India

Last Updated: 15/09/2010 (Anti-money laundering legislation not applicable to lawyers)


CENTRAL AUTHORITY FOR REPORTING.

Financial Intelligence Unit – India (FIU-IND). FIU-IND is an independent body to report directly to the Economic Intelligence Council headed by the Finance Minister. FIU-IND is a central agency of a government that: 

  1. Receives financial information pursuant to country's anti-money laundering laws;

  2. Analyzes and processes such information; and

  3. Disseminates the information to appropriate national and international authorities, to support anti-money laundering efforts.

FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence and enforcement agencies in pursuing the global efforts against money laundering and related crimes. 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 Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA).

FIU-IND processes and analyses financial information received by it and disseminates actionable intelligence in appropriate cases to relevant enforcement agencies.


OTHER ANTI-MONEY LAUNDERING REGULATOR(S).

Though the authority to combat money laundering is FIU-IND, Reserve Bank of India (RBI) & Securities and Exchange Board of India (SEBI) have also taken steps to prevent money laundering. RBI has laid down anti-money laundering guidelines for banks and other financial institutions.

Similarly SEBI has also prescribed certain requirements relating to Know Your Customer (KYC) norms for financial intermediaries in securities market to combat money laundering.


ARE LAWYERS COVERED BY MONEY LAUNDERING LEGISLATION?

Unlike financial institutions or financial intermediaries, there is no specific compliance requirement for lawyers.


LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.

  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 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; and

  4. All suspicious transactions whether or not made in cash.
The records of all transactions are required to be maintained by every banking company, financial institution and intermediary for a period of ten years from the date of cessation of the transactions with their clients.Under these rules. A suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith -
  1. Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or

  2. Appears to be made in circumstances of unusual or unjustified complexity; or

  3. Appears to have no economic rationale or bonafide purpose; or

  4. Gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.
  • Foreign Exchange Management Act, 1999. It prescribes checks and limitations on certain foreign exchange remittances.

  • Benami Transactions (Prohibition) Act, 1988. It prohibits transactions in which property is transferred to one person for consideration paid or provided by another person.

  • Narcotics, Drugs and Psychotropic Substances Act, 1985. It provides for confiscating sale proceeds acquired in relation to any narcotic drug or psychotropic substance and any goods used to conceal such drugs. It provides for forfeiture of any illegally acquired property.

  • The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. It authorizes detaining persons to prevent illicit traffic in narcotic drugs and psychotropic substances.

  • RBI’s Know-Your-Customer Guidelines for Money changers. It was introduced by The RBI applicable to banks in India to reduce financial frauds and identify money-laundering transactions. Under these guidelines, a foreigner in India may remit USD 2500 for his/her individual purposes.

    A money changer is allowed to pay Rs. 50,000 in cash. Any amount exceeding this limit shall be paid only by means of cheque/D.D./P.O. etc or credited directly to the beneficiary’s bank account. Before, remitting money to a foreigner the money changer is required to conduct ‘Customer Identification’.

  • SEBI’s Guidelines for Anti-Money Laundering Measures. The Securities and Exchange Board of India (SEBI) has published guidelines for capital market intermediaries under the PMLA 2002. The guidelines concern all intermediaries registered with SEBI — a grouping that includes institutional investors, brokers and portfolio managers.

  • IRDA’s Guidelines for Anti-Money Laundering Programme for Insurers. IRDA issued anti-money laundering guidelines applicable to insurers. Insurers are also required to maintain records of their transactions under these guidelines.

    IRDA has relaxed these guidelines for general insurers, under which these guidelines applies only when claims payout/premium refund cross a threshold of INR 100,000.

ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

There is no specific requirement under money laundering legislation for visiting lawyers. But like a normal foreign citizen, visiting lawyers are also subject to various compliance requirements under Foreign Exchange Management Act as applicable to remittance of money, etc.


LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

In India, the legal profession is regulated by Bar Council of India (BCI). There are no specific guidelines prescribed by BCI for money laundering.


IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

Not applicable.


DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

There is no legal obligation. However, lawyers do follow certain procedure for client’s identification and verification, but not because there is any obligation. Section 12(1) of the PMLA 2002 as amended by the PML (Amendment) Act 2009, requires every banking company, financial institution and intermediary to verify and maintain the records of the identity of all its clients, as prescribed by Rule 9 of the PMLA Rules.

Under section 12(2) of the PMLA 2002 the record referred to above shall be maintained for a period of 10 years from the date of transactions between the clients and the banking company or financial institution or intermediary, as the case may be.


DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

Not applicable to lawyers.


ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Not applicable to lawyers. 


ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

Not applicable to lawyers.


ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.

Not applicable to lawyers.


WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Not applicable to lawyers.


DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?

Not applicable to lawyers.


DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

Not applicable to lawyers.


ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

Not applicable to lawyers.


IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.

Not applicable to lawyers.


DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.

Not applicable to lawyers.


ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE.

Not applicable to lawyers.


DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.

Under KYC policy of RBI, banks and financial intermediaries are required to conduct Customer Due Diligence under which beneficiaries of transactions conducted by lawyers are also covered. So when a bank believes that the client account opened by a lawyer is on behalf of a single client, the said bank is obliged to identify that client. Banks also maintain 'pooled' accounts managed by lawyers for funds held 'on deposit' or 'in escrow' for a range of clients. Banks are required to identify all the beneficial owners.

In such cases banks may ask the lawyer to conduct a ‘customer due diligence’. However the ultimate responsibility for knowing the customer lies with the bank.


HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

There has been no case so far.


HAS THE FINANCIAL ACTION TASK FORCE (FATF) OR A FATF-STYLE REGIONAL BODY CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

Yes. India is a member of the FATF and the Asia/Pacific Group on Money Laundering (APG). A joint APG-FATF evaluation was adopted by the FATF Plenary on 25th June 2010. According to the evaluation report:

  • India has progressively expanded and strengthened its preventive measures for the financial sector, which now apply to all but one of the financial activities required to be covered under the FATF standards. However, several preventive provisions need to be brought more closely into line with the FATF standards, and overall, more time is needed before all requirements are substantially implemented.

  • While India has some robust systems in place for public trusts (e.g., record-keeping and maintenance of records, including financial records), measures relating to the collection of beneficial ownership information for private trusts is limited. Indian law does not require those who perform trust services (primarily lawyers) to obtain, verify, or retain records on the beneficial ownership and/or control of trusts, or to retain copies of trust instruments.

    Consequently, there are no measures which guarantee that the competent authorities can obtain or access adequate and accurate information concerning the beneficial owners of private trusts in a timely fashion - Paragraph 44 of the Executive Summary of Mutual Evaluation Report.

  • Designated Non-Financial Businesses and Professionals (DNFBPs) conducting business in India which include casinos, lawyers, real estate agents, accountants, company secretaries, gold dealers, and dealers in precious metals and stones are not regulated and supervised for Anti-Money Laundering purposes. There is no free-standing profession of trust and company service providers, but these services are provided by the other professionals, especially accountants and company secretaries. With the exception of casinos (which only operate in the State of Goa), these businesses are not subject to the PMLA provisions.

    As part of the process of deciding when and if to include the remaining DNFBP sectors within the provisions of the PMLA, the authorities have undertaken a formal risk assessment. Based on its results, the authorities have proposed a number of measures to address the perceived risks in respect of each of the sectors, but none of the suggested alternatives involve bringing them within the purview of PMLA - Paragraph 41 of the Executive Summary of Mutual Evaluation Report.

    • Address the technical shortcomings in the criminalization of both money laundering and terrorist financing and in the domestic framework of confiscation and provisional measures;

    • Broaden the Client Due Diligence (CDD) obligations with clear and specific measures to enhance the current requirements regarding beneficial ownership;

    • Improve the reliability of identification documents, the use of pooled accounts, PEPs, and non-face-to-face business; ensure that India Post, which recently became subject to the PMLA, effectively implements the Anti Money Laundering (AML)/Combating Financing of Terrorism (CFT) requirements;

    • Enhance the effectiveness of the Suspicious Transaction Report (STR) reporting regime; enhance the effectiveness of the financial sector supervisory regime and ensure that India Post is adequately supervised;

    • Ensure that the competent supervisory authorities make changes to their sanctioning regimes to allow for effective, proportionate and dissuasive sanctions for failures to comply with AML/CFT requirements; and

    • Extend the PMLA requirements to the full range of DNFBPs, and ensure that they are effectively regulated and supervised.

For the full Mutual Evaluation Report click here.



Information provided by:

Ajay Shaw and Ashish Pahariya
DSK Legal, India

E-mail:    ajay.shaw@dsklegal.com  
Website: www.dsklegal.com   




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