Illustrative suspicious circumstances

A suspicious transaction report has to start somewhere: someone at the intermediary has to first notice that a transaction looks wrong. The PML Rules define a suspicious transaction in general terms, which is not much help to a dealer looking at a specific client on a specific day.

So the SEBI AML/CFT guidelines add a list of circumstances which may be in the nature of suspicious transactions. It is deliberately not a checklist that decides the case by itself. The workbook is explicit: "This list is only illustrative and whether a particular transaction is suspicious or not will depend upon the background, details of the transactions and other facts and circumstances." The list exists to train judgement, not to replace it.

Chapter 6, section 6.2.7 (Suspicious Transaction Monitoring and Reporting) gives seven illustrative circumstances:

1. clients whose identity verification seems difficult, or clients who appear not to cooperate;
2. asset management services for clients where the source of funds is not clear or is not in keeping with the client's apparent standing or business activity;
3. clients based in high-risk jurisdictions;
4. substantial increases in business without apparent cause;
5. clients transferring large sums of money to or from overseas locations with instructions for payment in cash;
6. attempted transfer of investment proceeds to apparently unrelated third parties;
7. unusual transactions by Clients of Special Category (CSC) and businesses undertaken by offshore banks or financial services.

A circumstance on this list does not by itself make a transaction suspicious, and its absence does not clear one either — the guidelines guide the intermediary to weigh the background and facts of the specific client and transaction.

What follows once suspicion is formed. Any suspicious transaction is immediately notified to the Designated or Principal Officer, as a detailed report naming the client, the transaction and the reason for suspicion. The client is told nothing — the workbook requires continuity in dealing with the client as normal unless told otherwise, and prohibits "tipping off." The Principal Officer, once satisfied, furnishes the information to the Director, FIU-IND, and must record in writing the reasons for treating the transaction as suspicious. A Suspicious Transaction Report is filed within 7 days of arriving at that conclusion — irrespective of the transaction amount, and even where the client abandoned or aborted the transaction rather than completing it.

Kavya, a compliance analyst at a Chennai-based broking firm, reviews an account opened three months ago by Rajesh Enterprises, a small trading firm.

No single row proves anything on its own — a genuine business can grow fast, and a cautious client can simply dislike paperwork. It is the combination, against Rajesh Enterprises' own declared background, that leads Kavya to write up her findings and escalate.

She reports it, in writing, to the firm's Principal Officer the same afternoon. The account is not restricted and Rajesh Enterprises is told nothing. The Principal Officer records his reasons for treating the pattern as suspicious and, being satisfied, has the STR filed with FIU-IND within 7 days of that conclusion — a deadline that runs from when the officer decided, not from when Kavya first noticed the pattern.

Chapter 6 (SEBI Guidelines for Anti Money Laundering Standards), section 6.2.7, sets out this list immediately after the risk-based approach and transaction-monitoring sections, and immediately before the reporting mechanics — Principal Officer notification, no tipping off, and the FIU-IND deadlines.

Expect a question asking which of several client behaviours is not on the illustrative list (testing whether a candidate has memorised the seven, or is reasoning from a plausible-sounding distractor), a true/false on whether the list is exhaustive (it is not), and the 7-day STR filing deadline once the Principal Officer is satisfied.

• The list is illustrative, not exhaustive. A transaction not on the list can still be suspicious; a transaction matching a row is not automatically suspicious. The workbook says so in the same sentence that introduces the list.
• Seven items, not the cash-transaction thresholds. Do not confuse this list with the Rs 10 lakh cash-transaction and integrally-connected-transaction reporting rules in section 6.2.8 — those are a separate, numeric trigger for a Cash Transaction Report.
• The client is never told. Continuity of normal dealing and the prohibition on tipping off apply from before the STR is filed through after it, not only during filing.
• 7 days runs from the Principal Officer's conclusion, not from the date the underlying transaction happened or the date an employee first noticed it.
• Abandoned or aborted transactions must still be reported, irrespective of amount, if the client pulled out on being asked for details or documents.
• Do not cite the mechanics of the Suspicious Transaction Report itself here — this page is the trigger list; the report's own form and filing regime is Series I's page.