Prevention of Money Laundering
Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) – An Investor Awareness Initiative
This is a must-read/understood and to be complied by everybody dealing/ desirous in dealing in Capital and/or Derivatives (including Currency Derivative).
- What is money laundering?
The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source.
Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery, and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering.
When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.
- What is Terrorist Financing?
Financial Terrorism means financial support for any form of terrorism or to those who encourage, plan or engage in terrorist activities. Money launderers send illicit funds through legal channels in order to conceal their criminal origin while those who finance terrorism transfer funds that may be legal or illicit in original in such a way as to conceal their source and ultimate use, which is to support Financial Terrorism.
- How does money laundering work?
In the initial - or placement - stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location.
After the funds have entered the financial system, the second – or layering – stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance.
Having successfully processed his criminal profits through the first two phases the launderer then moves them to the third stage – integration – in which the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.
- AML and CFT Framework in India
India’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Framework by way of Prevention of Money Laundering Act, 2002 was brought into force w.e.f. 1st July, 2005 by the Parliament. The said Act is applicable to banks, financial institutions, and all intermediaries associated with the securities market and is registered with SEBI under section 12 of SEBI Act, 1992 such as Depository Participants, Stock Brokers, Investment Advisers, Portfolio Managers, and Merchant Bankers.
Edel Investment Limited falls under the category of ‘Intermediary’ and hence is required to follow the guidelines of SEBI on the matter. SEBI has issued detailed guidelines/ instructions to be complied by all intermediaries as a part of the Anti-Money Laundering (AML) Program. Investors may refer SEBI master SEBI/ HO/ MIRSD/ DOP/ CIR/ P/ 2019/113 dated October 15, 2019, as amended from time to time, available on SEBI’s website. (http://www.sebi.gov.in).
- As per PMLA the following type of transactions are to be reported to FIU: -
A. All cash transactions of the value of more than Rs. 10 Lakhs or its equivalent in foreign currency.
B. All series of cash transactions integrally connected to each other which have been valued below Rs. 10 Lakhs or its equivalent in foreign currency where such series of transactions takes place within one calendar month.
C. All suspicious transactions whether or not made in cash and including, inter-alia, credits, or debits into any non-monetary accounts such as demat account. - Any such above transaction(s), though not executed but attempted and failed are also required to be reported.
- The suspicious transaction(s) can be related to the transaction(s) under the circumstances such as: -
A. Client(s) whose identity verification seems difficult or client(s) that appear not to co-operate;
B. Asset management services for a client(s) where the source of the funds is not clear or not in keeping with the client(s) apparent standing /business activity;
C. Client(s) based in high-risk jurisdictions.
D. Substantial increases in business without apparent cause;
E. Client(s) transferring a large sum of money to or from overseas locations with instructions for payment in cash.
F. Attempted transfer of investment proceeds to apparently unrelated third parties.
G. Businesses undertaken by offshore banks/financial services.
H. Businesses reported to be in the nature of export/import of small items.
I. Unusual transactions by Clients of Special Categories (CSCs). - Clients of Special Categories includes: -
A. Non-resident client.
B. High net-worth client (having annual income + networth of more than Rs. 1 Crore).
C. Trust, Charities NGOs, and organizations receiving donations.
D. Company having close family shareholdings or beneficial ownership.
E. Civil Servant or family member or close relative of a civil servant;
F. Bureaucrat or family member or close relative of a bureaucrat.
G. Current or Former MP or MLA or MLC or their family member or close relative.
H. Politician or their family member or close relative.
I. Current or Former Head of State or of Governments or their family member or close relative.
J. Senior government/judicial/ military officers or their family members or close relative.
K. Senior executives of state-owned corporations or their family members or close relative;
L. Companies offering foreign exchange offerings. - Obligations of Investor
To ensure that clients have uninterrupted access to the system, a healthy AML compliant ecosystem, and a cordial and healthy business relationship, investors shall be required to provide details/information as may be required. Few of the illustrative details are stated below:
Provide valid documents to prove your identity and address
Provide your accurate contact information including mobile No, email id, etc.
Provide accurate information about your occupation and its nature; for e.g., if you are carrying on a business, you should be informing us not only the name of your business but also as to what the nature and product-line of your business is.
Provide accurate information about your financials. For eg; provide information regarding your annual income and net worth etc.
Co-operate with us when we seek additional information or documents in connection with your trades, holdings etc after understanding that these documents/information etc is sought by us only to comply with statutory/regulatory requirements
Let us know the real rationale/purpose for certain transactions or trades undertaken by you when we make inquiries.
Immediately inform us as and when there is a change in the information that you have provided us along with supporting documents wherever required
Update your KYC information with us or co-operate with us when we remind you that a KYC updation is due from your end. - Obligations of Edel Investment Limited (EIL)
The purpose of implementing AML/CFT measures is to stop criminals and terrorists from abusing the financial system and to know and understand its customers and their financial dealings better, which in turn would help EIL manage its risks prudently. Adherence to AML Program policies and procedures is to enhance fraud prevention measures taken by EIL is to protect itself and its genuine investors and ensure governance. Identification of customers is required to protect customer interests by preventing illegitimate money from entering the system using false identities and addresses. It is required to have a robust client acceptance policy and fortified client identification procedures, a risk-based approach and a rigid, due-diligence process at the time of client registration as well as on a periodical ongoing basis. Implementation of AML/CFT measures at times may require us to demand certain information from investors which may be of personal nature or has hitherto never been called for or which are beyond the standard checklists. Such information can include documents evidencing source of funds/income tax returns/bank records etc.
We solicit investors’ cooperation to provide any other additional information/documents. This will help us to comply with regulatory requirements. This is an investor education initiative undertaken to make investors aware about AML/CFT Objectives.
- Employee Training
We have a policy for an ongoing employee training program so that the total staff of our company is completely aware of the provisions of AML and CFT procedures and amendments thereof. These training programs are totally focused on frontline staff, back-office staff, compliance staff, risk management staff, and staff dealing with new customers as it is very crucial that all those concerned fully understand the rationale behind these guidelines, obligations, and requirements, implement them consistently and are sensitive to the risks of their systems being misused by unscrupulous elements if there is any lapse on the part of any staffs of the company.
A register of attendance of participation in such training program is maintained for the employees, kept secured with the Compliance Department.