Ministry of Home Affairs, at Fax No.011-23092569 and also convey over
telephone on 011-23092736. The particulars apart from being sent by post should
necessarily be conveyed on e-mail.
(iii) The banks, stock exchanges/ depositories, intermediaries regulated by SEBI and
insurance companies shall also send by post a copy of the communication mentioned in
(ii) above to the UAPA nodal officer of the

55
state/ UT where the account is held and Regulators and FIU-IND, as the case may be.
(iv) In case, the match of any of the customers with the particulars of designated
individuals/entities is beyond doubt, the banks stock exchanges / depositories,
intermediaries regulated by SEBI and insurance companies would prevent designated
persons from conducting financial transactions, under intimation to Joint Secretary (IS.I),
Ministry of Home Affairs, at Fax No. 011-23092569 and also convey over telephone on
011-23092736. The particulars apart from being sent by post should necessarily be
conveyed on e-mail.
(v) The banks, stock exchanges/depositories, intermediaries regulated by SEBI and

insurance companies shall file a Suspicious Transaction Report (STR) with FIU-IND
covering all transactions in the accounts covered by paragraph (ii) above , carried
through or attempted, as per the prescribed format.
5. On receipt of the particulars referred to in paragraph 3(ii) above, IS-I Division of MHA
would cause a verification to be conducted by the State Police and/or the Central Agencies so as
to ensure that the individuals/entities identified by the banks, stock exchanges/depositories,
intermediaries regulated by SEBI and Insurance Companies are the ones listed as designated
individuals/entities and the funds, financial assets or economic resources or related services,
reported by banks, stock exchanges/depositories, intermediaries regulated by SEBI and
insurance companies are held by the designated individuals/entities. This verification would be
completed within a period not exceeding 5 working days from the date of receipt of such
particulars.
6. In case, the results of the verification indicate that the properties are owned by or held
for the benefit of the designated individuals/entities, an order to freeze these assets under section
51A of the UAPA would be issued within 24 hours of such verification and conveyed electronically
to the concerned bank branch, depository, branch of insurance company branch under intimation
to respective Regulators and FIU-IND. The UAPA nodal officer of IS-I Division of MHA shall also
forward a copy thereof to all the Principal Secretary/Secretary, Home Department of the States or
UTs, so that any individual or entity may be prohibited from making any funds, financial assets or
economic assets or economic resources or related services available for the benefit of the
designated individuals/entities or any other person engaged in or suspected to be engaged in
terrorism. The UAPA nodal officer of IS-I Division of MHA shall also forward a copy of the order
under Section 51A, to all Directors General of Police/Commissioners of Police of all states/UTs
for initiating action under the provisions of Unlawful Activities (Prevention) Act.
The order shall take place without prior notice to the designated individuals/entities.

56
Regarding financial assets or economic resources of the nature of immovable properties.
7. IS-I Division of MHA would electronically forward the designated lists to the UAPA nodal
officer of all States and UTs with the request to have the names of the designated
individuals/entities, on the given parameters, verified from the records of the office of the
Registrar performing the work of registration of immovable properties in their respective
jurisdiction.
8. In case, the designated individuals/entities are holding financial assets or economic

resources of the nature of immovable property and if any match with the designated
individuals/entities is found, the UAPA nodal officer of the State/UT would cause communication
of the complete particulars of such individual/entity along with complete details of the financial
assets or economic resources of the nature of immovable property to the Joint Secretary (IS.I),
Ministry of Home Affairs, immediately within 24 hours at Fax No.011-23092569 and also convey
over telephone on 011-23092736. The particulars apart from being sent by post should
necessarily be conveyed on e-mail.
9. The UAPA nodal officer of the State/UT may cause such inquiry to be conducted by the
State Police so as to ensure that the particulars sent by the Registrar performing the work of
registering immovable properties are indeed of these designated individuals/entities. This
verification would be completed within a maximum of 5 working days and should be conveyed
within 24 hours of the verification, if it matches with the particulars of the designated
individual/entity to Joint Secretary(IS-I), Ministry of Home Affairs at the Fax telephone numbers
and also on the e-mail id given below.
10. A copy of this reference should be sent to the Joint Secretary (IS.I), Ministry of Home
Affairs, at Fax No.011-23092569 and also convey over telephone on 011-23092736. The
particulars apart from being sent by post would necessarily be conveyed on e-mail. MHA may
have the verification also conducted by the Central Agencies. This verification would be
completed within a maximum of 5 working days.
11. In case, the results of the verification indicate that the particulars match with those of
designated individuals/entities, an order under Section 51A of the UAPA would be issued within
24 hours, by the nodal officer of IS-I Division of MHA and conveyed to the concerned Registrar

performing the work of registering immovable properties and to FIU-IND under intimation to the
concerned UAPA nodal officer of the State/UT.
The order shall take place without prior notice, to the designated individuals/entities.

57
12. Further, the UAPA nodal officer of the State/UT shall cause to monitor the
transactions/accounts of the designated individual/entity so as to prohibit any individual or entity
from making any funds, financial assets or economic resources or related services available for
the benefit of the individuals or entities listed in the schedule to the order or any other person
engaged in or suspected to be engaged in terrorism. The UAPA nodal officer of the State/UT
shall upon coming to his notice, transactions and attempts by third party immediately bring to the
notice of the DGP/Commissioner of Police of the State/UT for also initiating action under the
provisions of Unlawful Activities (Prevention) Act.
Implementation of requests received from foreign countries under U.N. Security Council
Resolution 1373 of 2001.
13. U.N. Security Council Resolution 1373 obligates countries to freeze without delay the
funds or other assets of persons who commit, or attempt to commit, terrorist acts or participate in
or facilitate the commission of terrorist acts; of entities owned or controlled directly or indirectly by
such persons; and of persons and entities acting on behalf of, or at the direction of such persons
and entities, including funds or other assets derived or generated from property owned or
controlled, directly or indirectly, by such persons and associated persons and entities. Each
individual country has the authority to designate the persons and entities that should have their
funds or other assets frozen. Additionally, to ensure that effective cooperation is developed
among countries, countries should examine and give effect to, if appropriate, the actions initiated
under the freezing mechanisms of other countries.
14. To give effect to the requests of foreign countries under U.N. Security Council Resolution
1373, the Ministry of External Affairs shall examine the requests made by the foreign countries
and forward it electronically, with their comments, to the UAPA nodal officer for IS-I Division for
freezing of funds or other assets.
15. The UAPA nodal officer of IS-I Division of MHA, shall cause the request to be examined,
within 5 working days so as to satisfy itself that on the basis of applicable legal principles, the
requested designation is supported by reasonable grounds, or a reasonable basis, to suspect or
believe that the proposed designee is a terrorist, one who finances terrorism or a terrorist
organization, and upon his satisfaction, request would be electronically forwarded to the nodal
officers in Regulators. FIU-IND and to the nodal officers of the States/UTs. The proposed
designee, as mentioned above would be treated as designated individuals/entities.

16. Upon receipt of the requests by these nodal officers from the UAPA nodal officer of IS-I
Division, the procedure as enumerated at paragraphs 4 to 12 above shall be followed.

58
The freezing orders shall take place without prior notice to the designated persons
involved.
Procedure for unfreezing of funds, financial assets or economic resources or related

services of individuals/entities inadvertently affected by the freezing mechanism upon
verification that the person or entity is not a designated person
17. Any individual or entity, if it has evidence to prove that the freezing of funds, financial
assets or economic resources or related services, owned/held by them has been inadvertently
frozen, they shall move an application giving the requisite evidence, in writing, to the concerned
bank, stock exchanges/depositories, intermediaries regulated by SEBI, insurance companies,
Registrar of Immovable Properties and the State/UT nodal officers.
18. The banks stock exchanges/depositories, intermediaries regulated by SEBI, insurance

companies, Registrar of Immovable Properties and the State/UT nodal officers shall inform and
forward a copy of the application together with full details of the asset frozen given by any
individual or entity informing of the funds, financial assets or economic resources or related
services have been frozen inadvertently, to the nodal officer of IS-I Division of MHA as per the
contact details given in paragraph 4(ii) above within two working days.
19. The Joint Secretary (IS-I), MHA, being the nodal officer for (IS-I) Division of MHA, shall
cause such verification as may be required on the basis of the evidence furnished by the
individual/entity and if he is satisfied, he shall pass an order, within 15 working days, unfreezing
the funds, financial assets or economic resources or related services, owned/held by such
applicant under intimation to the concerned bank, stock exchanges/depositories, intermediaries
regulated by SEBI, insurance company and the nodal officers of States/UTs. However, if it is not
possible for any reason to pass an order unfreezing the assets within fifteen working days, the
nodal officer of IS-I Division shall inform the applicant.
Communication of Orders under section 51A of Unlawful Activities (Prevention) Act.
20. All Orders under section 51A of Unlawful Activities (Prevention) Act, relating to funds,
financial assets or economic resources or related services, would be communicated to all banks,
depositories/stock exchanges, intermediaries regulated by SEBI, insurance companies through

respective Regulators, and to all the Registrars performing the work of registering immovable
properties, through the State/UT nodal officer by IS-I Division of MHA.
Regarding prevention of entry into or transit through India

59
21. As regards prevention of entry into or transit through India of the designated individuals, the
Foreigners Division of MHA, shall forward the designated lists to the immigration authorities and
security agencies with a request to prevent the entry into or the transit through India. The order
shall take place without prior notice to the designated individuals/entities.
22. The immigration authorities shall ensure strict compliance of the Orders and also
communicate the details of entry or transit through India of the designated individuals as
prevented by them to the Foreigners' Division of MHA.
Procedure for communication of compliance of action taken under Section 51A.
23. The nodal officers of IS-I Division and Foreigners Division of MHA shall furnish the details
of funds, financial assets or economic resources or related services of designated
individuals/entities frozen by an order, and details of the individuals whose entry into India or
transit through India was prevented, respectively, to the Ministry of External Affairs for onward
communication to the United Nations.
24. All concerned are requested to ensure strict compliance of this order.
(D .Diptivilasa)
Joint Secretary to Government of India

Annex - III
Government of India
Ministry of Finance
(Department of Revenue)
Notification
New Delhi, the 16th December 2010
GSR ------ (E) – In exercise of the powers conferred by sub-section (1)
read with clauses (h) (i), (j) and (k) of sub-section (2) of Section 73 of the
Prevention of Money-laundering Act, 2002 (15 of 2003), the Central Government hereby
makes the following amendments to the 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,
namely::-
1. (1)These rules may be called the 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) Third Amendment Rules, 2010.
(2) They shall come into force on the date of their publication in the Official
Gazette.
2. In the 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, -
(a) in rule 2,-
(i) after clause (b), the following clause shall be inserted, namely:-
“(bb) “Designated Officer” means any officer or a class of officers authorized by a

banking company, either by name or by designation, for the purpose of opening
small accounts”.
(ii) in clause (d), for the words “the Election Commission of India or
any other document as may be required by the banking company or financial institution or
intermediary”, the words “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 other
document as notified by the Central Government in consultation with the Reserve Bank of
India or any other document as may be required by the banking companies, or financial
institution or intermediary” shall be substituted;
(iii) after clause (fa), the following clause shall be inserted, namely:-
“(fb) “small account” means a savings account in a banking company where-

(i) the aggregate of all credits in a financial year does not exceed rupees
one lakh,
(ii) the aggregate of all withdrawals and transfers in a month does not
exceed rupees ten thousand, and;
(iii) the balance at any point of time does not exceed rupees fifty thousand”.
(b) In rule 9, after sub-rule (2), the following sub-rule shall be inserted, namely:-
“(2A) Notwithstanding anything contained in sub-rule (2), an individual who desires to

open a small account in a banking company may be allowed to open such an account
on production of a self-attested photograph and affixation of signature or thumb print,
as the case may be, on the form for opening the account.
Provided that –

(i) the designated officer of the banking company, while opening the small account,
certifies under his signature that the person opening the account has affixed his
signature or thumb print, as the case may be, in his presence;
(ii) a small account shall be opened only at Core Banking Solution linked banking
company branches or in a branch where it is possible to manually monitor and ensure
that foreign remittances are not credited to a small account and that the stipulated limits
on monthly and annual aggregate of transactions and balance in such accounts are not
breached, before a transaction is allowed to take place;
(iii) a small account shall remain operational initially for a period of twelve months,
and thereafter for a further period of twelve months if the holder of such an account
provides evidence before the banking company of having applied for any of the
officially valid documents within twelve months of the opening of the said account, with
the entire relaxation provisions to be reviewed in respect of the said account after
twenty four months.
(iv) a small account shall be monitored and when there is suspicion of money
laundering or financing of terrorism or other high risk scenarios, the identity of client
shall be established through the production of officially valid documents, as referred to
in sub rule ( 2) of rule 9"; and
(v) foreign remittance shall not be allowed to be credited into a small account unless
the identity of the client is fully established through the production of officially valid
documents, as referred to in sub-rule (2) of rule 9.”
(Notification No.14/2010/F.No.6/2/2007-ES)
(S.R. Meena)
Under Secretary

GLOSSARY OF TERMS
AML Anti-Money Laundering

BM Branch Manager
BDD Basic Due Diligence
CAP Customer Acceptance Program
CBI Central Bureau of Investigation
CBS Core Banking Solution
CCR Counterfeit Currency Report
CRCM Customer Risk Categorisation Model
CDD Customer Due Diligence
CIP Customer Identification Program
CRO Customer Relationship Officer
CTR Cash Transaction Report
DCCB District Central Cooperative Bank
EDD Enhanced Due Diligence
FATF Financial Action Task Force
FIU-IND Financial Intelligence Unit - India
HNI High Net Worth Individual
HUF Hindu Undivided Family
IBA Indian Banks’ Association
KYC Know Your Customer
ML Money Laundering
NRI Non-Resident Indian
PACS Primary Agricultural Cooperative Societies
PEP Politically Exposed Person
PIO Person of Indian Origin
PMLA Prevention of Money Laundering Act 2002
PMLR Prevention of Money Laundering Rules 2005
PO Principal Officer
RBI Reserve Bank of India
RRB Regional Rural Banks
NABARD National Bank for Agriculture and Rural Development
NAFSCOB National Federation of State Cooperative Banks
NRI Non Resident Indian
NSDL National Securities Depository Limited
NTR Non-Profit Organisation Transaction Reports
SA Staff Assistant
SCB State Cooperative Banks
SDD Simplified Due Diligence
STR Suspicious Transaction Report
UAPA Unlawful Activities Prevention Act
UN United Nations
UNSCR United Nation Security Council Resolution

KYC/AML recollected questions 8-7-18
Paper was difficult & twisted.
{Periodicity of risk categorization,stages of money laundering 2 marks questions

almost 4,desidnated director is designated by?,pmla amendments almost 4
questions,str,ccr,period of retention of transaction,which banks is not included in
Wolfsburg banks,responsibility of board of directors and PO,reporting
entity,transaction means,person means,which countries need permission to open
account,egmont group,which laws r in USA legislation,act related to
Australia,freezing of assets power lies with whom,fiu-ind 2-3 questions,social impact
of m/l,which is not stage in m/l,multiple tier account,pep,updation of kyc policy,ckycr
assign identifier of whom,legislation supporting aml measure,shell bank,elements of
kyc policy,stages of cip,simplified due diligence,utility bill,proprietary firm,small ac
Disclaimer
While every effort has been made by me to avoid errors or omissions in this publication, any error
ordiscrepancy noted may be brought to my notice throughr e-mail to [email protected] which
shall be taken care of in the subsequent editions. It is also suggested that toclarify any doubt colleagues
should cross-check the facts, laws and contents of this publication with original Govt. / RBI /
Manuals/Circulars/Notifications/Memo/Spl Comm. of our bank.
Blog for updates: https://iibfadda.blogspot.com/


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IIBF & NISM Adda

Anti-Money Laundering & Know Your Customer

Srinivas Kante B.Tech, CAIIB

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IIBF Certificate Examination

To provide advanced knowledge and understanding in AML / KYC standards and

Employees of Banks / NBFCs / Financial Institutions / Insurance Companies etc. are

eligible to write the examination.

EXAMINATION FEES / REGISTRATION FEEAN INSTITUTE OF BANKING & FINANCE

Subsequent each attempt `1,124/- * `1,685/- *

Examination will be conducted in English only.

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(i) Anti Money Laundering

(ii) Know Your Customer - Introduction and overview

Customer Profile - KYC Policies - Countries Deficient in KYC Policies,

the KYC Principles - Transaction Profile - Organisational Structure - Important

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1.1 Statement of commitment

2.2 High Net-Worth Individual

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3 Legislative and Regulatory Framework

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3.3 Consequences of Non-Compliance

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3. Money laundering methods

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Image from UNODC

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5. Terrorism Financing are 3 types

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 Deposit Structuring/ smurfing:Deposting monet bewlow threshold . In india 10 lakh is

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6.ML Global measures can be achieved by

A. Engagement of international organizations

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8.FATF IX Special Recommendations on Terrorist Financing:::

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9.FATF Regional bodies

There are eight regional FATF-style bodies and FATF Associate

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11. Wolfsberg Group:: 13 Banks

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12.AML/CFT legislation in Major countries

. Terrorism Act 2000

 Anti-terrorism, Crime and Security Act 2001

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14.The Prevention of Money Laundering Act

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Organization Strength of FIU-IND

Financial Intelligence Unit – India (FIU-IND)

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1. The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used,

9. Documents and other information to be collected from different categories of customers