All About Financial Intelligence Unit - India (FIU-IND)

ALL ABOUT FINANCIAL INTELLIGENCE UNIT- INDIA (FIU-IND)

OVERVIEW

FIU-IND means Financial Intelligence Unit- India was set up by Government of India vide Office Memorandum dated 18^th November, 2004 as the central national agency with the primary object of receipt and analysis of

1. Suspect financial transactions and other money laundering related information’s,
2. And for dissemination of result of such analysis in close co-operation with the regulatory authority such as RBI, SEBI and IRDA.

It is pertinent to note down here that FIU-IND has recently released a list of approx. 8,500 non compliant NBFC on 20-03-2018 relating to non fulfilment of obligations under Prevention of Money laundering (PML) Acts and PML Rules relating to registration of Principal Officer (PO) with FIN Net portal of FIU-IND. So, it is important to know what this portal is all about and who are required to register on the portal and what the procedure for registration is.

IFU-IND is basically governed by The Prevention of Money-laundering Act, 2002 and their governing rules i.e. Prevention of Money-laundering (Maintenance of Records ) Rules, 2005. FIU-IND processes the financial information and share actionable intelligence in appropriate case to the enforcement agencies. One FIU can exchange information with other FIU under mutual agreement which is agreed upon by both the FIUs

DEFINITIONS

Before we understand, the applicability of registration and compliances to be done by the reporting entities, we need to know few definitions, which are as follows:

As per Section 2 of the Prevention of Money Laundering Act, 2002:

1. “Money Laundering” involves disguising of Financial Assets so that they can be used without detection of the illegal activity that produced them. In simpler terms, it can be said that it is a process through which proceeds from criminal activity are transformed into funds with an apparently legal source.
2. “Reporting entity” means and includes a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
3. “Client” means a person (individual/ partnership/ company/ trust/ association of persons) who is in a financial transaction or activity with a reporting entity and includes a person on whose behalf the person that engages in the transaction or activity, is acting.
4. “Transaction” includes any deposit, withdrawal, exchange or transfers of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means.
5. “Beneficial Owner” is an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person.
6. “Principal Officer” is an officer designated by a reporting entity for the purpose of Section 12 of PMLA, 2002. Rule 7 of the Rules requires every reporting entity to communicate the name, designation and address of the Principal Officer to the Director.

RECORD MAINTENANCE’S

Every reporting entity needs to 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. Every reporting entity should formulate and implement a Client Due Diligence Programme as approved by the senior management, to enable the reporting entity to manage and mitigate the identified risks.

This risk can be minimised by practicing/ maintain on regular basis:

1. Categorisation of transaction into Normal, Cash and Suspicious transactions; 
2. Keeping proper record of transactions being entered upon;
3. Maintenance of records of Clients;
4. Implementing client due diligence program;

As per Rule 3, every reporting entity shall maintain a record of -

• all the cash transactions with the value more than Rs. 10 lakh or its equivalent in foreign currency;
• all the cash transactions which are integrally connected to each other whose individual value is below Rs. 10 lakh or its equivalent in foreign currency and where more than one such transaction have taken place within a month and the monthly aggregate value exceeds Rs.10 lakh;
• all cash transactions which were forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions;
• all suspicious transactions whether took place in cash or in kind;
• all cross border wire transfers of the value exceeding Rs.5 lakh or its equivalent in foreign currency where either the origin or destination of fund is in India;
• all purchase and sale of immovable property valued at Rs.50 lakh or more which is registered by the reporting entity

Here, Suspicions transaction means a transaction even if it is made in case or not which, to a person acting in good faith –

• gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
• appears to be made in circumstances of unusual or unjustified complexity; or
• appears to have no economic rationale or bona-fide purpose; or
• gives  rise  to  a  reasonable  ground  of  suspicion  that  it may involve financing of the activities relating to terrorism

In case it is a cash transaction falling within the prescribed rules and has also an element of suspicious transaction.

Rule 5 states that the reporting entity shall maintain transactions with their clients both in hard and soft copies in accordance with the procedure and manner as may be specified by the RBI, SEBI and IRDA, as the case may be.

Every reporting entity shall be required to designate an officer as Principal Officer for the purpose of PMLA, 2002, who will have the responsibility to furnish the information referred to in Rule 3 to the Director, FIU-IND on the basis of information available with the reporting entities [Rule 7]. A copy of the information provided shall also be retained by the Principal Officer for the purpose of official record.

VERIFICATION OF CLIENT AND DOCUMENTS PROVIDED

Every reporting entity is required to verify the identity and address of the client, the nature of business of the client and his financial status at the time of opening an account or executing any transaction above Rs.50,000/- where there is no account-based relationship or where any international money transfer operation is carried out.

However if at the time of opening of an account or execution any transaction, it is not possible to verify the identity of the client, the reporting entity should verify the identity of the client within a reasonable time after the account has been opened or the transaction has been executed.

All type of reporting entities must, at the time of initiating an account-based relationship with a client, determine whether the 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.

Documents to be collected by Reporting entity while registering any of its clients:

Nature of Client	Documents required
Individual	Photo;             Nature of business and financial status of the client;            Officially Valid Documents* of Proprietor
Company	Certificate of Incorporation             MOA and AOA             Board resolution for authorisation             Power of Attorney             Photo, Officially Valid Documents* of authorised person
Partnership firm	Registration Certificate             Partnership Deed             Power of Attorney             Photo, Officially Valid Documents* of authorised person
Trust	Registration Certificate             Trust deed             Power of Attorney             Photo, Officially Valid Documents* of authorised person
Unincorporated Persons/ Body of Individual	Proof of legal existence             Resolution of Managing body             Power of Attorney             Photo, Officially Valid Documents* of authorised person

*Officially valid document includes a passport, a driving licence, Permanent Account Number (PAN) Card, Voter's Identity Card issued by the Election Commission of India, job card issued by NREGA, Aadhaar Card/ letter or any other document notified by the Central Government.

Rule 10 of the PML Rules specifies that the reporting entity shall maintain information regarding the identity of clients in the manner as may be specified by the sector Regulators. The records of all the information’s related to identity of clients are required to be maintained by every reporting entity for a period of five years from the date of cessation of the relationship with their clients.

FURNISHING OF INFORMATION

It is obligatory on the part of all the reporting entity to maintain a record of all transactions, including the information furnished to FIU-IND online, in such a manner as to enable it to reconstruct individual transactions [Rule 12]. Further for this purpose, the reporting entity would be required to get itself registered with FIU-IND via using the portal https://finnet.gov.in. The record has to be keep stored for a minimum period of five years further FIU-IND has developed electronic return secure gateway to file online return.

The time limit for furnishing information about with to Director, FIU-IND is:

• cash transactions and integrally connected cash transactions:15th day of succeeding month
• All reports relating to cash transactions, counterfeit currency, non-profit organization transactions and cross border wire transfers : the 15th day of the succeeding month
• All suspicious transactions, if satisfied that the transaction is suspicious: not later than 7 working days

FINE AND PENALTY

In case any banking company, financial institution, intermediary has fails to comply with the obligations of maintenance of records, furnishing information and verifying the identity of clients, then the Director, FIU-IND has been empowered by the law to impose fine upon any of such banking company, financial institution, and intermediaries.

The penalty includes both i.e. administrative action and monetary fine, which may vary between Rs. 10,000/- and Rs. 1,00,000/- for each failure.[Section 13]

Further the Act’s provides that anyone fails to pay the penal amount as imposed within a period of 6 months from the day of imposition of fine, the Director, FIU-IND or any person authorized by him may proceed for the recovery of arrears as prescribed in Schedule II of the Income-tax Act, 1961 (43 of 1961).[Section 69]

Pursuant to the provision of Section 12(1)(b), the reporting entities and their officers shall not be liable to any civil or criminal proceedings against them for furnishing information.

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter with which the Director is empowered and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.