Financial Crime World

Regulatory Enforcement Actions for Financial Crime in India: An Overview

Introduction

As the Indian economy continues to grow, so does the risk of financial crime. To prevent and combat money laundering activities, terrorist financing, and other financial crimes, the government has implemented a robust regulatory framework.

The Prevention of Money Laundering Act (PMLA), 2002

The PMLA is the primary legislation governing anti-money laundering efforts in India. It defines money laundering offenses, establishes procedures for investigation and prosecution, and provides for freezing, seizure, and confiscation of proceeds of crime.

Key Provisions of the PMLA:

  • Defines money laundering offenses
  • Establishes procedures for investigation and prosecution
  • Provides for freezing, seizure, and confiscation of proceeds of crime

Prevention of Money Laundering (Maintenance of Records) Rules, 2005

In addition to the PMLA, the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 prescribe obligations for various entities, including banks, financial institutions, intermediaries, and designated non-financial businesses and professions (DNFBPs), to maintain records of transactions, verify customer identities, and report suspicious transactions to the Financial Intelligence Unit-India (FIU-IND).

Obligations under the Rules:

  • Maintain records of transactions
  • Verify customer identities through reliable documents
  • Report suspicious transactions to the FIU-IND

Know Your Customer (KYC) Norms

Know Your Customer (KYC) norms require regulated entities to establish the identity of their customers, verify their identities through reliable documents, and periodically update customer information. KYC procedures serve as a foundational element of anti-money laundering compliance.

Key Elements of KYC:

  • Establish the identity of customers
  • Verify identities through reliable documents
  • Periodically update customer information

Customer Due Diligence (CDD) Requirements

Customer Due Diligence (CDD) requirements mandate that regulated entities conduct risk-based assessments of their customers, monitor transactions for unusual or suspicious activity, and implement enhanced due diligence measures for high-risk customers, politically exposed persons (PEPs), and higher-value transactions.

CDD Measures:

  • Conduct risk-based assessments of customers
  • Monitor transactions for unusual or suspicious activity
  • Implement enhanced due diligence measures

Suspicious Transaction Reporting (STR)

Suspicious Transaction Reporting (STR) is a key component of anti-money laundering compliance. Regulated entities are required to file STRs with the FIU-IND when they have reasonable grounds to suspect that transactions are linked to money laundering or terrorist financing activities.

Steps for Filing an STR:

  1. Identify suspicious activity
  2. Verify the information
  3. File a report with the FIU-IND

Regulatory Oversight and Enforcement

Regulatory oversight and enforcement play a critical role in ensuring that regulated entities adhere to anti-money laundering regulations. The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Insurance Regulatory and Development Authority of India (IRDAI) conduct inspections, audits, and enforcement actions to ensure compliance.

International Cooperation

India also participates in international efforts to combat money laundering and terrorist financing, including through cooperation with global organizations such as the Financial Action Task Force (FATF) and regional bodies like the Asia/Pacific Group on Money Laundering (APG). International cooperation facilitates information sharing, capacity building, and mutual assistance in anti-money laundering investigations and prosecutions.

Benefits of International Cooperation:

  • Information sharing
  • Capacity building
  • Mutual assistance in investigations