Last Updated: 13/01/2016
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 of India, that:
receives financial information pursuant to country's anti-money laundering laws;
analyses and processes such information; and 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 or law enforcement authority. Its prime responsibility is to gather and share financial intelligence in close cooperation with the regulatory authorities including Reserve Bank of India, Securities and Exchange Board of India and Insurance Regulatory and Development Authority.
FIU-IND processes and analyses financial information received by it and disseminates actionable intelligence in appropriate cases to the relevant enforcement agencies.
OTHER ANTI-MONEY LAUNDERING REGULATOR(S).
Other anti-money laundering regulators in India include:
Securities and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
Insurance Regulatory & Development Authority of India (IRDA)
Directorate of Enforcement, Central Bureau of Investigation – Economics Offences Wing
Income Tax Department
The data collection agency for money laundering is FIU-IND. There are various bodies and authorities involved in the implementation and enforcement of the anti-money laundering laws. RBI is one of such authority which lays down anti-money laundering guidelines for banks and other financial institutions to adhere to. Similarly, SEBI has also prescribed certain requirements relating to Know Your Customer (KYC) norms for the financial intermediaries in securities market to follow in order to combat money laundering.
Further, there are law enforcement bodies like Directorate of Enforcement and Central Bureau of Investigation – Economics Offences Wing dealing with money laundering issue.
Further, the Income Tax Department, Government of India under the Income Tax Act, is also authorised to take steps to prevent the offence of money laundering by imposing tax on undisclosed foreign income and assets on Indian residents. This has been further augmented by enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.
A list of these laws, rules and regulations along with their respective scope in brief is set out below.
The Prevention of Money Laundering Act, 2002 as amended upto 2012(the PMLA Act).
There are various laws, rules and regulations which deal with money laundering activity. The PMLA Act is an umbrella statutory framework which prohibits and criminalises money laundering activities.
Under the PMLA Act, a “Reporting Entity” has an obligation to identify clients, maintain records and furnish information to FIU-IND. ‘Reporting Entity’ includes a banking company, financial institution, capital market intermediaries, persons engaged in gaming business, real estate agents, jewellery and diamond dealers, etc. The PMLA Act empowers the Director, FIU-IND to impose fine on any ‘Reporting Entity’ for failure to comply with the obligations of maintenance of records, furnishing information and verifying the identity of clients/customers.
Any person involved in an act of money laundering can be prosecuted and punished under the PMLA Act.
Prevention of Money-laundering (Maintenance of Records) Rules, 2005 as amended upto 2013(the PMLA Rules)
The PMLA Rules specify the procedure and manner for maintenance and retention of records.
As per Rule 3, every Reporting Entity is required to maintain records of:
(a) All cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency;
(b) 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 and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency;
(c) All transactions involving receipts by non-profit organisations of value more than rupees ten lakh, or its equivalent in foreign currency;
(d) 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;
(e) All suspicious transactions whether or not made in cash;
(f) 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; and
(g) 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.
Under these PMLA Rules, a suspicious transaction means a transaction including an attempted transaction, whether or not made in cash, which to a person acting in good faith:
(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the PMLA Act, regardless of the value involved; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona fide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.
Under section 12(3) of the PMLA Act, the record referred to above shall be maintained for a period of 5 years from the date of transactions between the clients and the reporting entity.
THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015.
The purpose of this Act is to deal with the menace of the black money existing in the form of undisclosed foreign income and assets by setting out the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto. The Act came into force with effect from July 1, 2015. It gives the Income Tax Authorities the power to impose tax and penalties on all the residents who fail to disclose their foreign income and assets and also makes the offence liable to be punished by way of rigorous imprisonment. However, the Government of India has given one time option to all Indian citizens to declare their existing undisclosed foreign income and assets before 30th September 2015, and comply with the corresponding tax obligation without facing prosecution under this Act.
I. Foreign Exchange Management Act, 1999.
It prescribes checks and limitations on various foreign exchange remittances.
II. Benami Transactions (Prohibition) Act, 1988.
It prohibits transactions in which property is transferred to one person for consideration paid or provided by another person.
Benami Transactions (Prohibition) Amendment Bill, 2015.
The Bill is still pending in the Parliament. It aims to expand the definition of Benami Transactions and specifies the penalty to be imposed on a person entering into a Benami transaction. The Bill has provisions for establishing the Adjudicating Authorities and an Appellate tribunal to deal with the issue of Benami transaction.
III. Narcotics, Drugs and Psychotropic Substances Act, 1985 as amended up to 2014.
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.
IV. 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.
V. RBI’s Know-Your-Customer and anti-money laundering norms.
RBI has prescribed know-you-customer and anti-money laundering norms for banks, financial institutions and money changers to adhere to.
VI. SEBI’s Guidelines for Anti-Money Laundering Measures.
The SEBI has published guidelines for capital market intermediaries to follow under the PMLA Act.
VII. Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) –Guidelines for General Insurers, 2013.
IRDA has issued anti-money laundering guidelines applicable to insurers. Establishment of AML programs by financial institutions is one of the central recommendations of the Financial Action Task Force (FATF) and also forms part of the Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS). Accordingly, the Authority has decided to put in place the following regulatory guidelines/instructions to the Insurers, Agents and Corporate agents as part of a Programme on Anti Money Laundering/Counter Financing of Terrorism (AML/CFT) for the insurance sector.
Each insurance company has to establish and implement policies, procedures, and internal controls/audit in its AML/CFT program. Insurers are also required to maintain records of their transactions under these guidelines.
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?
The Bar Council of India is not involved in supervising compliance with AML Regulations.
DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.
There is no specific legal obligation. However, lawyers do follow certain procedure for client’s identification and verification. Section 12(1) of the PMLA Act, requires every reporting entity which will include a banking company, financial institution, intermediary or a person carrying on a designated business or profession to verify and maintain the records of all the transactions whether attempted or executed and also the identity of all its clients, in the procedure as prescribed in Rule 9 of the PMLA Rules.
The reporting entity to identify the beneficial owner and maintain records of documents and evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
Under section 12(3) of the PMLA Act the record referred to above shall be maintained for a period of 5 years from the date of transactions between the clients and the reporting entity. The records evidencing the identity of a reporting entity’s client must be maintained for a period of five years from the date of the transaction between the entity and its client under Section 12(4) of the PMLA Act.
DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?
ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?
Yes. Before accepting a politically exposed person (PEP) as a client, banks are supposed to verify the person’s identity and gather sufficient information on the source of his funds. In addition, any decision to open an account for a PEP should be taken at a senior level and the bank’s customer acceptance policy should clearly spell out this requirement. Banks should also monitor PEP accounts in a heightened manner and on an ongoing basis.
ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?
Yes. Guideline 2.3(c) of the RBI KYC Anti-Money Laundering Guidelines states that salaried employees, government departments and government owned companies, regulators and statutory bodies are considered low risk individuals. Further, Non-Profit Organisations (NPOs)/ Non-Government Organisations (NGOs) promoted by the United Nations or its agencies, and such international/ multilateral organizations of repute, may also be classified as low risk customers. Banks need only conduct a basic identity verification process for such customers.
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. Reporting entities (banking companies, financial institutions and intermediaries) are obligated to report suspicious transactions.
DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?
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?
No information on this matter.
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. The RBI KYC Anti-Money Laundering Guidelines state that banks should monitor existing accounts regularly and should review their CDD measures if the account exhibits unusual activity.
DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.
RBI prohibits banks from opening client accounts for lawyers and accountants when the account-holder is unable to disclose the identity of the beneficial owners of the funds due to professional secrecy provisions.
Under RBI Master Circular on KYC Anti-Money Laundering Guidelines, 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.
Also, under the extant AML/CFT framework, it is not possible for professional intermediaries like Lawyers who are bound by any client confidentiality that prohibits disclosure of the client details, to hold an account on behalf of their clients. It is reiterated that banks should not allow opening and/or holding of an account on behalf of a client/s by professional intermediaries, like Lawyers who are unable to disclose true identity of the owner of the account/funds due to any professional obligation of customer confidentiality.
HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?
To our knowledge, no such matter has been reported.
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 provisions of the PMLA Act.
As part of the process of deciding when and if to include the remaining DNFBP sectors within the provisions of the PMLA Act, 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 the PMLA Act - Paragraph 41 of the Executive Summary of Mutual Evaluation Report.
Key recommendations by FATF made to Indian Government include the need to:
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;
mprove 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 Act, 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 Act requirements to the full range of DNFBPs, and ensure that they are effectively regulated and supervised.
The first mutual evaluation report of India was adopted on 24 June, 2010.
India was placed in the regular follow-up process for mutual evaluation purposes because of partially compliant (PC) ratings on certain core and key Recommendations. Since the publication of the mutual evaluation report, India has been reporting back to the FATF on a regular basis on the progress made in the implementation of its Action Plan to strengthen India’s AML/CFT System. India has made significant progress with regard to the implementation of this action plan.
In particular, since the adoption of its MER in 2010, India focused its attention on:
Rectifying nearly all of the technical deficiencies identified with respect to the criminalisation of money laundering (ML) and terrorist financing (TF) and the implementation of effective confiscation and provisional measures;
Substantially addressing the technical deficiencies identified in relation to customer due diligence and other preventive measures;
Further enhancing its outreach programme to provide guidance to the financial sector on the suspicious transaction reporting obligations and engaging in extensive compliance monitoring; and
Bringing several of the Designated Non-Financial Businesses and Professions (DNFBPs) within the scope of its preventive anti-money laundering (AML) / combating the financing of terrorism (CFT) measures.
At the June 2013 Plenary meeting, the FATF decided that India had reached a satisfactory level of compliance with all of the core and key Recommendations and could be removed from the regular follow-up process. The decision by the FATF to remove a country from the regular follow-up process is based on updated procedures agreed in October 2009.
In June 2013, the FATF released an 8th Follow Up Report on the Mutual Evaluation of India. The report states that in India no immediate action is currently planned with respect to lawyers and accountants, who the authorities consider to pose a low risk for money laundering on the basis of two risk assessments that have been undertaken.
Information provided by:
Ajay Shaw, Tiwary, Viraj Gami and Ashish Pahariya
DSK Legal, India
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