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| What is Money Laundering? |
| Money laundering is the act of taking illegal money ("dirty" money) and putting it through a cycle of
transactions that “washes” the funds and “cleans” them, making the money look like proceeds from legal
activities. |
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| Who is a Money Launderer? |
| A money launderer is a person or a group that either has possession of the proceeds of a crime or of the
assets that represent the proceeds of illegal activities such as fraud, theft, drug trafficking, or any other
crimes |
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| Regulatory Regime |
| The Prevention of Money Laundering Act, 2002 (PMLA) has come into effect from 1st
July 2005 in India. |
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| To Whom it is Applicable |
| The Act covers Banking Companies, Financial Institutions and Market Intermediaries i.e. Stock-Broker,
Sub-Broker, Share Transfer Agent, Depository Participants, Portfolio Manager, Investment Adviser etc.
registered under Section 12 of the SEBI Act. W.e.f. November 25, 2009, the PMLA Guidelines has also
been adopted by FMC (for Commodities segment) |
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| Who is a Principal Officer? |
| Every banking company, financial institution and Intermediary has to designate a “Principal Officer”and
has to communicate the details of the Principal Officer (name, designation & address) to the Office of the
Director-FIU-New Delhi. Principal Officer is responsible for ensuring compliance relating to PMLA. |
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| Stages in Money Laundering Cycle |
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Placement: Where the dirty money is placed into the financial institutions or retail economy through Bank
Deposits etc. |
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Layering: Means separating the illegally obtained money from its source through a series of financial
transactions that makes it difficult to trace the origin i.e. several bank-to-bank transfers, wire transfers
between different accounts in different names in different countries, changing the money's currency etc. |
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Integration: Means converting the illicit funds into a actually legal form i.e. by Purchase of high value
goods/property, purchasing businesses, automobiles and other assets. |
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(Picture below showing different stages in Money Laundering) |
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| Prescribe Value and Nature of Transactions for Which Records Need to be Maintained |
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All cash transactions of the value of more than Rs 10 lacs or its equivalent in foreign currency |
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All series of cash transactions integrally connected to each other which have been valued below Rs 10 lacs
or its equivalent in foreign currency where such series of transactions take place within one calendar month. |
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All suspicious transactions whether or not made in cash |
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Transactions remotely connected or related should also be considered. |
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| What is a Suspicious Transactions? |
| Suspicious transaction means a tr
ansaction whether or not made in cash which, to a person acting in good faith – |
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gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or |
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appears to be made in circumstances of unusual or unjustified complexity; or |
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appears to have no economic grounds or bonafide purpose. |
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| Illustrative List of Suspicious Transaction in Broking Industry are as follows |
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Client Identity/Background |
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False / incorrect identification documents |
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Client not present for registration personally |
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Suspicious background or links with known criminals |
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Multiple Accounts / Activity in Account |
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Large number of accounts having a common account holder |
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Unexplained transfers between multiple accounts with no rationale |
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Unusual activity compared to past transactions |
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Doubt over the real beneficiary of the account |
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Particulars of Transactions |
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Pay-Out/Pay-In of funds and securities transferred to /from a third party |
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Off market transactions especially in illiquid stock and in F & O at unrealistic prices |
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Large sums being transferred from overseas for making payments |
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Inconsistent with the clients’ financial background |
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| Key Features of PMLA |
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Client Due Diligence which include policy for acceptance and identification of clients. |
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Record keeping procedures including retention thereof. |
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Monitoring of transactions |
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Suspicious transactions monitoring and reporting. |
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Appointment of Principal Officer. |
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Continuous review of procedures and systems. |
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Ongoing training and up gradation of skill set. |
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