pmla policy

8/20/2019 PMLA Policy

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Introduction

The term "money laundering" is said to originate from Mafia ownership of Laundromats in theUnited States. Gangsters there were earning huge sums in cash from extortion, prostitution,gambling and bootleg liquor. In modern days, it is used as a financial tool in terrorist activities. Theyneeded to show a legitimate source for these monies. Money laundering is generally defined asengaging in acts designed to conceal the true origins of criminally derived proceeds so that the

unlawful proceeds appear to have derived from legitimate origins or constitute legitimate assets.

Laws related to Anti money laundering kick started in US seriously after the 9/11 incident shockedthe entire world. This paved the way to many legislations all over the world.

In India Money Laundering Laws are still in the nascent stage but the techniques of Laundering hasbeen existing since long. Hawala form of Laundering is very common in India.

The Government of India has appointed a committee to look into the matters of Anti-moneylaundering activities in line with global scenario. The Prevention of Money Laundering Act, 2002(PMLA 2002) forms the core of the legal framework put in place by India to combat money

laundering. PMLA 2002 and the Rules notified there under came into force with effect from July 1,2005 . Director, Financial Intelligence Unit – India (FIU-IND) and Director (Enforcement) have beenconferred with exclusive and concurrent powers under relevant sections of the Act to implement theprovisions of the Act.

Financial Intelligence Unit – India (FIU-IND) was set by the Government of as the centralnational agency responsible for receiving, processing, analyzing and disseminating informationrelating to suspect financial transactions. FIU-IND is also responsible for coordinating andstrengthening efforts of national and international intelligence, investigation and enforcementagencies in pursuing the global efforts against money laundering and related crimes. FIU-IND is anindependent body reporting directly to the Economic Intelligence Council (EIC) headed by the

Finance Minister.The PMLA 2002 and rules notified thereunder impose obligation on intermediaries including StockBrokers, Depository Participants etc., to verify identity of clients, maintain records and furnishinformation to FIU-IND. PMLA 2002 defines money laundering offence and provides for thefreezing, seizure and confiscation of the proceeds of crime

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Techno’s commitment to comply with PMLA 2002

It is the policy of the firm to prohibit and actively prevent money laundering and any activity thatfacilitates money laundering or the funding of terrorist or criminal activities. To fulfill thisobligation, Techno undertakes the following:

Prior to the opening of any new account, the A/c opening department of Techno will document the identity, nature of business, income, source of assets, and investment objectives of each prospective customer.

On an on-going basis, Techno will review account activity for evidence of transactions that may be indicative of money laundering activities.

Every officer, employee and associated person of Techno is responsible for assisting in the firm’s efforts to uncover and report any activity that might constitute, or otherwise indicate or raise suspicions of, money laundering.

To this end, Techno provides continuing education and training of all such persons.

The relevant provisions of the Prevention of Money Laundering Act 2002, enacted by GOI, havebeen taken into account in the Anti-money laundering policy. The policy is very exhaustive andtakes into consideration the various complexities and provides guidelines and procedures to befollowed by Techno personnel, including its front line staff. To achieve the policy objectives, theemphasis has given for the following key areas :

Verification of identity of Client Monitoring the transactions of Client Reporting suspicious transactions Educating and Training of concerned employees

This policy manual consists of eight sections as under:

Section-1 Organizational Structure Page 1

Section-2 Adherence with various Laws Page 2

Section-3 Verification of Identity of Client Page 3

Section-4 Monitoring the Transactions of Client Page 4

Section-5 Reporting Suspicious Transactions Page 5

Section-6 Maintenance of Records Page 6

Section-7 Education and Training Page 7

Section-8 Miscellaneous Page 8


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Section-1 Organizational Structure

Techno (Techno Shares & Stocks Ltd. & Techno Commodity Broking Pvt. Ltd.) has been promotedand managed by a group of professionals having vast experience in Accountancy, Law, CapitalMarkets and Information Technology under the superintendence of Board of Directors. Broadly,

Techno group has four business divisions namely,

Broking Distribution DP

For the purpose of implementation of Anti-money laundering measures, Techno has appointed thePrincipal Officer as per the provisions of PMLA. The Principal Officer is a person in the DirectorLevel who is responsible for the compliance of PMLA of the Techno group. Under the PrincipalOfficer, an AML Compliance Officer has been appointed to take care day to day monitoring of thecompliance. All the business divisions have a designated officer who reports the various activities to

AML Compliance Officer. The duties of the AML Compliance Officer will include monitoring thefirm’s compliance with AML obligations, verification and analysis of reports sent by businessdivisions, overseeing communication, recruitment and training for employees, record keeping andreporting, if required to the Principal Officer.

In short, the organizational Structure has been designed for this purpose as follows:

Principal Officer-Director Level

AML Compliance Officer-Manager Level

Designated Officer- Broking / Distribution / DP / PMS

a) All the designated officers are usually the Head of the business division or next to theHead of the division.

b) The designated Officer is responsible for the compliance of Anti-money launderingmeasures under this policy and PMLA.

c) The Designated Officer reports to AML Compliance Officer about new accountsopened and high value transactions on a daily basis, probably at 6.00 Pm.


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Section 2 Adherence with various Securities and Corporate Laws

To protect the overall interests of the capital market and investors, the Government of India via itsenforcement agencies like RBI, SEBI, Exchanges and Depositories have formulated Regulations,Rules & guidelines and come out with amendments regularly through Circulars. Therefore it is very

crucial for us to ascertain whether our business is being carried in accordance with the regulatoryrequirements, in particular KYC norms.

It includes the adherence of the following Laws & Regulations:

• Companies Act, 1956• SEBI Act, 1992• SCRA, 1956• Depository Act, 1996• Income Tax Act, 1961• Service Tax• RBI Guidelines• IRDA Guidelines• AMFI Guidelines• SEBI Regulations & Rules• FMC Regulations & Rules• NSE/BSE/CDSL/NSDL Regulations, Rules, Bye Laws, Circulars• NCDEX/MCX/ICEX Regulations, Rules, Bye Laws, Circulars

The following points to be noted:a) For monitoring the regulatory compliances, each business division has a Compliance

Officer as per the provisions of the relevant Laws or/and Regulations, who reports tothe Board of Directors.

b) All the Compliance Officers are working in conjunction with the AML ComplianceOfficer. If any non-compliance comes into picture, it will be corrected immediatelyand reported to Board of Directors.

c) Periodic Internal Audits and Inspections are conducted to improve the existingsystem.

d) Techno will comply with all trade and economic sanctions imposed by theGovernment of India against targeted foreign countries and shall cooperate fully withgovernment agencies, self-regulatory organizations and law enforcement officials.

e) As provided by the Act, Techno may supply information about former, current orprospective customers to such bodies.


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Section-3 Verification of identity of Client

Section 12 of the Prevention of Money Laundering Act, 2002 and rules thereunder require everyintermediary to verify and maintain the records of the identity of all its clients, in such manner asmay be prescribed.

SEBI has laid down various KYC/KRA norms , which a market intermediary is required to complywith at the time of opening an account. Techno implements strict controls for verification of detailsprovided in the account opening form and genuineness of documents submitted. The basic objectiveunderlying adherence to KYC norms is to identify applications made in fictitious names to preventpossibility of money laundering.

The verification of Identity of the prospective clients are done by two ways:

1. Conventional which comprises of collection of documentary proofs2. Non-conventional which comprises of in person verification

Conventional Mode

Prior to opening an account with Techno, we will collect the following information for all accounts:

Photo Identity Proof of prospective clients :

In order to verify the identity of the client, self attested copies of the following documents arecollected after due verification with the originals a) PAN Card b) Passport c) Voter Id Card d)

Driving License e) Photo Identity Card issued by Employer

Proof of Address of prospective clients:

In order to verify the address of the client, self attested copies of the following documents arecollected after due verification with the originals: a) Electricity Bill b) Voter Id Card c) Rent

Agreement d) Bank Pass Book/Statement e) Society Maintenance Bill f) Insurance Premium Receipt h) Telephone Bill

Proof of Bank a/c details of prospective clients :

Documentary Proofs

of Identity, address, Bank account details, Demat account details (applicable for trading account)


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In order to verify the address of the client, self attested copies of the following documents arecollected after due verification with the originals: a) Bank Verification b) Cancelled Cheque leafwith name of the client printed on it c) Latest Bank Passbook/Statement Proof of Demat a/c details of prospective clients

If the client has demat a/cs other than with Techno, the following documents are collected after dueverification with originals: a) Cancelled Instruction Slip of demat account with the name of

prospective client printed on it b) Latest Holding Statement c) Latest Transaction Statement

Verification of Signature and Photograph

All the client’s signatures and photograph on KYC form are matched with any of the proof ofidentity as an additional step in this regard.

Activities:

It includes the following: After due verification, the officer puts the stamp “Verified with original” on the copies with

signature of the officer. If the officer feels that one proof of identity is not sufficient to provethe identity of the client, he may ask the client for an additional proof. Once the concernedofficer satisfies the identity of the client, he will send to a senior officer. The senior officershould authenticate the documents so collected from client before entering details to thesystem.

Date entry works are done properly and cross verification is done by a senior officer The KYC forms alongwith supporting documents are filed properly in a chronological

manner In case of DP operations, special care has to be taken to check genuineness of the client if

disproportionately large no. of accounts (above 20) are opened with same or similar namesor/and same address or/and with same bank details.

Non-conventional mode:

Techno will use the following non-documentary methods of verifying identity:

• Contacting a customer• Independently verifying the customer’s identity through the comparison of information

provided by the customer with information obtained from a consumer reporting agency,

public database, or other source• Checking references with other financial institutions or Obtaining a financial statement.

Steps if the prospective clients refuse to give relevant documents

a) If a potential or existing customer either refuses to provide the information describedabove when requested, or appears to have intentionally provided misleading


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information, our firm will not open a new account and, after considering the risksinvolved, consider closing any existing account.

b) If we find suspicious information that indicates possible money laundering or terroristfinancing activity, the designated officer informs the same to AML ComplianceOfficer for necessary actions.

Guidelines on Identification of Beneficial Ownership

A. For clients other than individuals or trusts:

Where the client is a person other than an individual or trust, viz., company, partnership orunincorporated association/body of individuals, the intermediary shall identify the beneficial ownersof the client and take reasonable measures to verify the identity of such persons, through thefollowing information:

a. The identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownershipinterest.Explanation: Controlling ownership interest means ownership of/entitlement to:i. more than 25% of shares or capital or profits of the juridical person, where the juridical person is acompany;ii. more than 15% of the capital or profits of the juridical person, where the juridical person is apartnership; oriii. more than 15% of the property or capital or profits of the juridical person, where the juridicalperson is an unincorporated association or body of individuals.

b. In cases where there exists doubt under clause 4 (a) above as to whether the person with thecontrolling ownership interest is the beneficial owner or where no natural person exerts controlthrough ownership interests, the identity of the natural person exercising control over the juridicalperson through other means.Explanation: Control through other means can be exercised through voting rights, agreement,arrangements or in any other manner.

c. Where no natural person is identified under clauses 4 (a) or 4 (b) above, the identity of therelevant natural person who holds the position of senior managing official.

B. For client which is a trust:

Where the client is a trust, the intermediary shall identify the beneficial owners of the client and takereasonable measures to verify the identity of such persons, through the identity of the settler of thetrust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any othernatural person exercising ultimate effective control over the trust through a chain of control orownership.

C. Exemption in case of listed companies:Where the client or the owner of the controlling interest is a company listed on a stock exchange, oris a majority-owned subsidiary of such a company, it is not necessary to identify and verify theidentity of any shareholder or beneficial owner of such companies.


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D. Applicability for foreign investors:Clients under the categories - Foreign Institutional Investors, Sub Accounts and Qualified ForeignInvestors, may be guided by the clarifications issued vide SEBI circular CIR/MIRSD/11/2012 datedSeptember 5, 2012, for the purpose of identification of beneficial ownership of the client.

Section-4 Monitoring the transactions of ClientUnder PMLA, 2002, it is the obligation of every intermediary to furnish FIU-IND the information ofall suspicious transactions whether or not made in cash. Suspicious transaction means a transactionwhether or not made in cash which, to a person acting in good faith:

o gives rise to a reasonable ground of suspicion that it may involve the proceeds of crimeo appears to be made in circumstances of unusual or unjustified complexityo appears to have no economic rationale or bonafide purpose

Broadly, Techno categories the reason for suspicion and suspicious transactions as under:

Identity of Client- False identification documents- Identification documents which could not be verified within reasonable time- Non-face to face client- Doubt over the real beneficiary of the account- Accounts opened with names very close to other established business entities

Suspicious Background- Suspicious background or links with known criminals

Multiple Accounts

- Large number of accounts having a common account holder, introducer orauthorized signatory with no rationale- Unexplained transfers between multiple accounts with no rationale

Activity in Accounts- Unusual activity compared to past transactions- Use of different accounts by client alternatively- Sudden activity in dormant accounts- Activity inconsistent with what would be expected from declared business- Account used for circular trading

Nature of Transactions- Unusual or unjustified complexity

- No economic rationale or bonafide purpose- Source of funds are doubtful- Appears to be case of insider trading- Investment proceeds transferred to a third party- Transactions reflect likely market manipulations- Suspicious off market transactions


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Value of Transactions- Value just under the reporting threshold amount in an apparent attempt to avoid

reporting- Large sums being transferred from overseas for making payments- Inconsistent with the clients apparent financial standing

- Inconsistency in the payment pattern by client- Block deal which is not at market price or prices appear to be artificiallyinflated/deflated

- Presently the alerts are generated for transaction per scrip per day having value ofRs. 25,00,000 and Volume of 25000

Techno puts Red flags that signal possible money laundering or terrorist financing include, but arenot limited to:

• The customer exhibits unusual concern about the firm's compliance with governmentreporting requirements and the firm's AML policies (particularly concerning his or her

identity, type of business and assets), or is reluctant or refuses to reveal any informationconcerning business activities, or furnishes unusual or suspicious identification or businessdocuments.

• The customer wishes to engage in transactions that lack business sense or apparentinvestment strategy, or are inconsistent with the customer's stated business or investmentstrategy.

• The information provided by the customer that identifies a legitimate source for funds isfalse, misleading, or substantially incorrect.

•

Upon request, the customer refuses to identify or fails to indicate any legitimate source forhis or her funds and other assets.

• The customer (or a person publicly associated with the customer) has a questionablebackground or is the subject of news reports indicating possible criminal, civil, or regulatoryviolations.

• The customer exhibits a lack of concern regarding risks, commissions, or other transactioncosts.

• The customer appears to be acting as an agent for an undisclosed principal, but declines or is

reluctant, without legitimate commercial reasons, to provide information or is otherwiseevasive regarding that person or entity.

• The customer has difficulty describing the nature of his or her business or lacks generalknowledge of his or her industry.

• The customer attempts to make frequent or large deposits of currency, insists on dealing onlyin cash, or asks for exemptions from the firm's policies relating to the deposit of cash.


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• The customer engages in transactions involving cash or cash equivalents or other monetary

instruments that appear to be structured to avoid the government reporting requirements,especially if the cash or monetary instruments are in an amount just below reporting orrecording thresholds.

• For no apparent reason, the customer has multiple accounts under a single name or multiplenames, with a large number of inter-account or third-party transfers.

• The customer makes a funds deposit for the purpose of purchasing a long-term investmentfollowed shortly thereafter by a request to liquidate the position and transfer of the proceedsout of the account.

• The customer requests that a transaction be processed to avoid the firm's normaldocumentation requirements.

• The customer, for no apparent reason or in conjunction with other red flags, engages intransactions involving certain types of securities, such as penny stocks, illiquid stocks, whichalthough legitimate, have been used in connection with fraudulent schemes and moneylaundering activity. (Such transactions may warrant further due diligence to ensure thelegitimacy of the customer's activity.)

• The customer's account shows an unexplained high level of account activity with very lowlevels of securities transactions.

• The customer maintains multiple accounts, or maintains accounts in the names of familymembers or corporate entities, for no apparent purpose.

• The customer's account has inflows of funds or other assets well beyond the known incomeor resources of the customer.

Activity

When the designated officer detects any red flag he or she will investigate further under the directionof the AML Compliance Officer. This may include gathering additional information internally orfrom third-party sources, contacting the government, freezing the account etc.


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Sector-5 Reporting suspicious transactions

The Prevention of Money-laundering Act, 2002, and the rules thereunder require every intermediary,to furnish to FIU-IND information relating to:

a) All cash transactions of the value of more than rupees ten lakhs or its equivalent inforeign currency

b) All series of cash transactions integrally connected to each other which have beenvalued below rupees ten lakhs or its equivalent in foreign currency where such seriesof transactions have taken place within a month

c) All cash transactions where forged or counterfeit currency notes or bank notes havebeen used as genuine and where any forgery of a valuable security has taken place

d) All suspicious transactions whether or not made in cash

In order to monitor and verify suspicious transactions, Techno uses internal and external reports. Theback office software, which is used by various business divisions of Techno generates varioustransaction reports. It includes the following:

1. Trade Reports2. Fund/Securities Pay-in Reports3. Fund/Securities Pay-out Reports4. OFF Market Reports-Applicable to DP5. High value transaction Reports

External Reports consist of:

1. Fortnightly Reports sent by NSDL/CDSL2. Reports sent by SEBI/RBI3. Reports sent by Ministry of Finance

Activities:

The designated Officer sends a consolidated report to AML Compliance Officer on a dailybasis

AML Compliance Officer verifies the data based upon certain parameters


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If AML Compliance Officer feels that the same has to be reported to FIU-IND, the reportalong with comments is sent to Principal Officer

After the approval of Principal Officer, the report is sent to Financial Intelligence Unit –India

Sector-6 Maintenance of Records

Section 12 of the Prevention of Money Laundering Act, 2002, makes it mandatory for intermediaryto maintain a record of all transactions, the nature and value of which may be prescribed time totime. Our AML Compliance Officer and his or her designee is responsible to ensure that AML

records are maintained properly as per the requirements.

The records include:

1. KYC forms of clients along with supporting documents

2. Transaction details which comprises of the following:

a. the nature of the transactionsb. the amount of the transaction and the currency in which it was denominatedc. the date on which the transaction was conducted

d. the parties to the transaction

Points to be noted:

All the records is maintained for a period of ten years from the date of cessation of thetransactions

Strict procedures both to ensure that only relevant information is shared and to protect thesecurity and confidentiality of this information, including segregating it from the firm’s otherbooks and records

All the records and registers are maintained in accordance with the SEBI Act, 1992 andvarious Regulations applicable to different business divisions

One senior officer under the guidance of Designated Officer will oversee the activitiesrelated to record maintenance

Account opening forms are properly filed – location wise and date wise


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All the files are kept in the safe storage for the purpose of easy retrieval

Designated Officer reports the status of record maintenance on a weekly basis

No records is given to any third party without the approval of Principal Officer or AML

Compliance Officer

Section-7 Education and Training

The success of implementation of the policy is highly depended on the employees who handlevarious jobs, which have linked directly or indirectly to money laundering activities. Techno hasdecided to develop an ongoing employee training under the leadership of the AML ComplianceOfficer and senior management.

The training includes:

a) how to identify red flags and signs of money laundering that arise during the course of theemployees’ duties;

b) what to do once the risk is identifiedc) what employees' roles are in the firm's compliance efforts and how to perform them

In this regard, Techno undertakes:

1. Distribution of educational pamphlets

2. videos3. intranet systems4. in-person lectures5. explanatory memos.

Others:

1. Techno will maintain records to show the persons trained, the dates of training, and thesubject matter of their training.

2. Techno will review our operations to see if certain employees, such as those in compliance,

margin, and corporate security, require specialized additional training.

3. Our written procedures will be updated to reflect any such changes.

4. All the transactions of employees are monitored and actions are taken, wherever necessary.

5. Employees will report any violations of the firm’s AML compliance program to the AMLCompliance Officer, unless the violations implicate the Compliance Officer, in which case


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the employee shall report to Such reports will be confidential, and the employee will sufferno retaliation for making them.

Section-8 Miscellaneous

Practical Difficulties in implementation:

1 Check the criminal Back ground of Client

2

Terrorist link of client3 Source of money of client4 Cost and Man hours for compliance

In the future, Techno may consider of purchasing Anti-money laundering software depending uponthe size and expansion. The following companies are providing Anti-money laundering softwares:

1. TCS2. Infosys

3.

Wipro4. 3iinfotech

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