Money Laundering Control Officer

When a broker's staff spot a transaction that looks like money laundering, they cannot just handle it quietly at their own desk. There is one designated person inside the firm they must tell.

That person is the Money Laundering Control Officer, also called the Principal Officer. Any suspicious transaction has to be reported to this officer, or another designated officer, immediately.

Under the Suspicious Transaction Report (STR) regulations (Chapter 10), the workbook lists warning signs a broker must watch for — clients whose identity is hard to verify or who seem uncooperative, funds whose source does not match a client's apparent business, sudden unexplained jumps in business volume, large transfers to or from overseas locations with cash-payment instructions, and attempts to move investment proceeds to apparently unrelated third parties.

Once such a transaction is spotted, it must be notified immediately to the Money Laundering Control Officer or another designated officer. Two things follow:

• Dealing with the client continues as normal until told otherwise — the account is not frozen just because a report has been filed.
• The client must not be told that a report or suspicion exists. Discontinuing operations or suspending transactions is done only in exceptional circumstances.

The Principal Officer/Money Laundering Control Officer, along with compliance, risk management and related staff, must have timely access to client identification data, customer due diligence information and transaction records so the report can actually be investigated.

A dealer at a brokerage notices a client transferring large sums from an overseas account, with repeated instructions that payment be made in cash — one of the workbook's listed red flags. Say, purely as an illustration, that the transfer in question is for Rs 40 lakh — the workbook itself sets no rupee threshold for what counts as suspicious, so this figure is illustrative, not a workbook rule.

The dealer escalates this immediately to the firm's Money Laundering Control Officer. The MLCO reviews the client's identification and transaction records — records the compliance team must be able to access without delay — and decides whether to file a suspicious transaction report with FIU-IND. Throughout this process, the client's account continues to operate normally, and nobody tells the client that a report is under consideration; only in an exceptional case would the firm suspend the account before the review is complete.

Chapter 10 (Sales Practices and Investor Protection Measures) sets out the STR regulations, the list of suspicious-transaction indicators, and the requirement to notify the Money Laundering Control Officer immediately while continuing to deal with the client normally. Expect a question on who must be notified of a suspicious transaction and what must — and must not — be disclosed to the client.

• The client must never be told that a suspicious transaction report exists or is being considered — this is the single most tested rule here.
• Normal dealing continues with the client after a report; the account is not automatically suspended.
• "Money Laundering Control Officer" and "Principal Officer" refer to the same role in this workbook's usage — a question may use either name.
• Suspending operations or discontinuing an account is reserved for exceptional circumstances only, not a routine response to filing a report.