SEBI Guidelines for AML, CFT and Proliferation Financing

Where the guidelines come from

Chapter 6 carries 7 marks out of 50 — 14% of the paper.

Learning Objective- After studying this chapter, you should know about: SEBI Guidelines on AML, CFT and PF and SEBI Master Circular dated June 06' 2024.

The PMLA and the PML Rules place duties on every reporting entity. In the securities market, reporting entity covers intermediaries registered under section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and stock exchanges. The workbook lists them:

• A stockbroker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, asset management company, depository participant, merchant banker, portfolio manager, investment adviser and any other intermediary associated with the SEBI and stock exchanges.

They must do three things. They must adhere to client account opening procedures, maintain records and report such transactions as prescribed therein to the relevant authorities.

Note that the list is wider than the PMLA's own definition — it adds asset management company and depository participant.

Where SEBI's power comes from: the PML Rules, empower SEBI to specify the information required to be maintained by the intermediaries and the procedure, manner and the form in which such information is to be maintained. It also mandates the reporting entities to evolve an internal mechanism for detecting the transactions specified in the PML Rules and for furnishing information thereof.

The overriding standard is self-satisfaction, judged by the spirit of the measures. Each intermediary shall consider carefully the specific nature of its business, organizational structure, type of client and transaction, etc. to satisfy itself that the measures taken by it are adequate and appropriate and follow the spirit of the suggested measures and the requirements as laid down in the PMLA and guidelines issued by the Government of India from time to time.

The workbook's first sample question asks which factors must be evaluated — nature of business, types of clients and nature of transactions, all of them.

The overriding principle is that they shall be able to satisfy themselves that the measures taken by them are adequate, appropriate and abide by the spirit of such measures and the requirements as enshrined in the PMLA.

Overseas branches — the more stringent rule

In case there is a variance in Client Due Diligence (CDD)/ Anti Money Laundering (AML) standards specified by SEBI and the regulators of the host country, branches/overseas subsidiaries of registered intermediaries are required to adopt the more stringent requirements of the two.

And where the host country will not allow it: if the host country does not permit the proper implementation of AML/CFT measures consistent with the home country requirements, financial groups shall be required to apply appropriate additional measures to manage the Money Laundering/Terror Financing (ML/TF) risks, and inform SEBI.

Two steps — additional measures, and tell SEBI.

6.1.1 The obligation to establish policies

Global measures taken to combat drug trafficking, terrorism and other organized and serious crimes have all emphasized the need for financial institutions, including securities market intermediaries, to establish internal procedures that effectively serve to prevent and impede money laundering and terrorist financing.

The message is simple. Every intermediary needs its own internal procedures to stop laundering.

Financial groups shall be required to implement group wide programmes for dealing with ML/TF, which shall be applicable, and appropriate to, all branches and majority owned subsidiaries of the financial group as under:

a) policies and procedures for sharing information required for the purposes of CDD and ML/TF risk management.

b) the provision, at group level compliance, audit, and/or AML/CFT functions, of customer, account, and transaction information from branches and subsidiaries when necessary for AML/CFT purposes. This shall include information and analysis of transactions or activities which appear unusual (if such analysis was done); similar provisions for receipt of such information by branches and subsidiaries from these group level functions when relevant and appropriate to risk management; and

c) adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.

Note "majority owned subsidiaries" — the programme need not extend to minority holdings.

And senior management must own it. The senior management of a registered intermediary shall be fully committed to establishing appropriate policies and procedures for the prevention of ML and TF. It must also ensure their effectiveness and compliance with all relevant legal and regulatory requirements.

The seven things registered intermediaries shall do:

• i. issue a statement of policies and procedures and implement, on a group basis where applicable, for dealing with ML and TF reflecting the current statutory and regulatory requirements.
• ii. ensure that the content of these Directives is understood by all staff members.
• iii. regularly review the policies and procedures on the prevention of ML and TF to ensure their effectiveness. Further, in order to ensure the effectiveness of policies and procedures, the person doing such a review shall be different from the one who has framed such policies and procedures.

The reviewer must not be the drafter — a separation of duties.

• iv. adopt client acceptance policies and procedures which are sensitive to the risk of ML and TF.
• v. undertake CDD measures to an extent that is sensitive to the risk of ML and TF depending on the type of client, business relationship or transaction.

vi. have a system in place for identifying, monitoring and reporting suspected ML or TF transactions to the law enforcement authorities; and

vii. develop staff members' awareness and vigilance to guard against ML and TF.

6.1.2 What the policies must cover

• i. Communication of group policies relating to prevention of ML and TF to all management and relevant staff that handle account information, securities transactions, money and client records etc. whether in branches, departments or subsidiaries.
• ii. Client acceptance policy and client due diligence measures, including requirements for proper identification.
• iii. Maintenance of records.
• iv. Compliance with relevant statutory and regulatory requirements.
• v. Co-operation with the relevant law enforcement authorities, including the timely disclosure of information.

vi. Role of internal audit or compliance function to ensure compliance with the policies, procedures, and controls relating to the prevention of ML and TF. This includes:

• The testing of the system for detecting suspected money laundering transactions.
• Evaluating and checking the adequacy of exception reports generated on large and/or irregular transactions.
• The quality of reporting of suspicious transactions.
• The level of awareness of front-line staff, of their responsibilities in this regard; and

vii. The internal audit function shall be independent, adequately resourced and commensurate with the size of the business and operations, organization structure, number of clients and other such factors.

6.2 The four written procedures

Each registered intermediary shall maintain written procedures to implement the anti-money laundering provisions as prescribed under the PMLA. Such procedures shall include the following four specific parameters which are related to the overall 'Client Due Diligence Process':

• a) Policy for acceptance of clients.
• b) Procedure for identifying the clients.
• c) Risk Management.
• d) Monitoring of Transactions.

Four parameters — acceptance, identification, risk management, monitoring.

The source is the Master Circular: SEBI/HO/MIRSD/MIRSDSECFATF/P/CIR/2024/78 June 06' 2024.

6.2.1 Client Due Diligence

Client Due Diligence means screening and verification carried out on an existing/prospective client using reliable and independent sources of identification. It is the act of performing background checks and other screening on the customer to ensure that they are properly risk-assessed before being onboarded. CDD is at the heart of Anti-Money Laundering (AML) and Know Your Customer (KYC) initiatives.

The CDD shall have regard to the money laundering and terrorist financing risks and the size of the business. It shall include policies, controls and procedures, approved by the senior management. These exist to enable the reporting entity to manage and mitigate the risk that have been identified either by the registered intermediary or through national risk assessment.

The eleven CDD measures:

i. Obtaining sufficient information in order to identify persons who beneficially own or control the securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party shall be identified using reliable and independent client identification and verification procedures.

The definition given here is wider than the PMLA's: the beneficial owner is the natural person or persons who ultimately own, control or influence a client and/or person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.

Note the word "influence" — the workbook's second sample question uses exactly this definition.

ii. Identify the client and verify the identity of the client using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship, where applicable.

iii. Verify the client's identity using reliable, independent source documents, data or information. Where the client acts for a juridical person, individual or trust, the intermediary shall verify that any person purporting to act on behalf of such client is so authorized and verify the identity of that person — and in case of a Trust, the reporting entity shall ensure that trustees disclose their status at the time of commencement of an account-based relationship.

iv. Identifying beneficial ownership and control, determined as follows:

Company — the natural person(s), who, whether acting alone or together, or through one or more juridical person, has a controlling ownership interest or who exercises control through other means. Two terms decide this:

• "Controlling ownership interest" means ownership of or entitlement to more than ten per cent of shares or capital or profits.
• "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders' agreements or voting agreements.

Partnership firm — more than ten percent of capital or profits of the partnership or who exercises control through other means, where "control" shall include the right to control the management or policy decision.

Unincorporated association or body of individuals — more than fifteen percent of the property or capital or profits.

Where no natural person is identified under those three, the beneficial owner is the relevant natural person who holds the position of senior managing official.

Trust — identification shall include identification of the author of the trust, the trustee, the beneficiaries with ten per cent or more interest in the trust, settlor, protector and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

Note that SEBI's trust list adds two names to the PML Rules version — settlor and protector.

Listed entities — where the client or controlling owner is an entity listed on a stock exchange in India, or a listed entity in a notified jurisdiction, or it is a subsidiary of such listed entities, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such entities.

Foreign investor — intermediaries dealing with foreign investors [are] guided by SEBI directives, for the purpose of identification of beneficial ownership of the client.

And compliance is audited: the compliance of the aforementioned provision on identification of beneficial ownership is monitored by the Stock Exchanges and Depositories through half yearly internal audits. In case of mutual funds, compliance of the same shall be monitored by the Boards of the Asset Management Companies and the Trustees and in case of other registered intermediaries, by their Board of Directors.

v. Verify the identity of the beneficial owner of the client or the person on whose behalf a transaction is conducted.

vi. Understand the nature of business, ownership and control structure of the client.

vii. Conduct ongoing due diligence and scrutiny, i.e., perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the registered intermediary's knowledge of the client, its business and risk profile, taking into account, where necessary, the client's source of funds.

viii. Review the due diligence measures including verifying again the identity of the client and obtaining information on the purpose and intended nature of the business relationship... when there are suspicions of money laundering or financing of the activities relating to terrorism or where there are doubts about the adequacy or veracity of previously obtained client identification data.

ix. Periodically update all documents, data or information of all clients and beneficial owners collected under the CDD process such that the information or data collected under client due diligence is kept up-to-date and relevant, particularly for high-risk clients.

x. Register a non-profit organisation client on the DARPAN Portal of NITI Aayog, if not already registered, and maintain such registration records for a period of five years after the business relationship... has ended or the account has been closed, whichever is later.

xi. Where registered intermediary is suspicious that transactions relate to money laundering or terrorist financing, and reasonably believes that performing the CDD process will tip-off the client, the registered intermediary shall not pursue the CDD process, and shall instead file a STR with FIU-IND.

That eleventh measure is important — where CDD itself would tip off the client, stop the CDD and file the report instead.

And the absolute rule: no transaction or account-based relationship shall be undertaken without following the CDD procedure.

The workbook's third sample question tests that statement — it is False to say relationships may be undertaken without CDD.

6.2.2 Policy for acceptance of clients

It is very important for the registered intermediaries to identify the types of clients that are likely to pose a higher than average risk of Money Laundering (ML) or Terror Financing (TF).

The eight safeguards:

a) No registered intermediary shall allow the opening of or keep any anonymous account or account in fictitious names or account on behalf of other persons whose identity has not been disclosed or cannot be verified.

b) Risk factors for assessing and monitoring suspicious transactions shall be clearly defined, considering aspects such as the client's location (registered office, correspondence address, and any other relevant addresses), nature of business, trading turnover, and mode of payment for transactions. These parameters help classify clients into low, medium, or high-risk categories.

Four risk factors — location, nature of business, trading turnover, mode of payment — producing three categories.

c) Enhanced due diligence measures should be carried out for Clients of Special Category (CSC). These are clients who carry higher risk. CSC shall include the following clients:

• NRI.

• HNI.

• Trust, Charities, Non-Governmental Organizations (NGOs) and organizations receiving donations.

• Companies having close family shareholdings or beneficial ownership.

• Politically Exposed Persons (PEPs).

• Clients in high-risk countries.

• Non-face to face clients.

• Clients with dubious reputation as per public information available.

• d) Documentation requirements and other information to be collected in respect of different classes of clients depending on the perceived risk and having regard to the requirements of Rule 9 of the PML Rules, Directives and Circulars issued by SEBI from time to time.

• e) It must be ensured that an account is not opened where the intermediary is unable to apply appropriate CDD measures. The registered intermediary shall consult the relevant authorities in determining what action it shall take when it suspects suspicious trading.

f) The circumstances under which the client is permitted to act on behalf of another person / entity shall be clearly laid down. The rights and responsibilities of both the agent-client registered with the intermediary, as well as the person on whose behalf the agent is acting shall be clearly laid down, with adequate verification of a person's authority to act on behalf of the client.

g) Necessary checks and balance should be put into place before opening an account so as to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide.

h) The CDD process shall necessarily be revisited when there are suspicions of ML/TF.

6.2.3 Client Identification Procedure

Client Identification Procedure (CIP) is carried out at various stages like:

• to establish the intermediary – client relationship.
• while carrying out transactions for the client.
• when the intermediary has doubts regarding the veracity or the adequacy of previously obtained client identification data.

Six requirements, the first three about politically exposed persons:

i. All registered intermediaries shall proactively put in place appropriate risk management systems to determine whether their client or potential client or the beneficial owner of such client is a politically exposed person. Such procedures shall include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPs.

ii. All registered intermediaries are required to obtain senior management approval for establishing business relationships with PEPs. Where a client has been accepted and the client or beneficial owner is subsequently found to be, or subsequently becomes a PEP, registered intermediaries shall obtain senior management approval to continue the business relationship.

iii. Registered intermediaries shall also take reasonable measures to verify the sources of funds as well as the wealth of clients and beneficial owners identified as PEP.

Sources of funds and wealth — two separate enquiries.

iv. The client shall be identified by the intermediary by using reliable sources including documents / information. The intermediary shall obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.

v. The information must be adequate enough to satisfy competent authorities (regulatory / enforcement authorities) in future that due diligence was observed by the intermediary in compliance with the directives. Each original document shall be seen prior to acceptance of a copy.

vi. Failure by prospective client to provide satisfactory evidence of identity shall be noted and reported to the higher authority within the intermediary.

Every intermediary shall formulate and implement a CIP incorporating the requirements of the PML Rules Notification No. 9/2005 dated July 01, 2005 (as amended from time to time) and such other additional requirements as it considers appropriate.

No thresholds, no exemptions

It may be noted that irrespective of the amount of investment made by clients, no minimum threshold or exemption is available to registered intermediaries (brokers, depository participants, AMCs etc.) from obtaining the minimum information/documents from clients as stipulated in the PML Rules/ SEBI Circulars... regarding the verification of the records of the identity of clients.

Further no exemption from carrying out CDD exists in respect of any category of clients. In other words, there shall be no minimum investment threshold/ category-wise exemption available for carrying out CDD measures by registered intermediaries. This shall be strictly implemented by all registered intermediaries and non-compliance shall attract appropriate sanctions.

Reliance on a third party

Registered intermediaries may rely on a third party for the purpose of – i. Identification and verification of the identity of a client and ii. Determination of whether the client is acting on behalf of a beneficial owner, identification of the beneficial owner and verification of the identity of the beneficial owner.

Such third party shall be regulated, supervised or monitored for, and have measures in place for compliance with CDD and record-keeping requirements in line with the obligations under the PML Act.

The Rule 9(2) conditions, restated. A registered intermediary relying on a third party must:

• Obtain the CDD information immediately.
• Take adequate steps to satisfy itself that copies of identification data and other relevant documentation... will be made available from the third party upon request without delay.
• Be satisfied the third party is regulated, supervised or monitored.
• Ensure the third party is not based in a country or jurisdiction assessed as high risk.

And decisively, the registered intermediary shall be ultimately responsible for CDD and undertaking enhanced due diligence measures, as applicable.

6.2.4 Risk Management — the Risk Based Approach

Registered intermediaries shall apply a Risk Based Approach (RBA) for mitigation and management of the identified risk and should have policies approved by their senior management, controls and procedures in this regard. Further, the registered intermediaries shall monitor the implementation of the controls and enhance them if necessary.

It is generally recognized that certain clients may be of a higher or lower risk category depending on the circumstances such as the client's background, type of business relationship or transaction etc.

The basic principle enshrined in this approach is that the registered intermediaries shall adopt an enhanced client due diligence process for higher risk categories of clients. Conversely, a simplified client due diligence process may be adopted for lower risk categories of clients.

And the information demanded varies with risk: the type and amount of identification information and documents that registered intermediaries shall obtain necessarily depend on the risk category of a particular client.

With one limit: low risk provisions shall not apply when there are suspicions of ML/FT or when other factors give rise to a belief that the customer does not in fact pose a low risk.

6.2.5 Risk Assessment

Registered intermediaries shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to its clients, countries or geographical areas, nature and volume of transactions, payment methods used by clients, etc.

The risk assessment carried out shall consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. The assessment shall be documented, updated regularly and made available to competent authorities and self-regulating bodies, as and when required.

And new products carry their own assessment. The Stock Exchanges and registered intermediary shall identify and assess the ML/TF risks that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and existing products. In plain terms: check the laundering risk before launching anything new.

They must ensure: a. To undertake the ML/TF risk assessments prior to the launch or use of such products, practices, services, technologies; and b. Adoption of a risk based approach to manage and mitigate the risks.

Before launch, not after.

The assessment shall also take into account any country specific information that is circulated by the Government of India and SEBI from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions.

6.2.6 Monitoring of transactions

Regular monitoring of transactions is vital for ensuring effectiveness of the AML procedures. This is possible only if the intermediary has an understanding of the normal activity of the client so that it can identify deviations in transactions / activities.

The intermediary shall pay special attention to all complex unusually large transactions / patterns which appear to have no economic purpose. The intermediary may specify internal threshold limits for each class of client accounts and pay special attention to transactions which exceeds these limits.

And the reasoning must be written down. The background including all documents/office records /memorandums/clarifications sought pertaining to such transactions and purpose thereof shall also be examined carefully and findings shall be recorded in writing. Further such findings, records and related documents shall be made available to auditors and also to SEBI/stock exchanges/FIU-IND/ other relevant Authorities, during audit, inspection or as and when required.

Existing clients are included: apply CDD also to existing clients on the basis of materiality and risk, and the extent of monitoring shall be aligned with the risk category of the client.

Records and reports: the intermediary shall ensure a record of the transactions is preserved and maintained in terms of Section 12 of the PMLA and that transactions of a suspicious nature or any other transactions notified under Section 12 of the Act are reported to the Director, FIU-IND.

Internal escalation and sampling: suspicious transactions shall also be regularly reported to the higher authorities within the intermediary. Further, the compliance cell of the intermediary shall randomly examine a selection of transactions undertaken by clients to comment on their nature i.e., whether they are in the nature of suspicious transactions or not.

6.2.7 Suspicious transaction monitoring and reporting

Registered Intermediaries shall ensure that appropriate steps are taken to enable suspicious transactions to be recognized and have appropriate procedures for reporting suspicious transactions.

While determining suspicious transactions, registered intermediaries shall be guided by the definition of a suspicious transaction contained in PML Rules as amended from time to time.

The illustrative list — and it is only illustrative: whether a particular transaction is suspicious or not will depend upon the background, details of the transactions and other facts and circumstances.

• i. Clients whose identity verification seems difficult or clients that appear not to cooperate.
• ii. Asset management services for clients where the source of the funds is not clear or not in keeping with clients' apparent standing /business activity.
• iii. Clients based in high-risk jurisdictions.
• iv. Substantial increases in business without apparent cause.
• v. Clients transferring large sums of money to or from overseas locations with instructions for payment in cash.
• vi. Attempted transfer of investment proceeds to apparently unrelated third parties.
• vii. Unusual transactions by CSCs and businesses undertaken by offshore banks/financial services.

What happens on suspicion

Any suspicious transaction shall be immediately notified to the Designated/Principal Officer within the intermediary. The notification may be done in the form of a detailed report with specific reference to the clients, transactions and the nature /reason of suspicion.

However, it shall be ensured that there is continuity in dealing with the client as normal until told otherwise and the client shall not be told of the report/ suspicion.

Business as usual, and silence.

In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended, in one or more jurisdictions concerned in the transaction, or other action taken.

And access must be immediate: the Designated/ Principal Officer and other appropriate compliance, risk management and related staff members shall have timely access to client identification data and CDD information, transaction records and other relevant information.

Abandoned transactions count: it is likely that in some cases transactions are abandoned or aborted by clients on being asked to give some details or to provide documents. It is clarified that registered intermediaries shall report all such attempted transactions in STRs, even if not completed by clients, irrespective of the amount of the transaction.

Counter measures for CSCs: they shall also be subject to appropriate counter measures. These may include:

• A further enhanced scrutiny of transactions.
• Enhanced relevant reporting mechanisms or systematic reporting of financial transactions.
• Applying enhanced due diligence while expanding business relationships with the identified country or persons in that country.

6.2.8 Record management

The four items to maintain, mirroring Rule 4:

• The nature of the transactions.
• The amount of the transaction and the currency in which it is denominated.
• The date on which the transaction was conducted; and
• The parties to the transaction.

The standard: Registered Intermediaries shall maintain such records as are sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behaviour.

Why an audit trail matters: in case of any suspected laundered money or terrorist property, the competent investigating authorities would need to trace through the audit trail for reconstructing a financial profile of the suspect account.

To enable this, intermediaries retain: i. the beneficial owner of the account; ii. the volume of the funds flowing through the account; and iii. For selected transactions: a. the origin of the funds the form in which the funds were offered or withdrawn, e.g., cheques, demand drafts etc.; b. the identity of the person undertaking the transaction; c. the destination of the funds; d. the form of instruction and authority.

And records may have to be kept longer than the law requires. Where required by the investigating authority, they shall retain certain records, e.g., client identification, account files, and business correspondence, for periods which may exceed those required under the SEBI Act, Rules and Regulations framed thereunder PMLA, other relevant legislations, Rules and Regulations or Exchange byelaws or circulars. So the legal minimum is a floor, not a ceiling.

The workbook's fourth sample question turns on that list — client identification records, account files and business correspondence may be retained by an investigating authority; blank letter heads are not among them.

The Rule 3 categories restated, with one SEBI addition: for all series of cash transactions integrally connected it is clarified that for the purpose of suspicious transactions reporting, apart from 'transactions integrally connected', 'transactions remotely connected or related' shall also be considered.

Remotely connected transactions count for STR purposes.

And clause (iv) is spelt out for the securities market: all suspicious transactions whether or not made in cash and including, inter-alia, credits or debits into or from any non-monetary account such as demat account, security account maintained by the registered intermediary.

Missing identity records has a consequence: where the registered entity does not have records of the identity of its existing clients, it shall obtain the records forthwith, failing which the registered intermediary shall close the account of the clients after giving due notice to the client.

"Records of the identity of clients" shall include updated records of the identification date, account files and business correspondence and result of any analysis undertaken under Rules 3 and 9 of the PML Rules.

6.2.9 Retention of records

Registered intermediaries shall take appropriate steps to evolve an internal mechanism for proper maintenance and preservation of such records and information in a manner that allows easy and quick retrieval of data as and when requested by the competent authorities.

6.2.10 Reporting to FIU-IND

In terms of the PML Rules, registered intermediaries are required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND) at 6th Floor, Tower-2, Jeevan Bharati Building, Connaught Place, New Delhi-110001, INDIA.

The eight rules to adhere to:

i. The Cash Transaction Report (CTR) (wherever applicable) for each month shall be submitted to FIU-IND by 15th of the succeeding month.

ii. The Suspicious Transaction Report (STR) shall be submitted within 7 days of arriving at a conclusion that any transaction, whether cash or non-cash, or a series of transactions integrally connected are of suspicious nature. The Principal Officer shall on being satisfied that the transaction is suspicious, furnish the information promptly in writing by fax or by electronic mail to the Director... The Principal Officer shall record his reasons for treating any transaction or a series of transactions as suspicious. It shall be ensured that there is no undue delay in arriving at such a conclusion

Reasons must be recorded, and delay in concluding is itself a failing.

• iii. The Non Profit Organization Transaction Reports (NTRs) for each month shall be submitted to FIU-IND by 15th of the succeeding month.
• iv. The Principal Officer will be responsible for timely submission of CTR, STR and NTR to FIU-IND.
• v. Utmost confidentiality shall be maintained in filing of CTR, STR and NTR to FIU-IND.
• vi. No NIL reporting needs to be made to FIU-IND in case there are no cash/ suspicious/non-profit organization transactions to be reported.
• vii. "Non-profit organization" means any entity or organisation, constituted for religious or charitable purposes referred to in clause (15) of section 2 of the Income-tax Act, 1961, that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a Company registered under the section 8 of the Companies Act, 2013.

viii. Every intermediary, its directors, officers and employees shall ensure that the fact of maintenance referred to in Rule 3 of PML Rules and furnishing of information to the Director is kept confidential — save for sharing under Rule 3A of PML Rules of any analysis of transactions and activities which appear unusual.

No restrictions, and no tipping off

Registered Intermediaries shall not put any restrictions on operations in the accounts where an STR has been made.

Registered intermediaries and their directors, officers and employees (permanent and temporary) shall be prohibited from disclosing ("tipping off") the fact that a STR or related information is being reported or provided to the FIU-IND.

This prohibition on tipping off extends not only to the filing of the STR and/ or related information but even before, during and after the submission of an STR. Thus, it shall be ensured that there is no tipping off to the client at any level.

Before, during and after — and the prohibition binds permanent and temporary staff alike.

No thresholds for STRs

The registered intermediaries, irrespective of the amount of transaction and/or the threshold limit envisaged for predicate offences specified in part B of Schedule of PMLA, 2002, shall file STR if they have reasonable grounds to believe that the transactions involve proceeds of crime.

So the Part B one crore threshold does not limit STR filing.

It is further clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. Confidentiality requirement does not inhibit information sharing among entities in the group.

The SEBI Guidelines discussed in detail in this chapter when implemented effectively, will help protect the financial system, help financial institutions understand their customers, reduce the risk of money laundering and Prevent Financial Institutions from being abused.