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Home > FAQs > FAQs on Identity of Clients
Frequently Asked Questions on Identity of Clients
What are the obligations for verifying identity of clients under PMLA?
Section 12 of the Prevention of Money Laundering Act, 2002, requires every banking company, financial institution and intermediary to verify and maintain the records of the identity of all its clients, as prescribed by rule 9 of the Rules notified by Notification No.9/2005 dated 1/7/2005.

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Does PMLA, 2002 or the rules thereunder prescribe any procedures and manner verifying for identity of clients?
Yes. Rules 9 and 10 of the Rules notified by Notification No. 9/2005 dated 1st July 2005 prescribe procedures & manner for verification and maintenance of the records of the identity of clients.

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When should the verification of identity of clients be undertaken?
Every banking company, financial institution and intermediary is required to verify the record of identity and current address or addresses including permanent address or addresses of the client, the nature of business of the client and his financial status at the time of opening an account or executing any transaction with it.

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Who is a Client ?
Client means a person that engages in a financial transaction or activity with a banking company, or financial institution or intermediary and includes a person on whose behalf the person that engages in the transaction or activity, is acting. Rule 9 of the Rules notified by Notification No.9/2005 defines a client to include an individual, a company a partnership firm, a trust on unincorporated associative or a body of individuals.

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What is a Transaction ?
Transaction includes deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means.

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What should a reporting entity resort to if it is not possible to verify the identity of the client?
Where it is not possible to verify the identity of the client at the time of opening an account or executing any transaction, the banking company, financial institution and intermediary shall verify the identity of the client within a reasonable time after the account has been opened or the transaction has been executed.

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Is it mandatory to implement a client identification programme?
Yes. Every banking company, financial institution and intermediary is required to formulate and implement a client identification programme that it considers appropriate to enable it to determine the true identity of its clients to meet the requirements of PMLA. A copy of the client identification programme is also required to be forwarded to the Director, FIU-IND.

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What is an Officially Valid Document ?
Officially valid document includes a passport, a driving licence, Permanent Account Number (PAN) Card, Voter's Identity Card issued by the Election Commission of India or any other document as may be required by the banking company, or financial institution or intermediary.

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Which documents need to be verified and maintained when the client is an individual?
Following document need to be verified and maintained when the client is an individual:
  • One certified copy of an officially valid document containing details of his permanent address or addresses, current address or addresses; and
  • One copy of his/her recent photograph; and
  • Such other documents including in respect of the nature of business and financial status of the client as may be required by the banking company or the financial institution or the intermediary.
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Which documents need to be verified and maintained when the client is a company?
Following document need to be verified and maintained when the client is an individual:
  • Certificate of incorporation;
  • Memorandum and Articles of Association;
  • A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; and
  • An officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf.
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Which documents needs to be verified and maintained when the client is a partnership firm?
Following document need to be verified and maintained when the client is an individual:
  • Registration certificate;
  • Partnership deed; and
  • An officially valid document in respect of the person holding an attorney to transact on its behalf.
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What documents needs to be verified and maintained if the client is a trust?
Following document need to be verified and maintained when the client is an individual:
  • Registration certificate;
  • Trust deed; and
  • An officially valid document in respect of the person holding an attorney to transact on its behalf.
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What documents needs to be verified and maintained if the client is an unincorporated association or a body of individuals ?
Following document need to be verified and maintained when the client is an individual:
  • Resolution of the managing body of such association or body of individuals;
  • Power of attorney granted to him to transact on its behalf;
  • An officially valid document in respect of the person holding an attorney to transact on its behalf; and
  • Such information as may be required by the banking company or the financial institution or the intermediary to collectively establish the legal existence of such an association or body of individuals.
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When should the verification of identity of clients be undertaken?
Every banking company, financial institution and intermediary is required to verify the record of identity and current address or addresses including permanent address or addresses of the client, the nature of business of the client and his financial status at the time of opening an account or executing any transaction with it.

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In what form is the information on identity of clients required to be maintained
Rule 10 contained in Notification No. 9/2005 read with Notification No.15/2005 specify that the banking companies, financial institutions and intermediary shall maintain information on identity of clients both in hard and soft copies in accordance with the procedure and manner as may be specified by the Reserve Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority, as the case may be.

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For how long should the record on identity of clients be retained?
The records of all information on identity of clients referred to in Rule 3 contained in Notification No.9/2005 dated 1/7/2005 are required to be maintained by every banking company, financial institution and intermediary for a period of ten years from the date of cessation of the transactions with their clients.

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What is the fine for not complying with the obligations regarding identity of clients?
As per section 13 of the Prevention of Money Laundering Act, 2002, if the Director, FIU-IND finds that any banking company, financial institution or intermediary has failed to comply with the obligations of regarding identity of clients then, he may levy a fine from ten thousand rupees upto one lakh rupees for each failure.

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