Verification of the records of the identity of clients|
Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 makes it mandatory to verify records of the identity of clients.
"9. Client Due Diligence.
(1) Every reporting entity shall
(a) at the time of
commencement of an account-based relationship-
(i)identify its clients, verify their identity, obtain information on the purpose and intended nature of the business relationship; and
(i)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:
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; and
(b) in all other
cases, verify identity while carrying out:
(i) 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
international money transfer operations.
(2) For the purpose of clause (a) of sub-rule (1), a reporting entity may rely ona third party subject to the conditions that—
(a) the reporting entity immediately obtains necessary 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 asunder—
(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 twenty-five per cent. of shares or capital or profits of the company;
(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 fifteen per cent. of capital or profits of the partnership;
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;
(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 per cent. 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 fifteen per cent. 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 a company listed on a stock exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.
(4)Where the client is an individual, he shall for the purpose of sub-rule (1),submit to the reporting entity, one certified copy of an ‘officially valid document’ containing details of his identity and address, one 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 reporting entity:
photograph need not be submitted by a client falling under
clause (b) of sub-rule (1);
(5) Notwithstanding anything contained in sub-rule (4), an individual whodesires 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 thump print, as the case may be, in his presence;
(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;
(iv) a 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 through the production of officially valid documents, as referred to in sub-rule (4) of rule 9; and
(v) foreign remittance shall not be allowed to be credited into a small account unless the identity of the client is fully established through the production of officially valid documents, as referred to in sub-rule (4) of rule 9.
(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:—
(i) Certificate of incorporation;
(7)Where the client is a partnership firm shall for the purposes of sub-rule (1) submit to the reporting entity one certified copy of the following documents:—
(ii) Memorandum and Articles of Association;
(iii) a resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; and
(iv) an officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf.
(i) registration c(i) registration certificate;
(8) Where the client is a trust shall, for the purposes of sub-rule (1) submit to the
the reporting entity one certified copy of the following documents:—
(ii) partnership deed; and
(iii) an officially valid document in respect of the person holding an attorney to transact on its behalf.
(i) registration certificate;
(9) Where the client is an unincorporated associationy of individuals,it shall submit to the reporting entity of the following documents:
(ii) trust deed; and
(iii) an officiall(iii) an officially valid document in respect of the person holding an attorney to transact on its behalf.
(i) resolution of the managing body of such association or body of individuals; (ii) power of attorney granted to him to transact on its behalf;
(iii) an officiall(iii) an officially valid document in respect of the person holding
,an attorney to transact on its behalf; and
(iv) such informat(iv) such information as may be required by the reporting entity to collectively establish the legal existence of such an association or body of individuals.
(10) Where the client is a juridical person, the reporting entity shall verify thatany person purporting to act on behalf of such client is so authorized and verify the identity of that person.
(11) No reporting entity shall allow the opening of or keep any anonymousaccount 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.
(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;(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 t(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) above 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,-
(i) simplified me(i) 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.
(ii) Every reporting entity shall formulate and implement a Client Due Diligence Programme, incorporating the requirements of sub-rules (1) to (13) and guidelines issued under clause (i) above. The Client Due Diligence Programme 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.