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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 reporting entity to verify and maintain the records of the identity of all its clients, as prescribed by rule 9 of the PML Rules.

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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 PML Rules prescribe the procedures & manner for verification and maintenance of the records of the identity of clients.

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Who is a Client ?
Client means a person who is in a financial transaction or activity with a reporting entity and includes a person on whose behalf the person that engages in the transaction or activity, is acting. A client may be an individual, a company a partnership firm, a trust or unincorporated association 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 reporting entity should 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 due dilegence programme?
Yes. Every reporting entity is required to formulate and implement a client due diligence programme approved by the senior management.

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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, job card issued by NREGA, Aadhaar Card/ letter or any other document notified by the Central Government.

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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 identity and address; and
  • One recent photograph; and
  • Such other documents including those in respect of the nature of business and financial status of the client as may be required by the reporting entity.
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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 reporting entity is required to verify the identity and address 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 above Rs.50,000/- where there is no account-based relationship or where any international money transfer operation is carried out.

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In what form is the information on identity of clients required to be maintained
Rule 10 of the PML Rules specifies that the reporting entity shall maintain information on identity of clients in the manner as may be specified by the sector Regulators.

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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 are required to be maintained by every reporting entity for a period of five years from the date of cessation of the relationship 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 reporting entity 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, apart from administrative sanctions.

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Who is a beneficial owner?
Beneficial owner is an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person.

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What are a reporting entity’s obligations with regard to the beneficial ownership verification?
All reporting entities should, at the time of commencement of an account-based relationship with a client, determine whether the 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.

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What are a reporting entity’s obligations with regard to risk mitigation?
Every reporting entity should 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. Every reporting entity should implement a Clent Due Diligence Programme and such Programme should include policies, controls and procedures, approved by the senior management, to enable the reporting entity to manage and mitigate the identified risks.

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