PMLA Policy
Background, Purpose and Objective
- The Prevention of Money Laundering Act, 2002 (PMLA) has been brought into force with effect from 1st July 2005 and summarizes the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India and provides guidance on the practical implications of the Act. Director Financial Intelligence Unit-INDIA (FIU-IND) has been conferred with exclusive and concurrent powers under relevant sections to implement the provisions of the act. The PMLA 2002 imposes an obligation on banking companies as well as the financial institutions and intermediaries associated with the security market and which are registered with SEBI under section 12 of SEBI Act – 1992 to adhere to client account opening procedures and maintain records of such transactions as prescribed by the PMLA and the rules notified there under. The application of anti-money laundering measures by Market Intermediaries has been emphasized by international regulatory agencies as a key element in combating money laundering. Establishment of anti money laundering programs by Market Intermediaries is one of the central recommendations of the Financial Action Task Force.
- In terms of the guidelines issued by SEBI vide Master Circular no. SEBI/HO/MIRSD/DOS3/CIR/P/2018/104 dated 04.07.2018 each registered intermediary shall adopt written procedures to implement the anti money laundering provisions as envisaged under the PMLA to discourage and to identify any money laundering or terrorist financing activities. Such procedures shall include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process:
- a. Policy for acceptance of clients
- b. Procedure for identifying the clients
- c. Transaction monitoring and Suspicious Transactions Reporting (STR).
- BOI Shareholding Ltd (BOISL) being a SEBI-registered market intermediary as defined under Section 12 of the SEBI Act, 1992 is required to comply with the requirements of the Prevention of Money Laundering Act, 2002 (PMLA) and the rules notified there under from time to time. Further consideration to the amendment vide notification dated March 6, 2009 and inter-alia which provides the 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 scheduled offence under schedule B of the PMLA.
BOISL thus, will ensure the following:
- Put in place procedures of internal control aimed at preventing criminal elements from using the company for Money Laundering and terrorist financing.
- Put in place appropriate control for identifying, monitoring and reporting of suspected Money Laundering or terrorist financing transactions to the law enforcement authorities.
- Comply with applicable laws and regulatory guidelines.
- That the contents of these guidelines are understood by all staff members.
- Review regularly the policies and procedures on prevention of money laundering and terrorist financing to ensure their effectiveness.
- Adopt customer acceptance policies and procedures which are sensitive to the risk of money laundering and terrorist financing.
- Undertake customer due diligence (“CDD”) measures to an extent that is sensitive to the risk of money laundering and terrorist financing depending on the type of customer, business relationship or transaction.
- Develop staff members’ awareness and vigilance to guard against money laundering and terrorist financing
- Undertake enhanced customer due diligence when there is suspicion of money laundering or financing of terrorism.
- Have a system in place for identifying, monitoring and reporting suspected money laundering or terrorist financing transactions to the law enforcement authorities.
- Policies and procedure to combat Money Laundering will cover :
- Communication of group policies relating to prevention of Money Laundering and Terrorist Financing to all management and relevant staff that handle account information, securities transaction and client records.
- Client acceptance policy and client due diligence, including requirement of proper identification.
- Maintenance of records
- Compliance with relevant statutory and regulatory requirements;
- Co-operation with relevant law enforcement authorities, including timely disclosure of information
- Role of internal audit or compliance function to ensure compliance with policies, procedure and controls relating to the prevention of Money Laundering and Terrorist financing including the testing of the system for detecting suspected money laundering transactions and its reporting. The internal audit function shall be independent.
This Policy only supplements the existing SEBI / FIU guidelines relating to KYC / AML /CFT and any subsequent guidelines from the date of the Policy on KYC/AML will be implemented immediately, with subsequent ratification by the Board. Extant regulations will at any point of time override this Policy.
Definitions
a. Money Laundering: Money Laundering, as explained in the act, is moving illegally acquired cash through financial systems so that it appears to be legally acquired. There are three common stages of money laundering as detailed below which are resorted to by the launderers and Market Intermediaries which may unwittingly get exposed to a potential criminal activity while undertaking normal business transactions: –
- Placement - the physical disposal of cash proceeds derived from illegal activity.
- Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the source of money, subvert the audit trail and provide anonymity.
- Integration - placing the laundered proceeds back into the economy creating the impression of apparent legitimacy to criminally derived wealth.
Using the above methods, the laundered proceeds re-enter the financial system appearing to be normal business funds. Market Intermediaries are therefore placed with a statutory duty to make a disclosure to the authorized officer when knowing or suspecting that any property, in whole or in part, directly or indirectly, representing the proceeds of drug trafficking or of a predicated offence, or was or is intended to be used in that connection is passing through the Market Intermediaries. Law protects such disclosures, enabling the person with information to be able to disclose the same without any fear. Market Intermediaries likewise need not fear of breaching their duty of confidentiality owed to customers.
b. Offence of Money Laundering: As per Section 3 of the Prevention of Money Laundering (PML) Act 2002: “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting it as untainted property shall be guilty of the offence of money laundering.”
c. Proceeds of Crime: As per section 2 of PML Act – “Proceeds of Crime” means “any property derived or obtained directly or indirectly by any person as a result of criminal activities relating to a scheduled offence or the value of any such property. (The term “Property” includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences).
Obligations under Prevention of Money Laundering Act, 2002 (PMLA)
PML Act 2002 as amended from time to time places certain obligations on every banking company, financial institution and intermediary, which include:
- Appointment of a Principal Officer and Designated Director;
- Maintaining records of prescribed transactions;
- Furnishing information of prescribed transactions to the specified authority;
- Verifying and maintaining records of the identity and address of its clients and shall include updated records of the identification data, account files and business correspondence;
- Preserving records in respect of [b] and [c] above for a period of at least eight years from the date of each such transaction between BOISL and the client;
- Preserving records in respect of [d] above for a period of at least eight years after the business relationship is ended or the account closed, whichever is later.
Client Due Diligence
The client due diligence (“CDD”) measures comprises the following:
- BOISL will open accounts referred by Members of BSE/NSE or already existing clients or clients complying with all KYC norms
- BOISL will obtain sufficient information in order to identify persons who beneficially own or control securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party should be identified using client identification and verification procedures.
- The beneficial owner is the natural person who ultimately owns controls or influences client/persons on whose behalf a transaction is being conducted. It also incorporates persons who exercise control over legal person.
- Understand the ownership and control structure of the clients.
- Conduct ongoing due diligence and scrutiny throughout the course of business relationship to ensure that the transactions conducted are consistent with its business, risk profile.
- BOISL will periodically update all documents of all clients and beneficial owners collected under Client due diligence process.
- BOISL will verify the customer’s identity using reliable, independent source of documents, data or information; As for the acceptability of KYC documents for different types of clients, BOISL will be guided by the ‘DP Operating Instructions’ of CDSL and ‘Compliance Manual’ and ‘Master circular on Account opening’ of NSDL. In person verification will be carried out by BOISL while opening of accounts either personally or if the BO is referred by a SEBI registered Clearing Member, the clearing Member is authorised by SEBI to do In Person Verification and mention the same on the PAN card copy.
- BOISL will monitor for Multiple demat accounts opened with same demographic details, Alerts for account opened with same PAN/Mobile No, email id, Bank account, address considering the existing account
- BOISL will monitor the communication vide email and Letter send to registered email ID or address of clients which are getting bounced
- BOISL will monitor the frequent changes of address, email id., mobile no, authorized signatory
Guidelines on Identification of Beneficial Ownership
In case of accounts other than individual or trust
- Where the client is a person other than an individual or trust viz. Company, Partnership or unincorporated association/body of individual BOISL shall identify the beneficial owners of the client account by identifying who is the natural person exercising control through ownership. BOISL will obtain shareholding pattern in case of these accounts and obtain KYC of the controlling person for shareholding above 25% in case of corporate (other than Listed Companies/Public Ltd. Companies) and above 15% in case of partnership and unincorporated association or body of individuals.
- In case of trust, BOISL shall identify the Beneficial Owner – beneficiaries with 15 % or more interest in the trust and any natural person exercising control over the trust.
Exemption In case of Account to be opened for Listed Companies:-
If the client or the owner of the controlling interest of a company is listed on an Exchange or is a majority owned subsidiary of such company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.
In case of account to be opened of foreign investor
Intermediaries dealing with foreign investors’ may be guided by the clarifications issued vide SEBI circulars CIR/MIESD/11/2012 dated September 5, 2012 and CIR/MIRSD/07/2013 dated September 12, 2013 or subsequent circulars issued by SEBI in the subject, for the purpose of beneficial ownership of the client.
Foreign Institutional Investor, Sub Accounts and Qualified Foreign Investors. The KYC is to be done as per the category – Category I-III of the eligible foreign investors investing under PIS route as follows :-
| Category | Eligible Foreign Investors |
|---|---|
|
I. |
Government and Government related foreign investors
such as Foreign Central Banks, Governmental Agencies,
Sovereign Wealth Funds, International/ Multilateral Organizations/ Agencies
|
|
II. |
a) Appropriately regulated broad based funds such as
Mutual Funds, Investment Trusts, Insurance /
Reinsurance Companies, Other Broad Based Funds
etc. b) Appropriately regulated entities such as Banks, Asset Management Companies, Investment Managers/ Advisors, Portfolio Managers etc. c) Broad based funds whose investment manager is appropriately regulated d) University Funds and Pension Funds e) University related Endowments already registered with SEBI as FII/Sub Account III. All other eligible foreign investors |
|
III. |
All other eligible foreign investors investing in India under
PIS route not eligible under Category I and II such as
Endowments, Charitable Societies/Trust, Foundations,
Corporate Bodies, Trusts, Individuals, Family Offices, etc.
|
The KYC documents to be obtained for each category and for entity, Senior Management, Authorised signatory and the BO are as follows :-
| Type | Document Particulars | Category - I | Category - II | Category - III |
|---|---|---|---|---|
|
Entity Level |
Constitutive Docs |
Required |
Required |
Required |
|
|
Proof of Address |
Required |
Required |
Required |
|
|
PAN Card |
Required |
Required |
Required |
|
|
Financials |
Exempt |
Exempt |
Risk based
– Financial data
Sufficient.
|
|
|
SEBI
Registration
Certificate
|
Required |
Required |
Required |
|
|
Board
Resolution
|
Exempt |
Required |
Required |
|
|
KYC Form |
Required |
Required |
Required |
|
Senior |
List |
Required |
Required |
Required |
|
Management
(Whole Time
Directors/
Partners/
Trustees/
etc.)
|
Proof Of
Identity
|
Exempt |
Exempt |
Entity declares on
letterhead – full name,
nationality and DoB OR Photo-identity proof
|
|
|
Proof of
Address
|
Exempt |
Exempt |
Declaration on letter head |
|
|
Photographs |
Exempt |
Exempt |
Exempt |
|
Authorized
Signatories
|
List &
Signatures
|
Required
– List of Global
Custodian (‘GC’)
signatories can be
given in case of POA to
GC |
Required
– List of GC signatories
can be given in case of
POA to GC
|
Required |
|
|
Proof Of
Identity
|
Not required |
Not required |
Required |
|
|
Proof of
Address
|
Not required |
Not required |
Required |
|
|
Photographs |
Not required |
Not required |
Required |
|
Ultimate
Beneficial
Owner
(‘UBO’)
|
List |
Exempt |
Required
– Can declare “no UBO
over 25%”
Required
Proof Of
|
Required |
|
|
Proof Of
Identity
|
Exempt |
Exempt |
Required |
|
|
Proof of
Address
|
Exempt |
Exempt |
Exempt |
|
|
Photographs |
Exempt |
Exempt |
Exempt |
- BOISL will verify the identity of the beneficial owner of the customer and/or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c); and
- Understand the ownership and control structure of the client.
- BOISL will conduct ongoing due diligence and scrutiny for
- Transaction value above Rs. 5 lakhs for Medium and low risk clients.
- Transaction value above Rs.3 Lakh for High Risk clients,
- Dormant transactions
- Value of transactions not proportionate to income,