AML & CFT Guidelines for professionals with certificates of practice from SRBs

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The Financial Intelligence Unit-India (“FIU-IND”) under the Ministry of Finance introduced Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) Guidelines (“Guidelines”) effective from June 19, 2023.  The Guidelines are for professionals with certificates of practice from statutory bodies such as Institute of Chartered Accountants of India, Institute of Company Secretaries of India, and Institute of Cost Accountants of India (“SRBs”).

These Guidelines have been issued pursuant to the Central Government notification dated May 3, 2023 (“Notification”), wherein practicing chartered accountants, company secretaries, and cost and management accountants (“Relevant Persons”) fall within the scope of designated businesses or professions under the Prevention of Money Laundering Act, 2002 (“PMLA”) when carrying out specified financial transactions by becoming reporting entities which are required to comply with certain record-keeping and reporting obligations. The Guidelines prescribe the necessary steps to be taken by reporting entities / Relevant Persons to prevent, detect, and report money laundering, terrorist financing, or proliferation financing (“ML, TF, PF”) activities.

Key Points

1. Establishing AML/CFT/CPF policies and controls: Relevant Persons are required to adopt robust policies (board-approved, in case of firms) and procedures to address risks of ML, TF, PF activities. Periodic reviews are necessary to ensure compliance with extant statutory requirements and guidelines. Client acceptance, KYC policies, and client due diligence (“CDD”) measures must be implemented for the notified financial transactions.
2. Designated director and principal officer: Relevant Persons (entities) are required to appoint a designated director and a principal officer. For others, i.e., individuals, they will be the principal officer for the purpose of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 (“PML Rules). The principal officers and/or designated directors have specific compliances, such as the requirement to furnish relevant information to the FIU-IND and report suspicious transactions. SRBs are required to maintain a list of the principal officers and/or designated directors, updating the FIU-IND periodically and as changes occur.
3. Enhanced due diligence (“EDD”): Complex transactions, unusual patterns, and higher ML, TF, PF risks require EDD measures, such as frequent reviews, information from publicly available sources, and verifying the source(s) of funds. EDD is essential for high-risk jurisdictions or individuals, particularly tax havens and FATF grey/blacklisted countries. Filing a suspicious transaction report (“STR“) is necessary where EDD is not possible. Relevant Persons must maintain an accurate and current customer information, conduct robust due diligence, and store KYC data for up to 5 (five) years.
4. Sanctions screening for notified activities: Relevant Persons must conduct sanctions screening during customer onboarding, when carrying out notified activities, and when there are additions to designated lists.
5. Reporting obligations:
   1. Reporting Mechanism: Relevant Persons are required to report to the FIU-IND through their respective SRBs, which will verify if they hold a certificate or practice. For this purpose, they must establish an internal mechanism.
   2. Reporting suspicious transactions: Relevant Persons are required to promptly report suspicions related to funds suspected to be proceeds of crime or linked to ML, TF or PF to FIU-IND.
6. Training: Relevant Persons must train their employees (especially those in compliance roles) with instruction manuals covering KYC, CDD, sanctions, record-keeping, and transaction monitoring.
7. Other compliances:
   1. Counterparty screening: Relevant Persons must assess emerging risks from their clients’ counterparties, including suspicious transaction history, adverse media, and regulatory or criminal penalties information.
   2. Prohibition on tipping-off: The Guidelines prohibit tipping off, preventing reporting entities, their directors, officers, and employees from disclosing the submission of STRs or related information to FIU-IND.
   3. Risk assessment: Relevant Persons must conduct risk assessments to understand their exposure to ML and TF risks and adopt a risk-based approach to allocate resources.

Summary

The Notification significantly expanded the ambit of the PMLA through inclusion of various professionals carrying out specified financial transactions. Given the extent of compliances required of individuals / firms that qualify as reporting entities, the Guidelines clarify the manner in which obligations under the PMLA and PMLA Rules are to be complied with. The Guidelines impose compliance requirements on SRBs as part of the reporting mechanism, such as establishing a Technical Committee and appointing a Nodal Officer. The Guidelines provide pointed instructions to Relevant Persons on implementing necessary institutional measures to adequately combat money-laundering and terrorism financing risks.

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