AML and KYC

89 terms · each links to a full explanation with a worked example and the exam traps

Black market peso exchangeThe complex trade-based laundering arrangement the workbook names: it combines drug smuggling, laundering through the financial system and trade laundering, and needs no collusion between importer and exporter.
Capital flightCompanies and individuals shifting money from one country to another to diversify risk and protect wealth against financial or political crises — usually with legitimately earned funds, unlike money laundering.
Central Bank Digital CurrencyA digital representation of fiat currency issued by a central bank — expressly outside the scope of FIU-IND's AML/CFT/PF guidelines for virtual digital asset service providers.
Central KYC RegistryThe Government's central digital store of KYC records for the whole financial sector, operated by CERSAI, which de-duplicates records and issues each client a unique KYC Identifier.
CERSAIThe Central Registry of Securitisation and Asset Reconstruction and Security Interest of India, authorised to run the Central KYC Records Registry that stores investors' KYC records for reuse across regulators.
Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
Client Identification ProcedureThe written procedure each registered intermediary must frame and run to establish the true identity of a client — at onboarding, during transactions, and whenever earlier identification data is doubted.
Client risk categorisationClassifying each client as Low, Medium or High risk under SEBI's AML Master Circular, based on location, business activity, turnover, nature of transactions and manner of payment, so monitoring can match the risk.
Clients of Special CategoryA named list of client types — NRIs, HNIs, trusts, NGOs, PEPs, non-face-to-face clients and others — on whom SEBI requires enhanced due diligence rather than the ordinary standard.
ControlIn the beneficial-ownership tests, the right to appoint a majority of directors or to control management or policy decisions — the limb that catches an owner holding no shares at all.
Controlling ownership interestOwnership of, or entitlement to, more than ten per cent of a company's shares, capital or profits: the ownership limb that makes a natural person the company's beneficial owner.
Correspondent bankingAn arrangement in which one bank, the correspondent, provides services such as wire transfers, currency exchange and trade finance to another, the respondent, in a market where the respondent has no presence.
Customer risk assessmentThe IFSCA requirement to assess every customer and give it a high, medium or low ML/TF risk rating before CDD begins — the rating that decides simplified, standard or enhanced due diligence.
Deferred verificationOpening a business relationship before verification of the customer or beneficial owner is complete — allowed in the IFSC only on four conditions, with suspension at 30 days and termination at 120.
Digital KYCKYC done by an authorised officer capturing a live photo of the customer and of the original OVD or Aadhaar proof, with the latitude and longitude of the place, through the entity's own authenticated app.
Digital KYC accessibilitySEBI's May 2025 rule that digital KYC, including the eKYC liveliness check, must be accessible to persons with disabilities, using alternate verification where the standard test cannot be performed.
Domestic Wire TransferUnder the IFSCA Guidelines, a wire transfer in which both the ordering and beneficiary institutions are in the IFSC, including any chain of transfers taking place entirely within the IFSC.
e-KYC SetuAn NPCI-operated facility that verifies an NPS subscriber's identity through Aadhaar without ever disclosing the full Aadhaar number to the Point of Presence, CRA or NPS Trust.
Enhanced Due DiligenceThe additional customer due diligence a Regulated Entity must perform where ML/TF risk is high — including source of wealth, Senior Management approval and enhanced ongoing monitoring.
Equivalent e-documentAn electronic version of a document issued by the issuing authority itself with its valid digital signature, including one issued to the client's digital locker account — accepted wherever the original is.
eSignAn online electronic signature service that lets an Aadhaar holder digitally sign a document, used by Registered Investment Advisers to complete e-KYC and other paperwork without a physical wet signature.
FATCA and CRSTwo cross-border tax transparency regimes — one American, one OECD — under which a mutual fund's registrar identifies foreign-taxable investors and reports their accounts to the CBDT for automatic exchange.
FATFThe intergovernmental body founded in 1989 that writes the global AML/CFT standards — the 40 Recommendations plus IX Special Recommendations — and grey-lists or black-lists countries that fail them.
FATF black listThe informal name for FATF's public statement of jurisdictions with serious strategic AML/CFT/PF deficiencies, on which FATF calls for enhanced due diligence and, in the most serious cases, counter-measures.
FATF grey listThe informal name for FATF's list of jurisdictions under increased monitoring — countries working with FATF that have committed to fix identified strategic deficiencies swiftly within agreed timeframes.
FATF PlenaryThe FATF's decision-making body, meeting three times a year, which holds countries to account for non-compliance and can name them Jurisdictions under Increased Monitoring or High Risk Jurisdictions.
FATF PresidentThe senior official the FATF Plenary appoints from among its members to chair the Plenary and the Steering Group, serving a two-year term that runs from 1 July to 30 June.
FATF StandardsThe FATF Recommendations together with their Interpretive Notes and the applicable Glossary definitions — the international AML/CFT/PF standard that more than 200 jurisdictions have committed to implement.
FATF Style Regional BodiesThe nine regional counterparts of the FATF — APG, CFATF, EAG, ESAAMLG, GABAC, GAFILAT, GIABA, MENAFATF and MONEYVAL — which with FATF form the global AML/CFT network; India belongs to APG and EAG.
Financial GroupA parent company, or other legal person exercising control and coordinating functions, together with the branches and subsidiaries that are subject to AML/CFT policies and procedures at group level.
FINGate 2.0FINNET 2.0's front-end web portal — the platform on which every IFSCA-licensed regulated entity must register with FIU-IND, and through which suspicious transactions are reported.
FIU-INDIndia's central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions, set up in November 2004 and reporting to the Economic Intelligence Council.
Form 49AThe Income Tax form used to apply for a Permanent Account Number, submitted with proof of identity and proof of address, the entry point to every PAN-linked financial transaction.
Form 60/61The declaration an investor without a PAN must submit for a transaction that would otherwise require one, giving details of the transaction in place of the PAN itself.
Form 61BThe form a Reporting Financial Institution files under India's CRS rules to disclose a foreign-taxable account it has identified through due diligence, enabling automatic exchange of information between countries.
Illustrative suspicious circumstancesSEBI's own list of seven fact-patterns — a client resisting identity checks, large overseas transfers paid in cash — offered as illustrations of a suspicious transaction, not an exhaustive test.
In-person verificationThe mandatory step in which an authorised official physically confirms that the person opening the account is the person in the KYC documents, and records who did it, when, and in what capacity.
Integrally connected transactionsCash transactions that belong together as one dealing: under PMLA, a month's worth of individually small but connected cash transactions adding up above Rs 10 lakh must be recorded like a single large one.
IntegrationThe final stage of money laundering — bringing the funds back out into the legitimate economy as property, business income or dividends that can be spent without attracting attention.
Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
Know Your DepositorThe obligation on a Warehouse Service Provider to be able to identify, at any time, who deposited goods in its registered warehouses and who the actual beneficiary of those goods is.
KUA and sub-KUAThe Aadhaar e-KYC structure for the securities market: nine notified entities register with UIDAI as KYC User Agencies, and SEBI intermediaries authenticate clients through one of them as sub-KUAs.
KYC IdentifierThe unique number or code the Central KYC Records Registry assigns to a client after de-duplicating its KYC records — the key a reporting entity uses to fetch those records instead of asking for them again.
KYC Registration AgencyA SEBI-created agency that holds an investor's verified KYC record centrally, so that one KYC completed with any securities market intermediary works with all the others.
LayeringThe second stage of money laundering — moving money through enough transactions, accounts and jurisdictions that the trail back to the original crime becomes impossible to follow.
Listed-entity exemptionThe rule that no shareholder or beneficial owner need be identified where the customer, or the owner of its controlling interest, is listed in India or a notified jurisdiction, or is a subsidiary of such an entity.
Micro investmentMutual fund investments up to Rs 50,000 in aggregate under all schemes of a fund house, which an individual investor may make without a PAN — but never without KYC.
Money launderingTurning the proceeds of a crime into money that looks legitimate — classically in three stages, placement, layering and integration — and a standalone offence under section 3 of the PMLA.
Money Laundering Control OfficerThe officer within a broker or intermediary, also called the Principal Officer, to whom any suspicious transaction must be reported immediately under the STR regulations.
Mule accountAn account held in one person's name but effectively controlled by another — defined in the SEBI PFUTP Regulations and used to place criminal money without exposing whoever actually owns it.
Non-profit organizationUnder the PML framework, an entity constituted for religious or charitable purposes under section 2(15) of the Income-tax Act and registered as a trust, a society or a section 8 company.
Offence of cross border implicationsUnder section 2(1)(ra) of the PMLA, conduct abroad that would be a scheduled offence in India with proceeds reaching India, or a scheduled offence in India whose proceeds are sent or attempted to be sent abroad.
Officially valid documentsThe alternatives to Aadhaar accepted as identity evidence for KYC — driving licence, passport, voter ID and the NREGA job card — all of which the client supplies voluntarily.
Ongoing due diligenceThe continuing duty to scrutinise a customer's transactions against what is known of the customer, its business and risk profile, and to keep CDD data current, for the whole life of the relationship.
Over- and under-invoicingMisstating the price of goods or services on an invoice to move value between importer and exporter — under-invoicing moves value to the importer, over-invoicing to the exporter.
PAN-Aadhaar linkageA demat account holder who fails to link PAN with Aadhaar in time has the account frozen for debits and credits, with the PAN itself treated as inoperative under SEBI's KYC rules.
PAN exemptionThe relaxation that lets small mutual fund investors invest without a PAN — up to a composite Rs 50,000 a year in micro-SIPs and lump sums — by quoting a PAN Exempt KYC Reference Number from a KRA.
Phantom shipmentThe extreme form of over-shipment: the exporter ships no goods at all and colludes with the importer so that all shipping and customs documents are routinely processed and paid against.
PlacementThe first stage of money laundering — getting criminal cash into the financial system, where it stops being a bag of notes and becomes a balance that can be moved.
PMLAThe Prevention of Money Laundering Act, 2002 — the core of India's legal framework against money laundering, in force from 1 July 2005, binding banks, financial institutions and intermediaries.
Politically exposed personsA higher-risk class of client that SEBI treats as a client of special category: the intermediary must detect them, obtain senior management approval to deal with them, and verify their source of funds and wealth.
Positive confirmationSEBI's way of checking a declared address without any document — the intermediary gets a response from the address, by a welcome-kit or statement acknowledgment, a telephone call, or a visit.
Predicate offenceThe underlying crime that generates the proceeds a launderer then has to hide — the critical element without which there is no money laundering offence at all.
Proceeds of crimeUnder section 2(1)(u) of the PMLA, any property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence — or its value, or equivalent property where it is held abroad.
Risk assessmentAn intermediary's documented, up-to-date assessment of its own money-laundering and terrorist-financing risk across clients, geographies, transactions and payment channels — and of new products before launch.
Risk Based ApproachApplying each due diligence measure in proportion to the money-laundering risk a client poses — enhanced diligence for higher-risk clients, simplified for lower-risk, never simplified where suspicion exists.
SARAL accountA simplified account for resident individuals trading only in the cash segment — no internet, margin or derivatives trading and no power of attorney — needing just one documentary proof of address.
Scheduled offenceAn offence listed in Part A, Part B or Part C of the Schedule to the PMLA — the crime that must have been committed before there can be proceeds of crime, and so before money laundering exists.
Senior managing official fallbackThe last rung of the beneficial ownership ladder: where no natural person can be identified by ownership or control, the beneficial owner is the person holding the position of senior managing official.
Shell companyAn inactive company or corporation that exists only on paper — named in the workbook as a placement method, because it lets criminal money enter the system behind a corporate name instead of a person's.
Shell Financial InstitutionAn institution the IFSCA Guidelines bar outright: no correspondent relationship may be entered into with one, no correspondent account may be used by one, and no business relationship may be established with one.
Simplified Customer Due DiligenceThe lighter version of CDD an IFSC regulated entity may apply to a customer rated low risk — never where there is a suspicion of money laundering or terrorist financing.
SmurfingA placement technique in which money is split into small amounts, each below the AML reporting threshold, and fed into bank accounts or credit cards so that no single deposit draws a report.
Specified transactionThe class of transactions under section 12AA of the PMLA that a reporting entity may not begin until it has completed enhanced due diligence on the client undertaking them.
Statement of Financial TransactionsThe Income Tax Act report a mutual fund trustee files on purchases of Rs 10 lakh or more per investor per year, plus a separate SFT-081 filing on transactions attracting capital gains.
Suspicious transactionAny transaction or attempt, cash or not, that to a person acting in good faith suggests proceeds of crime or terrorist financing, or looks unjustifiably complex or without economic rationale.
Suspicious Transaction ReportA report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
Temporary ceasing of operationsUnder Rule 9(17) of the PML Rules, the temporary suspension of all transactions in an existing client's account for failing to submit PAN, its e-document or Form No. 60 by the notified date.
Third-party correspondence addressAn address belonging to someone other than the client, which SEBI lets a client use for correspondence only if the intermediary also completes full KYC and Rule 9 due diligence on that third party.
Third-party relianceUsing another regulated firm's client due diligence instead of doing your own — permitted under Rule 9(2) of the PML Rules on six conditions, with the relying entity still ultimately responsible.
Tipping offTelling a client that a suspicious transaction report about them has been or will be filed — illegal, and the reason the broker reports to the Financial Intelligence Unit in silence.
Trade-based money launderingDisguising the proceeds of crime and moving value through trade transactions to legitimise their illicit origin — by misrepresenting the price, quantity or quality of imports or exports.
Ultimate Beneficial OwnerThe natural person who ultimately owns or controls a non-individual investor — over 25% of a company, over 15% of a partnership, or 15% or more of a trust's benefits — whose identity a mutual fund must verify.
Uniform KYC formatSEBI's rule that every registered intermediary uses the same KYC form and supporting documents — Part I of the account opening form built on CERSAI's templates, Part II left to the intermediary.
UNSC sanctions listsThe UN Security Council's ISIL (Da'esh) & Al-Qaida Sanctions List and 1988 Sanctions List — no IFSC regulated entity may hold an account in a listed name, and resembling accounts go to FIU-IND and MHA.
V-CIPVideo based Customer Identification Process: identifying a customer through a live, secure, consent-based audio-visual interaction with facial recognition — treated on par with face-to-face identification.
Video In-Person VerificationIPV conducted over a live, recorded video interaction through the intermediary's own app — with informed consent, random questions, a liveliness check and a tamper-proof time-stamped recording.
Virtual Digital Asset Service ProviderA provider of services related to virtual digital assets — a reporting entity under section 2(1)(wa) of the PMLA, which must register with FIU-IND and meet its record-keeping and reporting duties.
Wire TransferAny transaction carried out for an originator through a financial institution by electronic means to make funds available to a beneficiary at a beneficiary institution — even if originator and beneficiary are the same.