Obligations of RE under Sec.12 of PMLA 2002

Some of the anti-money laundering measures prescribed under the Prevention of Money Laundering Act, 2002 are –

· Maintenance of record of all transactions for a period of 5 years from the date of transaction between a client and the reporting entity.

· Furnishing of information to authorities within the prescribed time.

· Verification of identity of clients.

· Identification of beneficial owners, if any.

· Maintenance of record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.

· Maintenance of confidentiality of information. All these information will help the authorities in identifying the sequence of any illegal activities.

If the Director, in the course of any inquiry, finds that a a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations contained in section 12, then, without prejudice to any other action that may be taken under any other provisions of the Act, he may, issue a warning in writing; or direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or direct such reporting entity or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure

Section 12 – Reporting entity to maintain & furnish records

· Maintain a record of all transactions, whether (attempted or executed) the nature and the value of which may be prescribed

· Furnish information to the Director

· Maintain a record of documents evidencing identity of its clients and beneficial owners

· Maintain a record of documents evidencing account files

· Maintain a record of documents evidencing business correspondence

· The records to be maintained for a period of five years from the date of transaction or date of ending of business relationship, whichever is later

Maintenance of Records

Section 12(1)(a) of the Prevention of Money Laundering Act, 2002 makes it mandatory for every reporting entity to maintain a record of all transactions, including information relating to transactions whether attempted or executed so as to enable it to reconstruct individual transactions. The procedure for maintenance and retention of records are covered under the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 which was last amended by the Prevention of Money-Laundering (Maintenance of Records) Amendment Rules, 2013.

From Sept 2023, reporting entities will be required to keep records containing analysis of transactions and client due diligence for a period of five years after the business relationship with the client had ended or the account has been closed, whichever is later.

1). Records of transaction to be maintained

The following records should be maintained—

(1) All cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency;

(2) All series of cash transactions integrally connected to each other which have been valued below rupees ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month

(3) All transactions involving receipts by non-profit organisations of value more than rupees ten lakh, or its equivalent in foreign currency;

(4) All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions;

(5) All suspicious transactions whether or not made in cash and by way of—

(a) deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of:

(i) cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other instrument of payment of money including electronic receipts or credits and electronic payments or debits, or

(ii) travellers cheques, or

(iii) transfer from one account within the same banking company, financial institution and intermediary, as the case may be, including from or to Nostro and Vostro accounts, or

(iv) any other mode in whatsoever name it is referred to

(b) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained by the banking company, financial institution and intermediary, as the case may be;

(c) money transfer or remittances in favour of own clients or non-clients from India or abroad and to third party beneficiaries in India or abroad including transactions on its own account in any currency by any of the following—

i). Payment orders, or

ii). Cashiers cheques, or

iii). Demand drafts, or

iv). Telegraphic or wire transfers or electronic remittances or transfers, or

v). Internet transfers, or

vi). Automated Clearing House remittances, or

vii). Lock box driven transfers or remittances, or

viii). Remittances for credit or loading to electronic cards, or

ix). Any other mode of money transfer by whatsoever name it is called;

(d) loans and advances including credit or loan substitutes, investments and contingent liability by way of—

(i) subscription to debt instruments such as commercial paper, certificate of deposits, preferential shares, debentures, securitized participation, inter bank participation or any other investments in securities or the like in whatever form and name it is referred to, or

(ii) (ii) purchase and negotiation of bills, cheques and other instruments, or

(iii) (iii) foreign exchange contracts, currency, interest rate and commodity and any other derivative instrument in whatsoever name it is called, or

(iv) (iv) letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates and any other instrument for settlement and/or credit support.

e) collection services in any currency by way of collection of bills, cheques, instruments or any other mode of collection in whatsoever name it is referred to.

(6) 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;
(7) All purchase and sale by any person of immovable property valued at fifty lakh rupees or more that is registered by the reporting entity, as the case may be.

Section 12 A – Providing information to the Director

· Director may call for the information under Section HA, 12 or 12AA.

· Reporting Entity to furnish information as may be specified

2) Information in the records

Apart from the records of transactions to be maintained, the records should also contain the following information –

(1) The nature of the transaction(s);

(2) The amount of the transaction and the currency in which it was denominated;

(3) The date on which the transaction was conducted; and

(4) The parties to the transaction.

The Amendment of PMLR 2005 in September 2023, obligate reporting entities to keep records containing analysis of transactions and client due diligence for a period of five years after the business relationship with the client had ended or the account has been closed, whichever is later.

3). Procedure and manner of maintaining information

Section 15 – Procedure and Manner of Furnishing information by reporting entity

Central Government may in consultation with the RBI, prescribe the procedure and manner of maintaining and furnishing information by a reporting entity under Section 11A, Section 12(1) and Section 12AA(1)

Every reporting entity should maintain information in respect of transactions with its clients in accordance with the procedure and manner as may be specified by its Regulator, from time to time. Every reporting entity should evolve an internal mechanism for maintaining such information in such form and at such intervals as may be specified by its Regulator from time to time. It is the duty of every reporting entity, its designated director, officers and employees to observe the procedure and manner of maintaining information as specified by its Regulator.

Furnishing of Information

Section 12(1)(b) of the Prevention of Money Laundering Act, 2002, makes it mandatory for every reporting entity to furnish to the Director within the prescribed time, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed.

1). Procedure and manner of furnishing information

· Every reporting entity should communicate to the Director (FIU-IND) the name, designation and address of the Designated Director and the Principal Officer.

· The Principal Officer should furnish the information regarding nature and value of transactions to the Director on the basis of information available with the reporting entity. A copy of such information should be retained by the Principal Officer for the purposes of official record.

· Every reporting entity should evolve an internal mechanism having regard to any guidelines issued by regulator, for detecting the transactions like cash transactions, suspicious transactions etc. and for furnishing information about such transactions in such form as may be directed by its Regulator.

· It is the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of furnishing information as specified by its Regulator.

2). The principal officer must be an officer at the management level:

The Ministry amended Rule 2, [PMLA 2002 second amendment 2023] which provides that the ‘principal officer of a reporting entity’ must be an ‘officer at the manager level’. This was done to ensure proper and effective compliance by reporting entities by placing the responsibility on an officer who is a part of the management and has more expertise. Prior to the amendment, entities could appoint any officer at their discretion. Further, the reporting entity also has to verify the identity of the person authorised to act on behalf of the juridical person and the correctness of such authorisation. In case the client is a trust, the reporting entity must ensure that each trustee declares their status. Earlier, they were only required to maintain updated records of identification, account files and business correspondences.

3). Group-wide programs for AML/CFT

The amended norms require every reporting entity which is part of a group must implement group-wide programmes against money laundering and terror financing. This includes group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror finance risk management. This is in addition to the groups implementing group-wide policies as per G.S.R 745(E), dated October 17, 2023, notified the Prevention of Money-laundering (Maintenance of Records) Third Amendment Rules, 2023

4). Reports prescribed under PMLA, 2002

The Prevention of Money laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 require every reporting entity to furnish the following reports:

Cash Transaction reports (CTRs)
Non Profit Organisation Transaction reports (NTRs)
Counterfeit Currency Reports (CCRs)
Cross-border Wire Transactions Report (CBWTR)
Suspicious Transaction Reports (STRs)

5). Due dates for furnishing information to the Director (FIU-IND)

SLNO	Description	Every month by the 15th day of the succeeding month
1	All cash transactions of the value of more than Rupees Ten lakhs or its equivalent in foreign currency
1.1	All series of cash transactions integrally connected to each other which have been individually valued below Rupees Ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of Ten lakh rupees or its equivalent in foreign currency
2	All transactions involving receipts by non-profit organizations of value more than Rupees Ten lakhs or its equivalent in foreign currency
3	All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place for facilitating the transactions
4	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
5	All suspicious transactions whether or not made in cash to be informed promptly writing or by fax or by electronic mail to the Director	Not later than seven working days on being satisfied that the transaction is suspicious
5		Immediately after confirmation of suspicion[w e f 17/10/2023]
6	All purchase and sale by any person of immovable property valued at Fifty Lakh Rupees or more that is registered by the reporting entity	Every quarter by the 15th day of the month succeeding the quarter

A new sub-rule has been added(17/10/2023) to Rule 8 which states that every reporting entity, its directors, officers and all employees must ensure that the fact of maintenance of records and furnishing of information to the director is kept confidential. This assures the preservation of confidentiality regarding record maintenance and information submission to the director, bolstering data security. The Principal Officer of a reporting entity should furnish the information in respect of the above mentioned transactions to the Director (FIU-IND). Delay of each day in not reporting a transaction or delay of each day in rectifying a mis-reported transaction beyond the time limit as specified above will constitute a separate violation.

6). Preservation of Records

Banks/FIs 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

(i) 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.

(ii) 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.

(iii) 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.

(iv) As mentioned in paragraph 3.3.1(i) of this Master Circular, banks/FIs are required 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 to scrutinize the transactions and also to Reserve Bank/other relevant authorities. These records are required to be preserved for five years as is required under PMLA, 2002.

Happy reading

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1. Offence of Money Laundering : PMLA 2002

2. Objectives & Applicability: PMLA 2002

3. Reports by RE under PMLA 2002

4. Progress of Criminalisation: AML/CFT - India