Presented by CA. Hiren Mehta BRV & Associates in PMLA Implementation... · broker, Depository Participant, Portfolio Manager, Merchant Banker, Investment ... Issues in PMLA Implementation

Presented by CA. Hiren Mehta

BRV & Associates

� Prevention of Money Laundering Act, 2002(PMLA) came into effect from July 1, 2005

� Necessary Notifications / Rules under the saidact were published in the Gazette of India onJuly 01, 2005.act were published in the Gazette of India onJuly 01, 2005.

� SEBI Intermediaries like Stock Broker, Sub-broker, Depository Participant, PortfolioManager, Merchant Banker, InvestmentAdvisor, etc. are covered.

WIRC of ICAICA. Hiren Mehta 2

� Whether appointment of Principal Officer isdone?

� Whether appointment or change in PrincipalOfficer is intimated to FIU-India?

� Whether written Policy relating to PMLA isprepared and adopted?

� Whether Policy is updated on periodical basis?

� Whether PMLA Policy is implemented?


� Broad Contents� Client Due diligence Process

� Policy for acceptance of clients

� Risk based approach

� Clients of Special Category (CSC)

� Client Identification Procedure� Client Identification Procedure

� Record Keeping & Retention of records

� Monitoring of transactions

� Suspicious transactions Monitoring & reporting

� Reports to FIU – India

� Employees Hiring / Training

� Investor Education


� Whether Due Diligence Process is followed?

� Whether beneficial owner or controller ofsecurities account has been identified in eachcase?case?

� Whether Ongoing Due diligence & scrutiny isconducted?


� Obtain sufficient information to identifypersons who beneficially own or control thesecurities account

� Verify client’s identity using reliableindependent source documents, data orindependent source documents, data orinformation

� Identify beneficial ownership & control

� Verify identity of the beneficial owner

� Conduct ongoing due diligence and scrutiny


� Whether Risk profiling of the clients is done?

� Whether Risk profiling is reviewed on periodical /regular basis?

� Whether CSC has been identified?� Whether CSC has been identified?

� Whether enhance due diligence process ormonitoring is conducted for high risk clients andCSC?

� Whether risk profiling and CSC has been capturedin the system?


� Illustrative factors for Risk Profiling� Geographical Location

� Nature of Business Activity

� Trading Turnover – Daily and Accumulated

� Manner of making payment for transactions� Manner of making payment for transactions

� Income Range

� Experience in Investing in Securities Market

� Delivery based Trans. v/s Intraday Trans.

� Funded Clients (7 day / BTST)

� Investment Pattern (approved securities / illiquid)

� Category of client (individual, corporate, Trust, etc.)


� Whether adequate system is in place to generatealerts for suspicious transactions?

� Whether alerts generated by the system arelooked into by Principal Officer?

� Whether system is in place to scrutinize alerts &arrive at suspicious transactions?

� Whether Suspicious transactions are reported toFIU-India?


� Steps for Reporting� Generation of Alerts

� Analysis / Scrutiny of alerts

� Call for information / details� Call for information / details

� Identification of Suspicious Transactions

� Decision to report

� Filing of STR with FIU-India


� Alerts� Potentially suspicious

� Should have potential of being suspicious

� Suspicious Transactions� Suspicious Transactions� Alert is only the starting point. Suspicious need notbe limited to the basis of alert

� The process of analysing alerts need to be clear tothose analysing alerts

� All alerts need not be suspicious

� Feedback from analysts to alert generation


� Appears to be an agent of an undisclosed principal

� Unwilling to provide personal background information

� Multiple Accounts with no apparent reason

� Unexplained third party transfers

� Unexplained high activity

� Unexplained high level funds activity with low securitiestransactionstransactions

� Immediate liquidation of high amt of investments

� Off market transfers of shares

� Dormant account suddenly becomes active withoutplausible explanation

� Change of address, bank account, etc. immediately afterregistration


� PQR Ltd. approached broker ABC Ltd.

� Mr. P director of PQR Ltd. is a good friend of MD A of ABC Ltd.

� Since PQR Ltd. is a know entity, KYC team hasregister the client without customer verification /due diligencedue diligence

� However, Compliance officer has conductedindependent verification and found that Mr. Q ofPQR Ltd is closely related to an alleged well knowncriminal

� What is to be done further???


� Mr. H registers with broker ABC Ltd.

� After due diligence, he is allotted client code andhe commenced trading activity on a low scale

� One day, he places a large order to buy shares ofan illiquid scrip, order gets executed at one go

� Later on during the day, places sell order for thoseshares at a loss, also gets executed

� On enquiry, explained that it was due to wrong tiprecd.

� What is to be done by Principal Officer???


� Mr. M registers with broker ABC Ltd.

� As per KYC, annual income of Mr. M is less than 5lacs and Net worth about 6 lacs

� Mr. M started trading on a low scale

� After 8 months, ABC Ltd. Has generated an alert forexcessive trading activity compared to knownexcessive trading activity compared to knownfinancial information of the client

� Avg. daily trading activity of the client is jumped from1 lac to 15 lacs

� Principal Officer enquires and reveal that the clienthas received a large inheritance in the recent past

� What Principal Officer has to do???


� Mr. Y & Mr. Z registers with broker ABC Ltd.

� As per KYC, annual income of Mr. Y is more than 5lacs and of Mr. Z is less than 1 Lac

� Mr. Y has given margin of Rs. 5 lacs and his avgdaily delivery activity is about 10 lacs

� Mr. Z has given margin of Rs. 40 lacs, but his avgdaily trading turnover is about 50 lacs

� What Principal Officer has to do???� Whether transactions of both Mr. Y and Mr. Z to be reportedas Suspicious Transactions??

� Whether to place extra monitoring on transactions??


� Whether records prescribed in PMLA are maintained?

� Whether adequate screening procedures are in placeto ensure high standards when hiring Employees?

� Whether ongoing basis employee’s training programsare conducted?are conducted?

� Whether adequate records relating to training aremaintained?

� Whether Education relating to PMLA has beenprovided to Investors?


� To ensure compliance with the Policies,Procedures and Controls relating to PMLA

� Testing of the system for detecting suspectedmoney laundering transactions

� Evaluating and checking the adequacy ofexception reports generated on large and / orexception reports generated on large and / orirregular transactions

� The quality of reporting of suspicioustransactions

� The level of awareness of front line staff, oftheir responsibilities in this regard.


Thank You

CA. Hiren Mehta

BRV & Associates


Presented by CA. Hiren Mehta BRV & Associates in PMLA Implementation... · broker, Depository Participant, Portfolio Manager, Merchant Banker, Investment ... Issues in PMLA Implementation

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