Financial Intelligence Unit (FIU-Ind)
Financial Intelligence Unit - the concept
The following diagram46 of the basic FIU concept shows that efficient FIUs provide assistance in exchanging information between financial institutions and law enforcement / prosecutorial authorities and between jurisdictions.
Source: UNODC
The
four basic FIU models recognized by the Egmont Group are Law Enforcement Model,
Judicial Model, Administrative Model and Hybrid-Administrative Model.
Law Enforcement-type FIUs: Authorities that implement anti-money laundering measures alongside already existing law enforcement systems, supporting the efforts of multiple law enforcement agencies or judicial authorities with concurrent or sometimes competing jurisdictional authority to investigate money laundering.
Judicial or Prosecutorial-type FIUs : The judicial model is established within the judicial branch of government wherein “disclosures” of suspicious financial activity are received by the investigative agencies of a country from its financial sector such that the judiciary powers can be brought into play e.g. seizing funds, freezing accounts, conducting interrogations, detaining people, conducting searches, etc.
Administrative-type FIUs: Centralized, independent, administrative authorities that receive and process information from the financial sector and transmit disclosures to judicial or law enforcement authorities for prosecution. That type of FIU functions as a “buffer” between the financial and the law enforcement communities.
Mixed or Hybrid FIUs: The hybrid model serves as a disclosure intermediary and a link to both judicial and law enforcement authorities. It combines elements of at least two of the FIU models.
The internal organization of an FIU
The internal organization of an FIU varies depending on its functions and size. A sound internal organization is essential to efficiency and success.
Source: UNODC
Most FIUs
have analysis departments which are the key departments that receive and
analyze the suspicious transaction reports. The department for international
cooperation and data exchange – authorized to communicate directly with
counterpart FIUs and other foreign bodies– usually covers multilateral and
bilateral cooperation matters. If an FIU reaches a certain size it should have
a department of administration to supervise the compliance of reporting
entities with AML-CFT requirements. The department of compliance that carries
out regulatory and supervisory functions monitors compliance with AML-CFT
requirements and initiates the sanctions mechanism in case of serious failures
to report transactions. Since information technology facilitates the work of
the FIU organizations the maintenance of the supporting computing
infrastructure becomes a vital component of the FIUs’ operations. The
department of information technology and security personnel takes care of this
matter
The Financial Intelligence Unit-India (FIU-IND)
An organization under the Government of India's Department of Revenue that collects financial intelligence related to offenses under the Prevention of Money Laundering Act (PMLA) of 2002.
The PMLA was enacted to fight against the criminal offense of legalizing income or profits from an illegal source. It also allows the government or public authority to confiscate property earned from illegally gained proceeds. By serving as a centralised hub for financial intelligence, FIU-IND enables proactive detection and disruption of illicit financial activities, thereby safeguarding the integrity of the nation's financial system.
The PMLA and its rules impose obligations on banking companies, financial institutions, intermediaries, and people carrying on a designated business or profession. These obligations include: Verifying the identity of clients, Maintaining records, and Furnishing information to FIU-IND.
For example, in March 2024, FIU-IND
imposed a penalty of Rs. 5,49,00,000 on Paytm Payments Bank Ltd after
receiving information from law enforcement agencies about illegal acts,
including facilitating online gambling.
PMLA incorporates
two different sets of provisions- one relating to maintenance and furnishing of
information by the reporting entities to t h e FlU and the second relating to
investigation, search, seizure, collection of evidence, prosecution, etc. for money
laundering. The Director, FIU-IND is the prescribed authority for enforcement
of the provisions relating to maintenance of records and furnishing of
information by the reporting entities. The Director of Enforcement is the
relevant authority for investigation, search, seizure, confiscation of
property, and prosecution for the offence of money laundering. The predicate
offences are included in the Schedule to the Act. The Schedule includes 156
offences under 28 different laws. Section 3 of PMLA criminalizes the money
laundering and Section 4 lays down the punishment for the offence of money
laundering. An offender is liable for rigorous imprisonment for a term of not
less than three years,extending up to seven years as well as fine.
i) Concerning suspected proceeds of crime and potential financing of terrorism,
or
ii) Required by national legislation or regulation in order to combat money
laundering and terrorism financing.
India became a
member of Egmont group in 2007. FIUs have to conform to international
standards, particularly the recommendations of the Financial Action Task Force
(FATF).
FATF
Recommendation 29: "Countries should establish a financial intelligence
unit (FIU) that serves as a national Centre for the receipt and analysis of:
(a) suspicious transaction reports; and
(b) other information relevant to money
laundering, associated predicate offences and terrorist financing, and for the
dissemination of the results of that analysis.
The FIU should be
able to obtain additional information from reporting entities, and should have
access on a timely basis to the financial, administrative and law enforcement
information that it requires to undertake its functions properly."
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.
Unlike ED( Enforcement Directorate), they
only have one office in India at New Delhi.
FIU-IND is an independent body reporting
directly to the Economic Intelligence Council (EIC) headed by the Finance
Minister.
For administrative purposes, FIU-IND is under the control of the Department of
Revenue, Ministry of Finance.
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 a multi disciplinary body
headed by the Director with personnel 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.
FIU-IND is not a regulatory authority. Its
prime responsibility is to gather and share financial intelligence in close
cooperation with the regulatory authorities including RBI, SEBI and IRDA.
FIU-IND will process and analyse received financial information disseminate
actionable intelligence in appropriate cases to relevant enforcement agencies.
Mission
Statement To provide quality financial intelligence for safeguarding the
financial system from the abuses of money laundering, terrorism financing and
other economic offences.
Organization
Vision To become a highly agile and trusted organization that is globally
recognized as an efficient and effective Financial Intelligence Unit.
THREE
POINT STRATEGIC OBJECTIVES OF FIU IND:
- Combating money laundering, financing of terrorism and
other economic offences;
- Deterring money laundering and financing of terrorism;
- Building and strengthening organizational
capacity.
These
objectives are proposed to be achieved through the following thrust areas:
• Effective
collection, analysis and dissemination of information
• Enhanced
domestic and international cooperation
• Building
capacity ofreporting entities
• Ensuring
compliance to reporting obligations under PMLA
• Building
organizational resources
• Strengthening IT
infrastructure in FIU
In its day to day
activities, FIU-Ind receives Information, analyze , uncovers patterns and
typologies and disseminate . In this process, FIU-Ind coordinates with foreign
institutions and law enforcement agencies including the Egmont group, undertake
Training & Development programs to educate and create awareness about AML/CFT
requirements. It also takes punitive measures where serious offences under PMLA
2002 are identified.
The Director reports to the Finance Minister along with the Directorate of Enforcement. However, the Additional Directors under him carry out the functions of FIU IND
The Functions of FIU-IND
·
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 with REs and LEAs.
·
Research
and Analysis: Monitor and identify strategic key areas on money laundering trends,
typologies and developments.
FIU-IND contributed to the activities of the Egmont Group by participating in the Operational Working Group, Training Working Group and providing inputs for IT working Group. During the year, FIU-IND signed four MoUs with the FIUs of Australia, Canada, USA, and Sri Lanka. MoUs are also under negotiation with many other countries. Our commitment to the international efforts to combat ML/TF would continue.
FIUs exchange information with other FIUs on the basis of reciprocity or mutual agreement and consistent with procedures understood by the requested and requesting party. An FIU requesting information should disclose, to the FIU that will process the request, at a minimum the reason for the request, the purpose for which the information will be used and enough information to enable the receiving FIU to determine whether the request complies with its domestic law.
FIU-IND collects
information from various sources to identify suspicious financial transactions.
Some of the primary sources of information include:
- Financial
Institutions: FIU-IND receives reports of suspicious transactions from
banks, non-banking financial companies, and other financial institutions.
These institutions are required to report any transactions that they
suspect to be related to money laundering or terrorism financing.
- Regulatory
Authorities: FIU-IND receives information from various regulatory
authorities, such as the Securities and Exchange Board of India (SEBI),
Reserve Bank of India (RBI), and Insurance Regulatory and Development
Authority (IRDAI).
- Law
Enforcement Agencies: FIU-IND also receives information from law
enforcement agencies, such as the police and the Income Tax Department,
who may have come across suspicious financial transactions during their
investigations.
- Public:
FIU-IND has a dedicated portal called the Suspicious Transaction Reporting
(STR) web portal where members of the public can report any suspicious
financial transactions they come across.
- Once
FIU-IND receives the information, it uses various analytical tools and
techniques to identify any suspicious patterns or trends. If a transaction
is found to be suspicious, FIU-IND shares the information with the
appropriate law enforcement agencies to take further action.
FIU-IND receives reports on cash transactions, suspicious transactions, counterfeit currency transactions, funds received by non-profit organisations Rs 10 laks or equivalent in FX and cross-border wire transfers above INR 500,000. FIU-IND analyses the reports received and disseminates actionable intelligence to agencies specified in Section 66 of PMLA or notified thereunder.
Two new
reports, introduced from 15th February 2013, are relating to cross
border transactions and immovable properties transactions valuing more than INR
5 million.
FIU-IND
performs both operational and strategic analysis and identifies key money
laundering trends, typologies and developments based on the analysis of its
database.
The Mutual Evaluation : FATF
The FATF conducts mutual evaluations of its members’ levels of
implementation of the FATF Recommendations on an ongoing basis. These are peer
reviews, where members from different countries assess another country.
The FATF Methodology for assessing compliance with the FATF
Recommendations and the effectiveness of AML/CFT systems sets out the
evaluation process.
Assessments focus on two areas, effectiveness and technical compliance.
- The
emphasis of any assessment is on effectiveness. A
country must demonstrate that, in the context of the risks it is exposed
to, it has an effective framework to protect the financial system from
abuse. The assessment team will look at 11 key areas, or immediate
outcomes, to determine the level of effectiveness of a country's efforts.
- The
assessment also looks at whether a country has met all the technical requirements
of each of the 40 FATF Recommendations in its laws, regulations and other
legal instruments to combat money laundering, and the financing of
terrorism and proliferation.
A mutual evaluation report provides an in-depth description and
analysis of a country’s system for preventing criminal abuse of the financial
system as well as focused recommendations to the country to further strengthen
its system.
The Methodology will be used by the FATF, the FATF-Style
Regional Bodies (FSRBs) and other assessment bodies such as the IMF and the
World Bank. The Methodology was adopted on 22 February 2013, and
regularly updated
The Mutual Evaluation India 2023
The fourth round of mutual evaluations, that got
postponed due to the COVID-19 pandemic
and the pause in the FATF's assessment process, finally got done in November
2023
The Mutual Evaluation Report
of India, which was adopted in the FATF plenary held in Singapore from June 26
and June 28, 2024 places India in the “regular follow-up” category, a distinction
shared by only four other G-20 countries.
In a statement, the FATF
said plenary concluded that India had reached a high level of technical
compliance with its requirements. The country’s anti-money laundering (AML),
countering the financing of terrorism (CFT), and counter-proliferation
financing (CPF) regime was achieving good results, including international
cooperation, access to basic and beneficial ownership information, use of
financial intelligence, and depriving criminals of their assets, etc.
Among
other things, the FATF has recognised the efforts made by India on the issue of
mitigating the risks arising from ML/TF, including the laundering of proceeds
from corruption, fraud, and organised crime, and the effective measures
implemented by India to transition from a cash-based to a digital economy to
reduce ML/TF risks.
Implementation of the JAM
(Jan Dhan, Aadhaar, Mobile) Trinity, along with stringent regulations on cash
transactions, has led to a significant increase in financial inclusion and
digital transactions; these measures have made transactions more traceable,
thereby mitigating ML/TF risks and enhancing financial inclusion.
However, the FATF observed
that improvements were needed to strengthen the supervision and implementation
of preventive measures in some non-financial sectors.
Good
ratings would lead to better access to global financial markets and
institutions and increase investor confidence. It would also help in the global
expansion of the Unified Payments Interface (UPI), India’s fast payment system.
FINnet 2.0
Financial Intelligence Network FINnet 1.0 upgraded to FINnet 2.0 during 2023-24 employing advanced features such as Artificial Intelligence, Machine .Learning , Natural Language Processing (NLP) and APIs to connect to external systems and host of other features to enhance utility to all stakeholders. Project FINnet 2.0 of FUI IND envisions to streamline and redefine the process of collection, processing, and dissemination of data for the purpose of effectively generating meaningful intelligence to curb money laundering and terrorist financing activities and enforce the provisions of PMLA in India.
FINnet 2.0 is being implemented as a set of three systems
to ensure that the data ingested and processed by the three is isolated and
immune to security threats as much as possible and all data is secure. The
systems are listed below –
§ FINGate
– Collection and pre-processing system
§ FINCore
– Processing and analysis system
§ FINex
– Dissemination system
The FINnet 2.0 reporting generating System, i-RISE (Regulatory Intelligence
Solution for Entities),
developed by IDBI Intech is an application that gives the users unique features
starting from creating the request at front-end and generating the data from
system without any manual intervention as per the FIU India Regulatory guidelines
of reporting.
It is designed to facilitate validation and enrichment of data filed by REs with the help of external data sources. There is provision for generating risk scores for individuals, businesses, reports, networks and cases to be able to flag high risk cases, entities or reports for immediate action. it is capable of prioritizing and identifying cases from other reports (other than STRs) by use of risk analytics. a unified communication cell (UCC) providing enhanced support to FINnet system users has also been established.
FINnet 2.0 Mission Statement
To provide quality financial
intelligence for safeguarding the financial system from the abuses of money
laundering, terrorism financing, and other economic offenses
Reporting Entities (RE) are enabled to file the actual reports on this portal from 22nd MARCH,2023 onwards. REs are advised not to file any test reports on this platform. REs have to complete their registration on FINGATE 2.0 portal for filing reports.
Coordination with Sector Regulators
MOU with MCAFIU-India has entered into Memorandums of Understanding (MoUs) with partner agencies in order to provide a structural framework for enhanced cooperation and understanding. The MoU provides for protection of the information disseminated by FIU-India from unauthorized use and proliferation. In pursuance of these objectives, MoUs have been signed with RBI, MCA, SFIO, CBI, NCB, CBDT, CBIC, NIA, SEBI, IRDA etc. FIU-India is also a member and attends daily meetings of the Multi Agency Centre (MAC) set up in the Ministry of Home Affairs specifically for exchange of terror related information. FIU-India is a member of the FICN Coordination Group (FCORD) formed by the MHA to share intelligence/information among security agencies of the states/Centre to counter the problem of circulation of fake currency notes.
MOU with MCA
The
MoU will facilitate the sharing of data and information between MCA and
FIU-INDIA on an automatic and regular basis. It will enable sharing of specific
information such as information relating to suspicious transactions, KYC
related details and consolidated financial statements of companies registered
in the country. The MoU will ensure that both MCA and FIU-INDIA have seamless
linkage for regulatory purposes. In addition to regular exchange of data, MCA and
FIU-INDIA will also exchange with each other, on request, any information
available in their respective databases, for the purpose of carrying out
scrutiny, inspection, investigation and prosecution.
Technology
and data will play a critical role going forward in fulfilling the Government’s
vision of minimum government, maximum governance and both MCA and FIU-INDIA are
well placed to fulfill this vision.
MOU with Income Tax Dept
As per the Central Board of Direct Taxes, the Income Tax
Department can now share the PAN data of an individual or an entity with
Financial Intelligence Unit (FIU). This sharing of data will assist FIU to dig
deeper into large cash transaction or any suspicious transactions at the banks.
The order to share the data was issued on July 16, 2020.
Key
points of the CBDT order:
1) A bank has to furnish a CTR or, a cash transaction report to the FIU every month. The CTR should have details of all transactions over ₹10 lakh or its equivalent in foreign currency or a series of integrally connected transactions that add up to more than ₹10 lakh .
2) The FIU is empowered to get the CTRs under the Prevention of Money Laundering Act (PMLA).
3) As per the procedure, banks provide the CTRs to FIU with only the PAN (permanent account number) that was mentioned on the transaction slip or record and that does not include any other details like name of the PAN holder and other information about them, said a PTI Report.
4) The CBDT order said the sharing of PAN data with FIU will be under two heads
- In the first case, if the FIU has the PAN then the taxman will share the name of the PAN holder, their father/husband's name, address, date of birth or incorporation date (in case of companies), the year of filing the last income tax return, gross total income range, turnover range and some other information will be provided by the I-T department to the FIU.
- In case the FIU does not have the PAN for a cash transaction report, the tax department will provide it "a dump of PAN database" to enable it to search.
5) While furnishing the information, the specified income-tax authority shall form an opinion that sharing of such information is necessary for the purposes of enabling the FIU to perform its function under its respective laws
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.
FIU-India has developed a close relationship with financial sector regulators viz. Reserve Bank of India (RBI), National Bank for Agricultural and Rural Development (NABARD), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA) for strengthening AML and CFT regulations and holds regular meetings with the regulators to discuss matters of common interest. These cooperation and interaction ensure that the guidelines issued by the regulators for adherence to KYC, AML and CFT norms, address FIU-India’s concerns. The circulars issued by above regulators are also uploaded on the website of FIU-India for quick reference. FIU-India continued its regular interaction with the industry associations and self-regulatory organizations (SROs) to develop a common understanding of obligations under PMLA and improve compliance with reporting obligations under PMLA. FIU-India also interact with the Regulators for developing indicators for industry specific suspicious transactions. Sector-specific issues were identified from trend analysis of STRs and shared with concerned regulators for intervention. FIU-India also assists regulatory authorities in training their staff to improve their understanding of AML/ CFT issues.
[Source: Various annual reports of FIU-Ind]
Constitution of Special Investigating
Team – sharing of information
In pursuance of the Hon’ble Supreme Court Judgment dated
July 4, 2011, Government of India has constituted a Special Investigation Team
(SIT) under the Chairmanship of Hon’ble Justice M.B. Shah. In this regard, the
Hon’ble Supreme Court had directed that:
“All organs agencies, departments and agents of the State,
whether at the level of the Union of India, or the State Government, includingbut not limited to all statutorily formed individual bodies, and other
constitutional bodies extend all the cooperation necessary for the functioning
of the Special Investigation Team.
The Union of India and where needed the State Government
will facilitate the conduct of the investigations, in their fullest measures,
by the Special Investigation Team and functioning, by extending all necessary
financial, material, legal, diplomatic and intelligence resources, whether such
investigations or portions of such investigations occur inside the country or
abroad.”
In view of above, all NBFCs are advised to ensure that
information/documents required by the SIT are made available as and when
required.
REPORTING ALERTS FOR CAPITAL MARKETS UNDER THE PROVISIONS OF THE PREVENTION OF
MONEY LAUNDERING ACT (PMLA) 2002
A fresh set of 'alert indicators' have been issued by India's financial intelligence unit (FIU) for capital markets, insurance companies, online payment gateway intermediaries and crypto currency service providers for effective checking of suspicious transactions in their channels as part of the anti-money laundering and counter-terrorism financing regime. These supplemental guidelines have led to a strategic shift in the manner in which FIU received information with respect to securities market transactions. These 'alert indicators' will address "emerging risks" in the Market Infrastructure Institutions (MIIs)-- stock exchanges and depositories-- like synchronised and manipulative trade practices, order spoofing, mis-utilisation of client funds by the stock brokers, suspicious off-market transactions etc.
In light of the growing trading volumes, the role the MIIs becomes "cardinal" in making the AML/CFT architecture more robust. Though the MIIs have been sending suspicious transaction reports (STRs) to the FIU for years now, the report said there was a lack of alert indicators "specific to them" and this left a lot of scope for improvement in their reporting quality.The
supplemental guidelines have specified clear areas of focus for the MIIs and it
is expected that this would lead to a "marked improvement" in the
reporting quality and thus will help FIU to generate meaningful intelligence
for law enforcement agencies like the Income-tax department, ED, CBI, DRI etc.,
For stock exchanges, the fresh alert indicators mandate they consider cases where there is suspicion of mis-utilisation of client funds by the stockbrokers such as frauds and also analyse cases where “serious anomalies” from the perspective of money laundering and terrorism financing are observed during the course of inspections and audit of stock brokers
In the case of depositories, the new alert
indicators for generating STRs require them to deal with identification of
suspicious off-market transfer, a way of transferring shares directly between
two accounts without the involvement of an exchange platform.
A similar working group, that included insurance regulator IRDAI, went into issues related to the insurance sector during 2022-23 fiscal and the revised guidelines laid “special stress” for generating alerts in cases of frauds experienced by the insurance firms and analyse these from the AML/CFT perspective and furnish reports to FIU in suitable cases
In the case of online
payment gateways, a working group comprising banking regulator RBI, National
Payments Corporation of India (NPCI) “extensively” studied the business model
of these technology-enabled financial services firms as these “new-age” players
pose challenges in respect of transparency of the parties involved in
transactions facilitated by them and the relative speed with which such transactions
are completed, leading to emergence of AML/CFT risks.
The agency also issued alert indicators for
virtual digital asset (VDA) or crypto currency service providers ranging from
directions to register with the FIU to carrying out “enhanced due diligence to
implementation of travel rule.” The travel rule requires crypto currency
service providers to share sender and recipient data with each other during
transactions.
In the case of credit rating agencies (CRAs),
the new guidelines will ensure timely reporting of STRs by them to FIU and help
in identifying serious corporate frauds having AML/CFT implications in the
early stages and ensure timely action by law enforcement agencies based on such
financial intelligence preventing siphoning of funds by delinquent issuers
A similar set of alert
indicators were issued to debenture trustees and they were directed to call for
“periodic reports” from issuers of debentures and take appropriate action in
the interest of the debenture holders as soon as any breach of trust deed or
law comes to their notice even as the FIU said these violations may have
implications from the AML/CFT perspective.
The FIU has also shared the new alert indicator
guidelines for STR reporting with real estate agents categorised as designated
non-financial businesses and professions (DNFBP) under PMLA
Happy Reading
Those who read this, also read:
1. National Risk Assessment(NRA) India
2. AML/CFT: International Cooperation
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