KYC NORMS(KYC) AND PREVENTION OF MONEY LAUNDERING ACT 2002 (PMLA)

KYC
Banks have to meet some statutory and regulatory requirements, while dealing with customers. Some of these requirements such as Know Your Customer (KYC), begin even before applicants become customers of any bank. The objective of the Know Your Customer (KYC) guidelines is to prevent banks from being used for money laundering activities. KYC compliance also helps banks to prevent frauds and also get legal protection available to collecting banks under the Negotiable Instruments Act.

 Key elements of Banks Policy under RBI Guidelines and Rules under PMLA 2002 are: Customer Acceptance Customer Identification Monitoring of Transactions Risk Management Who is a customer? A person or an entity that maintains an account or a business relationship with the bank (depositors, borrowers, demat a/c holders, guarantors of loans, locker holders etc. One on whose behalf a/c is maintained (beneficial owner)

 Beneficiaries of transactions conducted by professional intermediaries e.g. stock brokers, solicitors, CAs etc. as permitted by law) Any person or entity connected with a financial transaction Customer Acceptance: Avoiding opening of accounts in fictitious, benami names through checking of antecedents Scrutinise information available in RBI list (website)/other public domain regarding terrorist names and organisations. Persons with criminal background should not be accepted as account holders. However, it should be

 Ensured that banking facilities are not denied for genuine purpose merely for the reason that criminal charges have been leveled against them or they have undergone some sort of punishment in the past. However, a/c should not be opened for persons convicted for offences relating to money laundering, terrorist activities, drug trafficking, bank frauds etc. A/cs should not be opened on account of persons of unsound mind, Pardhanishan women etc. CUSTOMER IDENTIFICATION: Account of individuals: Photographs (a) Proof of identity: Passport, Voter ID Card, PAN card,Govt./Defence ID Card, ID card of reputed employer, Driving License, Photo ID Card of P.O.

 Proof of address: Passport, Credit card statement, salary slip, Income/Wealth assessment order, Electricity /TELEPHONE BILL, Bank statement, Letter from reputed employer, letter from recogonised Public Authority, Ration Card. Exceptions: In case if the customer is not able to submit above documents and will maintain balances not more than 50,000/- with credit summations of not more than One lac in a year may be permitted to open a/c, subject to: (a) Introduction from another a/c holder who has been subjected to full KYC procedure and has at least 6 months old satisfactory running of a/c, Or (b) any other evidence of identity and address to the satisfaction of bank.

COMPANIES: Certificate of incorporation Memorandum and articles of association Certificate of commencement of business Resolution of Board of Directors for opening the a/c KYC of those who will operate the a/c PARTNERSHIP FIRMS: Partnership deed Partnership letter Introduction from a person known to the Bank Registration certificate(in case of Registered firms) Telephone bill in the name of firm/partners

 Valid document identifying the partners, their address etc. HINDU UNDIVIDED FAMILY: Members of the family reside together, own property jointly and carry on business jointly Declaration from the Karta Proof of identification of Karta JHF letter signed by all the adult coparceners TRUSTS: Trust deed Resolution of Trustees Registration certificate

 Power of attorney (if applicable) KYC of Trustees, Power of attorney holder, beneficiary NRE ACCOUNTS: Passport and Residence Visa copies duly attested by: Any of Banker, Notary Public, Indian Embassy, Person known to the Bank i.e. other a/c holders, staff members etc. In case of attestation by self, any two of the following two documents to be attached: (a) Cheque drawn/paid on his account with correspondent bank abroad, duly cancelled (b) Latest Overseas Bank statement in original

 (c) Copy of telephone/electricity bill (abroad) (d)Pay slip/Tax Return/Employee ID/Labour Card In case of NRI customer want to open the a/c without visiting the branch, they will be treated as non face to face customer and necessary due diligence be exercised by the banker. Account of minors: If minor is less than 10 years of age, the a/c should be opened under Natural Guardianship /and KYC of Natural Guardian should be effected. Grand parents can also open deposit a/cs for the benefit of grandchildren. The a/c can also be opened under guardianship of Court appointed Guardian, in case natural guardians are no more.

 In cases where minor is 10 year old or more and can operate the a/c independently, his KYC should be effected. Societies/Clubs/Associations: Copies of bye-laws Registration Certificate (if applicable) Resolution of the Managing Committee Proof of identification of the office bearers who are opening and operating the account. Letter of thanks should invariably be sent to the account holder(s) as well as to the introducer under Registered Post at recorded address with dual purpose One thanking for opening the a/c, the

 The other for verification of genuiness of address. Undelivered envelopes would be required to be followed up closely and necessary precautions taken. CUSTOMER PROFILE: For exercising control on individual transactions in accounts, Customer Profile of individual account holder should be compiled : Occupation, Source of funds, Monthly income, Annual turnover, Date of birth, qualifications, details of existing credit facilities, Assets (approx. value). Customer profile should be reviewed in case of doubt. Risk categorisation: All new customers should be categorised as High,

 Medium, Low Risk. It should be specifically noted that risk categorisation is meant for proper monitoring of accounts and does not reflect in any way on the account holders. Risk categorisation should not be disclosed to customer. Low Risk: Salaried employee/Pensioners, Govt.deptts & Govt.Companies, Regulators, Fis, Statutory bodies, small business & Public ltd. companies with debit or credit summations of Rs.10 lacs* Medium Risk: Individuals, business, Public or Private Ltd. cos. , with credit or debit summation of more than Rs.10 lacs and upto 1 cr. High Risk: Individuals, business, Public/Private Ltd. Cos. With credit or debit summations of above Rs.1cr *(for existing a/cs- last year, for new a/cs- projected)

 High Risk: Persons domiciled in countries like Myanmar, Nigeria, Ukarine, Egypt, Zimbawe, Angola etc. Monitoring of Transactions: Important to recogonise that KYC does not stop with opening of accounts. Transactions should be monitored depending upon risk sensitivity of account. Special attention to all complex, unusually large transactions and unusual patterns, inconsistent with the normal and expected activity of the customer. High Risk accounts should be subjected to intensive monitoring.

 Cash deposits/withdrawals for Rs.10 lacs and above should fetch special attention. Issuing of TCs, BCs,DDS,TTs for Rs.50,000/and above should be only against debit to the a/c or through cheque and not through cash. PAN no. to be obtained for all such transactions. If PAN not available form 60/61 to be obtained. As per Prevention of Money Laundering Act (PMLA) 2002, suspicious transaction means: (a) gives rise to a reasonable ground of suspicion that it may involve proceeds of crime (b) appears to be made in circumstances of unusual or unjustified complexity (c) appears to have no economic rationale or bonafide purpose

 4 eye and 6 eye concept in the banks All transactions above a thresh-hold limit say above Rs.3,00,000/- are to pass through the scrutiny of two officials and after their authorisation, the transaction is finally put through. (4 eye) All transactions say above Rs. 5 lac are to pass through the scrutiny of 3 officials and after their authorisation , the transaction will finally put through. (6 eye). Cash-Vault/Currency Chest keys are held by two authorised officials and unless both keys are inserted, vault/currency chest will not open. All transactions in these will be put through by these two officials (4 eyes)

 All transaction vouchers put through during the day will be scrutinised by senior authorised officials/HOD/BM in the evening or latest by next day. All cash transactions above say Rs.10 lacs advised to Zonal Office/Head Office.

 Case Study Account Opening and KYC Mr. Brajesh Roy, a General Power attorney holder, approaches your Bank for opening an account in the name of a corporation. The corporation is not publicly traded. The attorney identifies himself as the president of the company and as sole signatory for the company. At account opening, he provides documentation verifying the identity of the corporation i.e., certificate of incorporation, and also provides the companys address, which is local, and a tax identification number. The attorney additionally provides identifying information on himself as a primary officer of the company his drivers license, which is copied and retained in the banks files.

 When questioned on expected activity, he says he represents wealthy clients and is often asked to manage their business affairs. Seeing good business prospects by the Bank official, account was opened in the name of Corporation. The account begins to receive funds in the followingmanner: Transfers from attorney/client escrow accounts Cash deposits Funds wired in from overseas The outgoing transactions are as follows: Payment of household expenses Payment of household staff (e.g., paychecks)

Purchase of automobiles Transfers to numerous other domestic accounts Transfers to shell companies overseas You are required to discuss various discrepancies in opening the account and monitoring of transactions as per KYC norms.