JAIIB LRAB Unit 66 - The Prevention of Money Laundering Act, 2002

Under the Prevention of Money Laundering Act (PMLA), 2002, Section 12 there are certain obligations on banks to preserve and report customer account information, for which RBI has issued directives (during Jan 2006) u/s 35A of Banking Regulation Act 1949 & Rule 7 of Prevention of Money laundering Rules as under:

Maintenance of records of transactions : cash transactions of above Rs.10 lac or its equivalent in foreign currency; series of cash transactions connected to each other, of- below Rs.10 lakh or its equivalent in foreign currency within a month and the aggregate value of such transactions exceeds rupees ten lakh; cash transactions in forged or counterfeit currency notes or bank notes and where any forgery of a valuable security has taken place; suspicious transactions in cash or otherwise.

Preservation of records : Banks should maintain, for at least 5 years from the date of cessation of transactions 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. As regards, the documents these are to be preserved for 10 years.

Reporting to Financial Intelligence Unit-India Banks are to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND), New Delhi (details of reports given above). KNOW YOUR CUSTOMER (KYC) KYC guidelines issued by RBI u/s 35(A) of B R Act (and Rule 7 of Prevention 1 Money Laundering Rules) keeping in view the recommendation of Financial Action Task Force.

Objective: Preventing use of banks by criminals for money laundering purposes. Accordingly the banks are required to verify the identity and address of the customers and do proper verification. Accordingly:

• Banks to obtain introduction, identity of the customer and do proper verification before opening the account.
• Small depositors: Simplified criteria of identification and introduction to followed where the balance shall not exceed Rs.50000 and transactions in a year does not exceed Rs.1 lac and withdrawal not more than Rs.10000 per month. In these cases the certification of address and photograph by the introducer enough. However, if the amount of total credit exceed Rs.80000 or balance exceeds Rs.40000, notice to be sent to the customer.

PERIODICAL UPDATION OF KYC SIMPLIFIED: The Reserve Bank has revised its earlier instructions on periodical updation of 'Know Your Customer' (KYC) and has advised banks as follows:

1. a) They should continue to carry out on-going 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, wherever necessary, the source of funds.
2. b) Full KYC exercise should be done at least every two years for high risk individuals and entities.
3. c) Full KYC exercise should be done at least every ten years for low risk and at least every eight years for medium risk individuals and entities.
4. d) Positive confirmation (obtaining KYC related updates through email/letter/telephonic conversation / forms / interviews / visits, etc.), should be completed at least every two years for medium risk and at least every three years for low risk individuals and entities.
5. e) Fresh photographs should be obtained from minor customers on their becoming major.

• Risk review of customers: Risk review should be done periodically net less than once in 6 months ( 15th of May / Nov.
• Banks to keep a record of cash transactions above Rs.10 lac.
• Banks to send report of these transactions to Financial Intelligence Unit of India. Cash transaction report: CTR (covering amount above Rs.10 lac of single transaction of total of all transactions within a month) for each month to be sent by 15th of the next month. Individual transactions below Rs.50000 not to be reported. Suspicious transaction report (STR). to be submitted within 7 working days of occurrences.
• Banks to maintain records of transactions for a period of min 10 years from date of transaction. Record of documents to be kept for min 10 years from date of termination of relationship.
• Banks to issue TCs, DDs, MTs and TTs for Rs.50000 and above only by debit to customers' account.
• Due diligence to be ensured for transactions of Rs.50000 and above in case non-customer transactions.
• Banks are to appoint a Sr. Mgmt. Officer, to be designated as Principal Office responsible for monitoring and reporting.
• Unique Customer Identification Code to be allotted to all new customers.

Features of Basic Saving Bank account (RBI Aug 10, 2012):

(1) it is subject to normal KYC compliance. Account opened as a small account, attracts conditions applicable to small a/c

(2) it is normal banking service available to all.

(3) No min balance

(4) No max no. of deposits but max no. of withdrawals 4 in a month including ATM

(5) No other account is allowed to be opened along with such account. If already opened, it is to be closed within 30 days.

Customer Identity Document: Passport, PAN card, Voter I-Card, driving license, Identity card to bank's satisfaction, UIDAI letter, and letter of recognized public authority. (NAREGA job card for opening Small Accounts only)

Address Documents: Telephone bill, bank a/c statement, electricity bill (even in name of relative with whom living), letter of recognized public authority, ration card, letter from employer, UIDAI letter, rent agreement is registered with Govt. / Registration Authority

Imp: If identity document contains address, separate document not to be taken.

Introduction: It is not to be insisted upon (RBI - Dec 10, 2012)