PML RULES 2005

Rule 3
Maintenance of records of transactions(nature and value)
(1) Every reporting entity shall maintain the record of all transactions including, the record of
(A) all cash transactions of the value of more than ten lakhs rupees or its equivalent in foreign
currency;
(B) all series of cash transactions integrally connected to each other which have been
individually valued below rupees ten lakhs or its equivalent in foreign currency where such
series of transactions have taken place within a month and the monthly aggregate exceeds an
amount of ten lakh rupees or its equivalent in foreign currency;
(BA)all transactions involving receipts by non-profit organisations of value more than rupees
ten lakh, or its equivalent in foreign currency;
(C) all cash transactions where forged or counterfeit currency notes or bank notes have been
used as genuine or where any forgery of a valuable security or a document has taken place
facilitating the transactions;
(D) all suspicious transactions whether or not made in cash and by way of :
(i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are
referred to in any currency maintained by way of :
(a) cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any
other instrument of payment of money including electronic receipts or credits and electronic
payments or debits, or
(b) travellers cheques, or
(c) transfer from one account within the same banking company, financial institution and
intermediary, as the case may be, including from or to Nostro and Vostro accounts, or
(d) any other mode in whatsoever name it is referred to;
(ii) credits or debits into or from any non-monetary accounts such as d-mat account, security
account in any currency maintained by the banking company, financial institution and
intermediary, as the case may be;
(iii) money transfer or remittances in favour of own clients or non-clients from India or
abroad and to third party beneficiaries in India or abroad including transactions on its own
account in any currency by any of the following:—
(a) payment orders, or
(b) cashiers cheques, or
(c) demand drafts, or
(d) telegraphic or wire transfers or electronic remittances or transfers, or
(e) internet transfers, or
(f) Automated Clearing House remittances, or
(g) lock box driven transfers or remittances, or
(h) remittances for credit or loading to electronic cards, or
(i) any other mode of money transfer by whatsoever name it is called;
(iv)loans and advances including credit or loan substitutes, investments and contingent
liability by way of:
(a) subscription to debt instruments such as commercial paper, certificate of deposits,
preferential shares, debentures, securitised participation, inter bank participation or any other
investments in securities or the like in whatever form and name it is referred to, or
(b) purchase and negotiation of bills, cheques and other instruments, or
(c) foreign exchange contracts, currency, interest rate and commodity and any other
derivative instrument in whatsoever name it is called, or
(d) letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates
and any other instrument for settlement and/or credit support;
(v)collection services in any currency by way of collection of bills, cheques, instruments or
any other mode of collection in whatsoever name it is referred to.
(E) all cross border wire transfers of the value of more than five lakh rupees or its equivalent
in foreign currency where either the origin or destination of fund is in India;
(F) all purchase and sale by any person of immovable property valued at fifty lakh rupees or
more that is registered by the reporting entity, as the case may be.
(3A) Implementation of policies by groups.
(1) Every reporting entity, which is part of a group, shall implement group-wide programmes
against money laundering and terror financing, including group-wide policies for sharing
information required for the purposes of client due diligence and money laundering and terror
finance risk management and such programmes shall include adequate safeguards on the
confidentiality and use of information exchanged, including safeguards to prevent tipping-off.

(2) Groups are required to implement group-wide policies for the purpose of discharging
obligations under the provisions of Chapter IV of the Prevention of Money Laundering Act,
2002. (15 of 2003).
Rule 7
Procedure and manner of furnishing information

(1) Every reporting entity shall communicate to the Director the name, designation and
address of the Principal Officer.

(2) The Principal Officer shall furnish the information referred to in clauses (A), (B), (BA),
(C) and (D) of sub-rule (1) of rule 3 to the Director on the basis of information available with
the reporting entity. A copy of such information shall be retained by the Principal Officer for
the purposes of official record.

(3) Every reporting entity shall evolve an internal mechanism having regard to any
guidelines issued by the Director in consultation with, its regulator, for detecting the
transactions referred to in clauses (A),(B),(BA),(C) and (D) of sub-rule (1) of rule 3 and for
furnishing information about such transactions in such form as may be directed by the
Director in consultation with, its Regulator.

(4) It shall be the duty of every reporting entity, its designated director, officers and
employees to observe the procedure and the manner of furnishing information as specified by
the Director in consultation with its Regulator.

Rule 8
Furnishing of information to the Director

(1) The Principal Officer of a reporting entity shall furnish the information in respect of
transactions referred to in clauses (A), (B), (BA), (C) and (E) of sub-rule (1) of rule 3 every
month to the Director by the 15th day of the succeeding month.

(2) The principal officer of a reporting entity shall, on being satisfied that the transaction is
suspicious, furnish the information promptly in writing by fax or by electronic mail to the
Director in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3

(3) The Principal Officer of a reporting entity shall furnish, the information in respect of
transactions referred to in clause (F) of sub-rule (1) of rule 3, every quarter to the Director by
the 15th day of the month succeeding the quarter.

(4) For the purpose of this rule, delay of each day in not reporting a transaction or delay of
each day in rectifying a mis-reported transaction beyond the time limit as specified in this
rule shall constitute a separate violation.

(5) Notwithstanding anything contained in sub-rule (1) and (3) the Reporting Officer shall
furnish the information 30[in respect of transactions referred to in clauses (A), (B), (BA), (C)
and (E) of sub rule (1) of rule 3 for the months of March 2020, April 2020 and May 2020,
and in respect of transactions referred to in clauses (F) of sub rule (1) of rule 3 for the quarter
January-March 2020] by the 30th June, 2020.]

(6) Every reporting entity, its Directors, officers, and all employees shall ensure that the fact
of maintenance of records referred to in rule 3 and furnishing of information to the Director
is kept confidential.
Provided that nothing in this rule shall inhibit sharing of information under rule 3A of any
analysis of transactions and activities which appear unusual, if any such analysis has been
done.

Rule 9
(1) Every reporting entity shall at the time of commencement of an account-based
relationship or while carrying out occasional transaction of an amount equal to or exceeding
rupees fifty thousand, whether conducted as a single transaction or several transactions that
appear to be connected, or any international money transfer operations,-
(a) identify its clients, verify their identity using reliable and independent sources of
identification, obtain information on the purpose and intended nature of the business
relationship, where applicable;
(b) take reasonable steps to understand the nature of the customer’s business, and its
ownership and control;
(c) determine whether a client is acting on behalf of a beneficial owner, and identify the
beneficial owner and take all steps to verify the identity of the beneficial owner, using
reliable and independent sources of identification:

Provided that where the Regulator is of the view that money laundering and terrorist
financing risks are effectively managed and where this is essential not to interrupt the normal
conduct of business, the Regulator may permit the reporting entity to complete the
verification as soon as reasonably practicable following the establishment of the relationship:

Provided further that where a client is subscribing or dealing with depositary receipts or
equity shares, issued or listed in jurisdictions notified by the Central Government, of a
company incorporated in India, and it is acting on behalf of a beneficial owner who is a
resident of such jurisdiction, the determination, identification and verification of such
beneficial owner, shall be as per the norms of such jurisdiction and nothing in sub-rule (3) to
sub-rule (9) shall be applicable for due-diligence of such beneficial owner.

Explanation.- For the purposes of this proviso, the expression “equity shares” means a share
in the equity share capital of a company and equity share capital shall have the same meaning
as assigned to it in the Explanation to section 43 of the Companies Act, 2013 (18 of 2013).”

(2) For the purpose of clause (a) of sub-rule (1), a reporting entity may rely on a third party
subject to the conditions that—
(a) the reporting entity immediately obtains from the third party or from the Central KYC
Records Registry, the record or the information of such client due diligence carried out by the
third party;
(b) the reporting entity takes adequate steps to satisfy itself that copies of identification data
and other relevant documentation relating to the client due diligence requirements will be
made available from the third party upon request without delay;
(c) the reporting entity is satisfied that such third party is regulated, supervised or monitored
for, and has measures in place for compliance with client due diligence and record-keeping
requirements in line with the requirements and obligations under the Act;
(d) the third party is not based in a country or jurisdiction assessed as high risk;
(e) the reporting entity is ultimately responsible for client due diligence and undertaking
enhanced due diligence measures, as applicable; and
(f)where a reporting entity relies on a third party that is part of the same financial group, the
Regulator may issue guidelines to consider any relaxation in the conditions (a) to (d). .
(3) The beneficial owner for the purpose of sub-rule (1) shall be determined as under—
(a)where the client is a company, the beneficial owner is 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.
Explanation.— For the purpose of this sub-clause—
1. Controlling ownership interest” means ownership of or entitlement to more than ten per
cent. of shares or capital or profits of the company;
2.“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;
(b)where the client is a partnership firm, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical person, has ownership
of/entitlement to more than ten percent of capital or profits of the partnership or who
exercises control through other means

Explanation - For the purpose of this clause, “Control” shall include the right to control the
management or policy decision;
(c) where the client is an unincorporated association or body of individuals, the beneficial
owner is the natural person(s), who, whether acting alone or together, or through one or more
juridical person, has ownership of or entitlement to more than fifteen percent of the property
or capital or profits of such association or body of individuals;
(d) where no natural person is identified under (a) or (b) or (c) above, the beneficial owner is
the relevant natural person who holds the position of senior managing official;
(e) where the client is a trust, the identification of beneficial owner(s) shall include
identification of the author of the trust, the trustee, the beneficiaries with 33[ten] percent or
more interest in the trust and any other natural person exercising ultimate effective control
over the trust through a chain of control or ownership; and
(f) where the client or the owner of the controlling interest is 26[an entity listed on a stock
exchange in India, or it is an entity resident in jurisdictions notified by the Central
Government and listed on stock exchanges in such jurisdictions notified by the Central
Government, 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.

(4)Where the client is an individual, he shall for the purpose of sub-rule (1) submit to the
reporting entity, -
(a) the Aadhaar number where,
(i) he is desirous of receiving any benefit or subsidy under any scheme notified under section
7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services)
Act, 2016 (18 of 2016); or
(ii) he decides to submit his Aadhaar number voluntarily to a banking company or any
reporting entity notified under first proviso to sub-section (1) of section 11A of the Act; or
(aa)the proof of possession of Aadhaar number where offline verification can be carried out;
or
(ab) the proof of possession of Aadhaar number where offline verification cannot be carried
out or any officially valid document or the equivalent e-document thereof containing the
details of his identity and address; and
(b) the Permanent Account Number or the equivalent e-document thereof or Form No. 60 as
defined in Income-tax Rules, 1962; and
(c) such other documents including in respect of the nature of business and financial status of
the client, or the equivalent e-documents thereof as may be required by the reporting entity

(5) Notwithstanding anything contained in sub-rule (4)25[and as an alternative

thereto]23[***], an individual who desires to open a small account in a banking company
may be allowed to open such an account on production of a self-attested photograph and
affixation of signature or thumb print, as the case may be, on the form for opening the
account: Provided that
(i) the designated officer of the banking company, while opening the small account, certifies
under his signature that the person opening the account has affixed his signature or thumb
print, as the case may be, in his presence;
Provided that where the individual is a prisoner in a jail, the signature or thumb print shall be
affixed in presence of the officer in-charge of the jail and the said officer shall certify the
same under his signature and the account shall remain operational on annual submission of
certificate of proof of address issued by the officer in-charge of the jail.]
(ii) a small account shall be opened only at Core Banking Solution linked banking company
branches or in a branch where it is possible to manually monitor and ensure that foreign
remittances are not credited to a small account and that the stipulated limits on monthly and
annual aggregate of transactions and balance in such accounts are not breached, before a
transaction is allowed to take place;
(iii) a small account shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months if the holder of such an account provides
evidence before the banking company of having applied for any of the officially valid
documents within twelve months of the opening of the said account, with the entire relaxation
provisions to be reviewed in respect of the said account after twenty four months;
(iiia) Notwithstanding anything contained in clause (iii), the small account shall remain
operational between 1st April, 2020 and 30th June 2020 and such other periods as may be
notified by the Central Government
(iv) the small account shall be monitored and when there is suspicion of money laundering or
financing of terrorism or other high risk scenarios, the identity of client shall be established as
per the provisions of sub-rule (4)
(v) foreign remittance shall not be allowed to be credited into a small account unless the
identity of the client is fully established as per the provisions of sub-rule (4):

(6) Where the client is a company, it shall for the purposes of sub-rule (1) submit to the
reporting entity one certified copy of the following documents or the equivalent e-documents
thereof:-
(i) Certificate of incorporation;
(ii) Memorandum and Articles of Association;
(iii) Permanent Account Number of the company;
(iv) a resolution from the Board of Directors and power of attorney granted to its managers,
officers or employees, as the case may be, to transact on its behalf;
(v) such documents as are required for an individual under sub-rule (4) relating to beneficial
owner, managers, officers or employees, as the case may be, holding an attorney to transact
on the company’s behalf.;
(vi) the names of the relevant persons holding senior management position; and
(vii) the registered office and the principal place of its business, if it is different.

(7) Where the client is a partnership firm, it shall, for the purposes of sub-rule (1), submit to
the reporting entity the certified copies of the following documents or the equivalent e-
documents thereof, namelWhere the client is a partnership firm, it shall for the purposes of
sub-rule (1) submit to the reporting entity one certified copy of the following documents25[or
the equivalent e-documents thereof: -
(i) registration certificate;
(ii) partnership deed;
(iii) Permanent Account Number of the partnership firm;
(iv) such documents as are required for an individual under sub-rule (4) relating to beneficial
owner, managers, officers or employees, as the case may be, of the person holding an
attorney to transact on its behalf; and (v) the names of all the partners and address of the
registered office, and the principal place of its business, if it is different.

(8) Where the client is a trust, it shall, for the purposes of sub-rule (1) submit to the reporting
entity one certified copy of the following documents25[or the equivalent e-documents
thereof:-
(i) registration certificate;
(ii) trust deed; and
(iii) Permanent Account Number or Form No.60 of the trust; and
(iv)such documents as are required for an individual under sub-rule (4) relating to beneficial
owner, managers, officers or employees, as the case may be, of the person holding an
attorney to transact on its behalf.
(v) the names of the beneficiaries, trustees, settlor "protector if any" and authors of the trust
and the address of the registered office of the trust; and
(vi) list of trustees and documents as are required for individuals under sub-rule (4) for those
discharging role as trustee and authorised to transact on behalf of the trust

(9) Where the client is an unincorporated association or a body of individuals, it shall submit
to the reporting entity one certified copy of the following documents25[or the equivalent e-
documents thereof :-
(i) rresolution of the managing body of such association or body of individuals;
(ii)power of attorney granted to him to transact on its behalf;
(iii)Permanent account number or Form No.60 of the unincorporated association or a body of
individuals;
(iv) such documents as are required for an individual under sub-rule (4) relating to beneficial
owner, managers, officers or employees, as the case may be, of the person holding an
attorney to transact on its behalf; and
(v) such information as may be required by the reporting entity to collectively establish the
existence of such association or body of individuals

(9A) Every Banking Company or Financial Institution or intermediary, as the case may be,
shall register the details of a client, in case of client being a non-profit organisation, 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 between a client and a
reporting entity has ended or the account has been closed, whichever is later.

(9B) Where the client has submitted any documents for the purpose of sub-rule (1), it shall
submit to the reporting entity any update of such documents, for the purpose of updating the
records mentioned under sub-rules (4),(5),(6),(7),(8) or (9), as the case may be, within 30
days of such updatio

(10) WWhere the client 33[purports to act on behalf of juridicial person or individual or trust,
the reporting entity shall verify that any person purporting to act on behalf of such client is so
authorized and verify the identity of that person.

Provided that 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 or when carrying out
transactions as specified in clause (b) of sub-rule (1) rule 9

(11) No reporting entity 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.

(12)
(i) Every reporting entity shall exercise ongoing due diligence with respect to the business
relationship with every client and closely examine the transactions in order to ensure that they
are consistent with their knowledge of the client, his business and risk profile and where
necessary, the source of funds.
(ii) 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, the reporting entity shall 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, as the case may be.
(iii) The reporting entity shall apply client due diligence measures also to existing clients on
the basis of materiality and risk, and conduct due diligence on such existing relationships at
appropriate times or as may be specified by the regulator, taking into account whether and
when client due diligence measures have previously been undertaken and the adequacy of
data obtained , such that the information or data collected under client due diligence is kept
up-to-date and relevant, particularly where there is high risk

(13)
(i)Every reporting entity shall carry out risk assessment to identify, assess and take effective
measures to mitigate its money laundering and terrorist financing risk for clients, countries or
geographic areas, and products, services, transactions or delivery channels that is consistent
with any national risk assessment conducted by a body or authority duly notified by the
Central Government. (ii) The risk assessment mentioned in clause (i) shall -
(a) be documented;
(b) consider all the relevant risk factors before determining the level of overall risk and the
appropriate level and type of mitigation to be applied;
(c) be kept up to date; and
(d) be available to competent authorities and self-regulating bodies.

(14) (i) The regulator shall issue guidelines incorporating the requirements of sub-rules (1) to
(13) , sub-rule (15) and sub-rule (17) and may prescribe enhanced or simplified measures to
verify the client’s identity taking into consideration the type of client, business relationship,
nature and value of transactions based on the overall money laundering and terrorist
financing risks involved.
Explanation-For the purpose of this clause, simplified measures are not acceptable whenever
there is a suspicion of money laundering or terrorist financing, or where specific higher-risk
scenarios apply or where the risk identified is not consistent with the national risk
assessment.
(ia) The guidelines issued under clause (i) shall also include appropriate-
(A) exemptions, limitations and conditions and alternate and viable means of identification,
to provide account based services to clients who are unable to undergo biometric
authentication;
(B) relaxation for continued operation of accounts for clients who are unable to provide
Permanent Account Number or Form No. 60; and
(C)exemption, limitations and conditions and alternate and viable means of identification, to
provide account based services of clients who are unable to undergo Aadhaar authentication
for receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar
(Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of
2016); owing to injury, illness or infirmity on account of old age or otherwise, and such like
causes.
(ib) the guidelines shall include countermeasures to be undertaken when called upon to do so
by any international or intergovernmental organisation of which India is a member and
accepted by the Central Government.
(ii) Every reporting entity shall formulate and implement a Client Due Diligence Programme,
incorporating the requirements of sub-rules (1) to (13) 23, sub-rule (15) and sub-rule (17) and
guidelines issued under clause (i) and (ia).
(iii) the Client Due Diligence Programme shall have regard to the money laundering and
terrorist financing risks and the size of the business and shall include policies, controls and
procedures, approved by the senior management, to enable the reporting entity to manage and
mitigate the risk that have been identified either by the reporting entity or through national
risk assessment

(15) Where the client has submitted -

(a) his Aadhaar number under clause (a) of sub-rule (4) to the banking company or a
reporting entity notified under first proviso to sub-section (1) of section 11A, such banking
company or reporting entity shall carry out authentication of the client's Aadhaar number
using e-KYC authentication facility provided by the Unique Identification Authority of India;

(b) proof of possession of Aadhaar under clause (aa) of sub-rule (4) where offline verification
can be carried out, the reporting entity shall carry out offline verification;
(c) an equivalent e-document of any officially valid document, the reporting entity shall
verify the digital signature as per the provisions of the Information Technology Act, 2000 (21
of 2000) and any rules issues thereunder and take a live photo as specified under Annexure 1.
(d) any officially valid document or proof of possession of Aadhaar number under clause (ab)
of sub-rule (4) where offline verification cannot be carried out, the reporting entity shall carry
out verification through digital KYC as specified under Annexure 1:

Provided that for a period not beyond such date as may be notified for a class of reporting
entity, instead of carrying out digital KYC, the reporting entity pertaining to such class may
obtain a certified copy of the proof of possession of Aadhaar number or the officially valid
document and a recent photograph where an equivalent e-document is not submitted.

Explanation.— Obtaining a certified copy by the reporting entity shall mean comparing the
copy of the proof of possession of Aadhaar number where offline verification cannot be
carried out or officially valid document so produced by the client with the original and
recording the same on the copy by the authorised officer of the reporting entity as per the
provisions contained in the Act.

(16) Every reporting entity shall, where its client submits 25[a proof of possession of Aadhaar
Number containing Aadhaar number, ensure such client redacts or blacks out his Aadhaar
number through appropriate means where the authentication of Aadhaar number is not
required under sub-rule (15).

(17) (i) A client already having an account based relationship with a reporting entity, shall
submit his Permanent Account Number or the equivalent e-documents thereof or Form
No.60, on such date as may be notified by the Central Government, failing which the account
shall temporarily cease to be operational till the time the Permanent Account Number or the
equivalent e-documents thereof or Form No. 60 is submitted by the client:

Provided that before temporarily ceasing operations for an account, the reporting entity shall
give the client an accessible notice and a reasonable opportunity to be heard.

Explanation.– For the purpose of this clause, “temporary ceasing of operations” in relation to
an account means the temporary suspension of all transactions or activities in relation to that
account by the reporting entity till such time the client complies with the provisions of this
clause;
(ii) if a client having an existing account based relationship with a reporting entity gives in
writing to the reporting entity that he does not want to submit his Permanent Account
Number or the equivalent e-documents thereof or Form No.60, as the case may be, the
client’s account with the reporting entity shall be closed and all obligations due in relation to
the account shall be appropriately settled after establishing the identity of the client in the
manner as may be determined by the regulator.

(18)In case of officially valid document furnished by the client does not contain updated
address, the following documents 25[or the equivalent e-documents thereof] shall be deemed
to be officially valid documents for the limited purpose of proof of address:-
(a) utility bill which is not more than two months old of any service provider (electricity,
telephone, post-paid mobile phone, piped gas, water bill);
(b) property or Municipal tax receipt;
(c) pension or family pension payment orders (PPOs) issued to retired employees by
Government Departments or Public Sector Undertakings, if they contain the address;
(d) letter of allotment of accommodation from employer issued by State Government or
Central Government Departments, statutory or regulatory bodies, public sector undertakings,
scheduled commercial banks, financial institutions and listed companies and leave and
licence agreements with such employers allotting official accommodation:

Provided that the client shall submit updated officially valid document or the equivalent e-
documents thereof with current address within a period of three months of submitting the
above documents.

(19) Where a client has provided his Aadhaar number for identification under clause (a) of
sub-rule (4) and wants to provide a current address, different from the address as per the
identity information available in the Central Identities Data Repository, he may give a self-
declaration to that effect to the reporting entity.
KYC MASTER DIRECTION
Clause 49
49. 126While furnishing information to the Director, FIU-IND, delay of each day in not
reporting a transaction or delay of each day in rectifying a mis-represented transaction
beyond the time limit as specified in the Rule shall be constituted as a separate violation. REs
shall not put any restriction on operations in the accounts merely on the basis of the STR
filed.
Every RE, its directors, officers, and all employees shall ensure that the fact of maintenance
of records referred to in rule 3 of the PML (Maintenance of Records) Rules, 2005 and
furnishing of the information to the Director is confidential. However, such confidentiality
requirement shall not inhibit sharing of information under paragraph 4(b) of this Master
Direction of any analysis of transactions and activities which appear unusual, if any such
analysis has been done.

KYC MASTER CIRCULAR

3.2.2 III(B). Freezing and closure of accounts
i. In case of non-compliance of KYC requirements by the customers despite repeated
reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-
compliant accounts in a phased manner.
ii. During the course of such partial freezing, the account holders can revive their
accounts by submitting the KYC documents as per instructions in force.
iii. While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial
freezing’ is exercised after giving due notice of three months initially to the customers
to comply with KYC requirements to be followed by a reminder giving a further
period of three months.
iv. Thereafter, banks/FIs may impose ‘partial freezing’ by allowing all credits and
disallowing all debits with the freedom to close the accounts.
v. If the accounts are still KYC non-compliant after six months of imposing initial
‘partial freezing’ banks/FIs should disallow all debits and credits from/to the accounts
thereby, rendering them inoperative.
vi. Further, it would always be open to the bank/FI to close the account of such
customers after issuing due notice to the customer explaining the reasons for taking
such a decision. Such decisions, however, need to be taken at a reasonably senior
level.
3.3 Monitoring of Transactions
3.3.1 Ongoing monitoring
Ongoing monitoring is an essential element of effective KYC/AML procedures. Banks/FIs
should exercise ongoing due diligence with respect to every customer and closely examine
the transactions to ensure that they are consistent with the customer’s profile and source of
funds as per extant instructions. The ongoing due diligence may be based on the following
principles:
(a) The extent of monitoring will depend on the risk category of the account. High risk
accounts have to be subjected to more intensified monitoring.
(b) Banks/FIs should pay particular attention to the following types of transactions:
 i. large and complex transactions, and those with unusual patterns, which have no
apparent economic rationale or legitimate purpose.
ii. transactions which exceed the thresholds prescribed for specific categories of
accounts.
iii. transactions involving large amounts of cash inconsistent with the normal and
expected activity of the customer.
iv. high account turnover inconsistent with the size of the balance maintained.
(c) Banks/FIs should put in place a system of periodical review of risk categorization of
accounts and the need for applying enhanced due diligence measures. Such review of risk
categorisation of customers should be carried out at a periodicity of not less than once in six
months.
(d) Banks should closely monitor the transactions in accounts of marketing firms, especially
accounts of Multi-level Marketing (MLM) Companies. Banks should analyse data in cases
where a large number of cheque books are sought by the company, there are multiple small
deposits (generally in cash) across the country in one bank account and where a large number
of cheques are issued bearing similar amounts/dates. Where such features are noticed by the
bank and in case they find such unusual operations in their accounts, the matter should be
immediately reported to Reserve Bank and other appropriate authorities such as FIU-IND.
3.4. Risk Management
3.4.1 Banks/FIs should exercise on going due diligence with respect to the business
relationship with every client and closely examine the transactions in order to ensure that they
are consistent with their knowledge about the clients, their business and risk profile and
where necessary, the source of funds.
The Board of Directors should ensure that an effective AML/CFT programme is in place by
establishing appropriate procedures and ensuring their effective implementation. It should
cover proper management oversight, systems and controls, segregation of duties, training of
staff and other related matters. In addition, the following may also be ensured for effectively
implementing the AML/CFT requirements.
i. Using a risk-based approach to address management and mitigation of various
AML/CFT risks.
ii. Allocation of responsibility for effective implementation of policies and procedures.
iii. Independent evaluation by the compliance functions of bank/FI’s policies and
procedures, including legal and regulatory requirements.
iv. Concurrent/internal audit to verify the compliance with KYC/AML policies and
procedures.
v. Putting up consolidated note on such audits and compliance to the Audit Committee at
quarterly intervals.
3.4.2 (a) Banks/FIs should prepare a profile for each new customer based on risk
categorisation. The customer profile should contain information relating to customer’s
identity, social/financial status, nature of business activity, information about the clients’
business and their location etc. The nature and extent of due diligence will depend on the risk
perceived by the bank/FI.
(b) Banks/FIs should categorise their customers into low, medium and high risk category
based on their assessment and risk perception of the customers, identifying transactions that
fall outside the regular pattern of activity and not merely based on any group or class they
belong to. The banks/FIs are advised to have clear Board approved policies for risk
categorisation and ensure that the same are meticulously complied with to effectively help in
combating money laundering activities. The nature and extent of due diligence, may be based
on the following principles:
i. Individuals (other than High Net Worth) and entities, whose identity and source of
income, can be easily identified, and customers in whose accounts the transactions
conform to the known profile, may be categorised as low risk. Illustrative examples
include salaried employees and pensioners, people belonging to lower economic
strata, government departments and government owned companies, regulators and
statutory bodies, etc. Further, Non-Profit Organisations (NPOs)/ Non-Government
Organisations (NGOs) promoted by the United Nations or its agencies, and such
international/ multilateral organizations of repute, may also be classified as low risk
customers.
ii. Customers who are likely to pose a higher than average risk should be categorised as
medium or high risk depending on the background, nature and location of activity,
country of origin, sources of funds, customer profile, etc. Customers requiring very
high level of monitoring, e.g., those involved in cash intensive business, Politically
Exposed Persons (PEPs) of foreign origin, may, if considered necessary, be
categorised as high risk.
The above guidelines for risk categorisation are indicative and banks/FIs may use their own
judgement in arriving at the categorisation for each account based on their own assessment
and risk perception of the customers and not merely based on any group or class they belong
to. Banks may use for guidance in their own risk assessment, the reports and guidance notes
on KYC/AML issued by the Indian Banks Association.
8. 2. Suspicious Transaction Reports (STR)
i. While determining suspicious transactions, banks/FIs should be guided by the
definition of suspicious transaction as contained in PMLA Rules as amended from
time to time.
ii. It is likely that in some cases transactions are abandoned/aborted by customers on
being asked to give some details or to provide documents. It is clarified that banks/FIs
should report all such attempted transactions in STRs, even if not completed by the
customers, irrespective of the amount of the transaction.
iii. Banks/FIs should make STRs if they have reasonable ground to believe that the
transaction involves proceeds of crime irrespective of the amount of the transaction
and/or the threshold limit envisaged for predicate offences in part B of Schedule of
PMLA, 2002.
 iv. The STR should be furnished within seven 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 should record his reasons for treating
any transaction or a series of transactions as suspicious. It should be ensured that there
is no undue delay in arriving at such a conclusion once a suspicious transaction report
is received from a branch or any other office. Such report should be made available to
the competent authorities on request.
v. In the context of creating KYC/AML awareness among the staff and for generating
alerts for suspicious transactions, banks may consider the indicative list of suspicious
activities contained in 'IBA's Guidance Note for Banks, January 2012’.
vi. Banks/FIs should not put any restrictions on operations in the accounts where an STR
has been filed. Banks/FIs and their employees should keep the fact of furnishing of
STR strictly confidential, as required under PML Rules. It should be ensured that
there is no tipping off to the customer at any level.

PMLA 2002
Section 2 (1)(U)
(u) “proceeds of crime” means any property derived or obtained, directly or indirectly, by any
person as a result of criminal activity relating to a scheduled offence or the value of any such
property
3[or where such property is taken or held outside the country, then the property equivalent in
value
held within the country] 4[or abroad];
5[Explanation.—For the removal of doubts, it is hereby 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;]
Section 12
12. Reporting entity to maintain records.—(1) Every reporting entity shall—
(a) maintain a record of all transactions, including information relating to transactions
covered
under clause (b), in such manner as to enable it to reconstruct individual transactions;
(b) furnish to the Director within such time as may be prescribed, information relating to such
transactions, whether attempted or executed, the nature and value of which may be
prescribed;
(e) maintain record of documents evidencing identity of its clients and beneficial owners as
well as account files and business correspondence relating to its clients.
(2) Every information maintained, furnished or verified, save as otherwise provided under
any law for the time being in force, shall be kept confidential.
(3) The records referred to in clause (a) of sub-section (1) shall be maintained for a period of
five years from the date of transaction between a client and the reporting entity.
(4) The records referred to in clause (e) of sub-section (1) shall be maintained for a period of
five years after the business relationship between a client and the reporting entity has ended
or the account has been closed, whichever is later.
(5) The Central Government may, by notification, exempt any reporting entity or class of
reporting entities from any obligation under this Chapter.]
Section 12AA.
(1) Every reporting entity shall, prior to the commencement of each specified transaction,
——
(a)vertify the identity of the clients undertaking such specified transaction by authentication
under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and
Services) Act, 2016 in such manner and subject to such conditions, as may be prescribed:
Provided that where verification requires authentication of a person who is not entitled to
obtain an Aadhaar number under the provisions of the said Act, verification to authenticate
the identity of the client undertaking such specified transaction shall be carried out by such
other process or mode, as may be prescribed;
(b) take additional steps to examine the ownership and financial position, including sources
of funds of the client, in such manner as may be prescribed;
(c) take additional steps as may be prescribed to record the purpose behind conducting the
specified transaction and the intended nature of the relationship between the transaction
parties.
(2) Where the client fails to fulfil the conditions laid down under sub-section (1), the
reporting entity shall not allow the specified transaction to be carried out.
(3) Where any specified transaction or series of specified transactions undertaken by a client
is considered suspicious or likely to involve proceeds of crime, the reporting entity shall
increase the future monitoring of the business relationship with the client, including greater
scrutiny or transactions in such manner as may be prescribed.
(4) The information obtained while applying the enhanced due diligence measures under sub-
section (1) shall be maintained for a period of five years from the date of transaction between
a client and the reporting entity.
Explanation.—For the purposes of this section, "specified transaction" means— .
(a) any withdrawal or deposit in cash, exceeding such amount;
(b) any transaction in foreign exchange, exceeding such amount;
(c) any transaction in any high value imports or remittances;
(d) such other transaction or class of transactions, in the interest of revenue or where there is
a high risk or money-laundering or terrorist financing, as may be prescribed.

UAPA
Section 51(A)
[51A. Certain powers of the Central Government.—For the prevention of, and for coping
with terrorist activities, the Central Government shall have power to—
(a) freeze, seize or attach funds and other financial assets or economic resources held by, on
behalf of or at the direction of the individuals or entities listed in the Schedule to the Order, or
any other person engaged in or suspected to be engaged in terrorism;
(b) prohibit any individual or entity from making any funds, financial assets or economic
resources or related services available for the benefit of the individuals or entities listed in the
Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism;
(c) prevent the entry into or the transit through India of individuals listed in the Schedule to
the Order or any other person engaged in or suspected to be engaged in terrorism.]