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Policies & Procedures
 
 
Policies and Procedures

Policy of PLMA ACT, 2002 :
1. INTRODUCTION :

In accordance with the circular issued by all intermediaries registered u/s. Section 12 of the Securities Exchange & Board of India Act, 1992 (`SEBI Act`) & their associates are required to adopt appropriate measures to carry out the spirit of the Prevention of Money Laundering Act, 2002 (`PMLA`) and the principles enshrined therein.

International initiatives taken to combat drug trafficking, terrorism and other organized and serious crimes have concluded that financial institutions including securities market intermediaries must establish procedures of internal procedures of internal control aimed at preventing and impeding money laundering and terrorist financial. The said obligation on intermediaries has also been obligated under the PMLA.

In accordance there to M.P.Vora Shares & Securities Pvt Ltd. (`the company`) has set out policies & procedures to create appropriate standards to combat money laundering. The policy contained herein shall be called “Anti-Money Laundering Policies & Procedures’ (`The Policy`).

The policy as outlined below provides a general background on the subjects of money laundering and terrorist financing & summarizes the main provisions of the applicable anti-money laundering and anti-terrorist financing legislation in India. The policy also sets out the steps that the Company and any of its representative, should implement to discourage and identify any money laundering or terrorist financing activities. The relevance and usefulness of the policy will be kept under review and it may be necessary to may be necessary to issue amendments from time to time. The said policy is set out keeping in mind the specific nature of the Company’s business, its organizational structure, type of its customers and transactions, etc.

2. BACKGROUND :

PMLA has come into effect from 1st July 2005. Necessary Notifications/ Rules under the said Act have been published in the Gazette of India on 1st July 2005 by the Department of Revenue, Ministry of Finance and Government of India.

As per the provisions of PMLA, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing fiancé institution and a non-banking financial company) and intermediary (which includes a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee to a true deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992) shall have to maintain a record of the transactions; the nature and value of which has been prescribed in the Rules under the PMLA. Such transactions include:

  • All cash transactions of the value of more than Rs. 10 lacs or its equivalent in foreign currency.
  • 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 take place within one calendar month
  • All suspicious transactions whether or not made in cash and including, inter-alia, credits or debits into from any on monetary account such as demat account, security account maintained by the registered intermediary

3. POLICIES, MEASURES & PROCEDURES :

In order to fulfill the requirement of PMLA, there is a need for the Company to have a system in place for identifying, monitoring and reporting suspected money laundering or terrorist financing transaction to the law enforcement authorities. In light of the above, the senior management of the Company is fully committed to establish appropriate policies and procedures.

To implement the policy in its correct spirit the following broad set of measures are set out hereunder:

  1. Ensuring that the content of the Policy is well understood by all staff members and they are kept aware and vigilant at all times to guard against money laundering and terrorist financing.
  2. Regularly reviewing the Policy on prevention of money laundering and terrorist financing to ensure their effectiveness. Further, in order to ensure effectiveness of the policy, the person doing such a review should be different from the one who has framed the policy.
  3. Adopting customer acceptance policies and procedures which are sensitive to the risk of money laundering and terrorist financing.
  4. Undertaking customer due diligence (“CDD”) measures to an extent that is sensitive to the risk of money laundering and terrorist financing depending on the type of customer, business relationship or transaction.

3.1 - Policy Coverage :

  1. Communication of group policies relating to prevention of money laundering and terrorist financing to all management and relevant staff that handle account information, securities transactions, money and customer records etc. whether in branches, departments or subsidiaries;
  2. Customer acceptance policy and customer due diligence measures, including requirements for proper identification;
  3. Maintenance or records;
  4. Compliance with relevant statutory and regulatory requirements;
  5. Co-operation with the relevant law enforcement authorities, including the timely disclosure of information; and
  6. Role of internal audit or compliance function to ensure compliance with policies, procedures, and controls relating to prevention of money laundering and terrorist finacing, including the testing of the system for detecting suspected money laundering transactions, evaluating and checking the adequacy of exception reports generated on large and/or irregular transactions, the quality of reporting of suspicious transactions and the level of awareness of front line staff of their responsibilities in this regard.

3.2 - Detailed Policies & Procedures :

3.2.1 - Customer Due Diligence (`CDD`) :

CDD measures shall mainly cover the following areas :

  1. Obtaining sufficient information in order to identify persons who beneficially own or control securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party should be identified using client identification and verification procedures. The beneficial owner is the natural person of persons who ultimately own, control or influence a client and /or persons on whose behalf a transaction is being conducted. It also incorporated those persons who exercise ultimate effective control over a legal person or arrangement.
  2. Verify the customer’s identify using reliable, independent source documents, data or information;
  3. Identify beneficial ownership and control, i.e. determine which individuals(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted;
  4. Verify the identity of the beneficial owner of the customer and /or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c);and
  5. Conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the Company’s knowledge of the customer, its business and risk profile, taking into account, where necessary, the customer’s source of funds.

All in all, there are three specific parameters, which are related to the overall ‘Client Due Diligence Process’ and they are as follows:

  • Policy for acceptance of clients
  • Procedure for identifying the clients
  • Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR)

3.2.1.1 Client Acceptance Procedure :

  1. No account is opened in a fictitious / benami name or on an anonymous basis.
  2. Factors or risk perception (in terms of monitoring suspicious transactions) of the client are clearly defined having regard to clients location (registered office address, correspondence addresses and other addresses if applicable), nature of business activity, trading turnover etc. and manner of making payment for transaction undertaken. The parameters should enable classification of clients into low, medium and high risk. Client of special category viz: Non resident clients, High networth clients, Trust, Charities, NGOs and organizations receiving donation, Companies having close family shareholdings or beneficial ownership, Politically exposed persons (PEP) of foreign origin, Current/Former Head of State, Current or Former Senior High profile politicians and connected persons (immediate family, close advisors and companies in which such individuals have interest or significant influence), Companies offering foreign exchange offerings, Clients in high risk countries (where existence/ effectiveness if money laundering controls is suspect, where there is unusual banking secrecy, Countries active in narcotics production, Countries where corruption (as per Transparency international Corruption perception index) is highly prevalent, Countries against which government sanctions are applied, Countries reputed to be any of the following – Havens / sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent, Non face to face clients, clients with dubious reputation as per public information available etc. may, if necessary, be classified even higher. Such clients require higher degree of due diligence and regular update of KYC profile.
  3. Documentation requirement and other information to be collected in respect of different classes of clients depending on perceived risk and having regard to the requirement to the PMLA, guidelines issued by RBI and SEBI from time to time.
  4. Ensuring that an account is not to be opened where the Company is unable to apply appropriate clients due diligence measures/KYC policies. This may be applicable in cases where it is not possible to ascertain the identity of the client, information provided to the Company is suspected to be non-genuine, perceived non-cooperation of the client in providing full and complete information. The company should not continue to do business with such a person and file a suspicious activity report. It should also evaluate whether there is suspicious trading in determining in whether to freeze or close the account. The company should be caution to ensure that it does not return securities of money that may be from suspicious trades. However, the Company should consult the relevant authorities in determining what action it should take when it suspects suspicious trading.
  5. The circumstances under which the client is permitted to act on behalf of another person/ entity should be clearly laid down. It should be specified in what manner the account should be operated, transaction limits for the operation, additional authority required for transactions exceeding a specified quantity/ value and other appropriate details. Further the rights and responsibilities of both the persons (i.e. the agent-client registered with the Company, as well as the person on whose behalf the agent is acting should be clearly laid down). Adequate verification of a person’s authority to act on behalf the customer should also be carried out.
  6. Necessary checks and balance to be put into place before opening an account so as to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide.

The aim of going in for an elaborate client acceptance procedure is to ensure that the Company is in a better position to apply customer due diligence on a risk sensitive basis depending on the type of customer business relationship or transaction.

3.2.1.2 Client Identification Procedure :

  1. The ‘Know your Client’ (KYC) policy should clearly spell out the client identification procedure to be carried out at different stages i.e. while establishing the company-client relationship, while carrying out transactions for the client or when the Company has doubts regarding the veracity or the adequacy of previously obtained client identification data.
  2. The client should be identified by the Company by using reliable sources including documents/information. The Company should obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.
  3. The information should be adequate enough to satisfy competent authorities (regulatory / enforcement authorities) in future that due diligence was observed by the company in compliance with the policy. Each original document should be seen prior to acceptance of a copy.
  4. Failure by prospective client to provide satisfactory evidence of identity should be noted and reported to the higher authority within the company.
  5. Client identification program shall adhere to all documentary & procedural requirements of Rule 9 of PMLA.
  6. Taking into account the basic principles enshrined in the KYC norms, which have already been prescribed or which may be prescribed by SEBI from time to time, the company should frame & re-frame its own internal guidelines based on its experience in dealing with their clients and legal requirements as per the established practices. Further, the company should also maintain continuous familiarity and follow-up where it notices inconsistencies in the information provided. The underlying principles should be to follow the principles enshrined in the PMLA as well as the SEBI Act so that the company is aware of the clients on whose behalf it is dealing.

3.2.1.3 Record Keeping & Retention :

  1. The Company should ensure compliance with the record keeping requirements contained in the SEBI Act and Rules and Regulation made there under, PMLA as well as other relevant legislation, Rules, Regulations, Exchange Bye-Laws and Circulars.
  2. The Company should maintain such records as are sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behavior.
  3. Should there be any suspected drug related or other laundered money or terrorist property, the competent investigating authorities would need to trace through the audit trail for reconstructing a financial profile of the suspect account. To enable his audit trail for reconstructing a financial profile of the suspect account. To enable this reconstruction, the company should retain the following information for the account of their customers in order to maintain a satisfactory audit trail:
    • The beneficial owner of the account;
    • The volume of the funds flowing through the account; and
    • For selected transactions :
      o The origin of the funds:
      o The form in which the funds were offered or withdrawn, e.g. cash, cheques, etc:
      o The identity of the person undertaking the transactions:
      o The destination of the funds;
      o The form of instruction and authority.

  4. The Company shall put in place a system of maintaining proper record of transactions prescribed under Rule 3 of PMLA, as mentioned below:
    •
    		 All cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency:
    •
    		 All series of cash transactions integrally connected to each other which have been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds rupees ten lakh;
    •
    		 All cash transactions where forged or counterfeit currency notes or bank notes have been used an genuine and where any forgery of a valuables security has taken place;
    •
    		 All suspicious transactions whether or not made in cash and by way of as mentioned in the rules.

  5. The company should ensure that all customer and transactions records and information are available on a timely basis to the competent investigating authorities. Where appropriate, they should consider retaining certain records, e.g. customer identification, account files, and business correspondence, for periods which may exceed that required under the SEBI Act, Rules and Regulations framed thereunder, PMLA, other relevant legislations, Rules and Regulations or Exchange bye-laws or circulars. In specific the Company shall maintain the following information relating to transactions in accordance with Rule 3 of PMLA:
  6. The following document retention terms should be observed:
    •
    		 All necessary records on transactions, both domestic and international, should be maintained at least for the minimum period prescribed under the relevant Act (PMLA/SEBI Act) and other legislations, Regulations or exchange bye-laws or circulars.
    •
    		 Records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence should also be kept for the same period.

  7. In accordance with said Rule 3 the Company shall maintain prescribed records for of ten years from the date of cessation the transactions between the client and itself.
  8. In situations where the records relate to on-going investigations or transactions which have been the subject of a suspicious transaction reporting, they should be retained until it is confirmed that the case has been closed

3.2.1.4 Transaction Monitoring & Reporting :

Regular monitoring of transactions is vital for ensuring effectiveness of the Anti Money laundering procedures. This is possible only if the Company has an understanding of the normal activity of the client so that they can identify the deviant transactions/activities.

  1. The company should pay special attention to all complex, unusually large transactions/ patterns which appear to have no economic purpose. The Company may specify internal threshold limits for each class of client accounts and pay special attention to the transaction which exceeds these limits.
  2. The Company should ensure a record of transaction is preserved and maintained in terms of section 12 of the PMLA and that transaction of suspicious nature or any other transaction notified under the said section the PMLA is reported to the appropriate law authority. Suspicious transaction should also be regularly reported to the higher authorities/ head of the department.
  3. Further the compliance cell of the Company should randomly examine a selection of transaction undertaken by clients to comment on their nature i.e. whether they are in the suspicious transactions or not.
  4. The company must be swift & accurate when it comes to Suspicious Transaction Monitoring & Reporting (STMR). In doing that the Company should ensure to take appropriate steps to enable suspicious transactions to be recognized and have appropriate procedures for reporting suspicious transaction. A list of circumstances which may be in the nature of suspicious transactions is given below. This list is only illustrative and whether a particular transaction is suspicious or not will depend upon the background, details of the transactions and other facts and circumstances :
    •
    		 Clients whose identity verification seems difficult or clients appears not to cooperate;
    •
    		 Asset management services for clients where the source of the funds is not clear or not in keeping with clients apparent standing/business activity;
    •
    		 Clients in high-risk jurisdictions or clients introduced by banks a affiliates or other clients based in high risk jurisdictions;
    •
    		 Substantial increases in business without apparent cause;
    •
    		 Unusually large cash deposits made by an individual or business;
    •
    		 Client transferring large sums of money to or form overseas locations with instructions for payment is cash;
    •
    		 Transfer of investment proceeds to apparently unrelated third parties;
    •
    		 Unusual transactions by CSCs and businesses undertaken by shell corporations, offshore bank/financial services, businesses reported to be in the nature of export-import of small items.

  5. Any suspicion transaction should be immediately notified to the Money Laundering Control officer within the Company. The notification may be done in the form of a detailed report with specific reference to the clients, transactions and the nature/reason of suspicion. However, it should be ensured that there is continuity in dealing with the client as normal until told otherwise and the client should not be told of the report/suspicion. In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended, in one or more jurisdictions concerned in the transaction, or other action taken. It may, however, be clarified that for the purpose of suspicious transactions reporting, apart from ‘transactions integrally connected’, ‘transactions remotely connected or related’ should also be considered.
  6. The Company to appoint an officer for reporting of suspicious transactions called the Principal officer who will have to ensure that the company properly discharges its legal obligations to report suspicious transactions to the authorities, the Principal officer would act as a central reference point in facilitating onward reporting of suspicious transactions and for playing an active role in the identification and assessment of potentially suspicious transactions.
  7. The principal officer, under the authority given to him by the Company, is required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FLU-IND) at the following address:

    Director, FIU-IND
    Financial Intelligence Unit-India,
    6th Floor, Hotel Samrat,
    Chanakyapuri,
    New Delhi – 110 021.
  8. The various reports in prescribed electronic & manual formats must be submitted to the FIU-IND within such time as may be prescribed. While detailed instructions relating to the reports & formats thereof if given in the relevant circulars in that regard, the Company must adhere to the following:
    •
    The cash transaction report (CTR) (wherever applicable) for each month should be submitted to FIU-IND by 15th of the succeeding month.
    •
    The Suspicious Transaction Report (STR) should be submitted within 7days of arriving at a conclusion that any transaction, whether cash or non-cash, or a series of transactions integrally connected are of suspicious nature. The Principal Officer should record his reasons for treating any transaction or a series of transactions as suspicious. It should be ensured that there is no undue delay in arriving at such a conclusion.
    •
    The Principal Officer will be responsible for timely submission of CTR and STR to FIU-IND;
    •
    Utmost confidentiality should be maintained in filing or CTR and STR to FIU-IND. The reports may be transmitted by speed/registered post/fax at the notified address.

  9. The Company should not put any restriction on operations in the accounts where an STR has been made. Further, it should be ensured that there is no tipping off to the client at any level.
  10. The Company to maintain reasonable standards in hiring policies and training with respect to anti-money laundering whereby all attempts should be made to have adequate screening procedures in place to while hiring employees. The Company will have to identify key positions within its own organization structure having regard to the risk of money laundering and terrorist financing and the size of their business and ensure the employees taking up such key positions are suitable and competent to perform their duties. The Company will provide proper anti-money laundering and anti-terrorist financing training to its staff members.

4. CONCLUSION :

The Company at all times must be committed to work against all money laundering and terrorist funding activities that come to its notice and co-operate with the legislative bodies involved at all levels. On moral grounds the Company must pledge its support to the initiative enshrined in the prevention of Money Laundering Act, 2002.

 

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