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KMS STOCK BROKING COMPANY PRIVATE LIMITED
‘Know Your Customer’ Guidelines
Anti Money Laundering Standards
1. Know Your Customer Standards
a) The objective of the KYC guidelines is to prevent brokers from being used,
intentionally or unintentionally, by criminal elements for money laundering
activities. KYC procedures enable brokers to know/understand their customers
and their financial dealings better which in turn help them manage their risks
prudently. The revised KYC policy of the broker incorporates the following four
elements:
Customer Acceptance Policy (CAP)
Customer Identification Procedures (CIP)
Monitoring of Transactions; and
Risk Management
b) A customer for the purpose of KYC Policy is defined as:
• A person or entity that maintains an account and/or has a business
relationship with the broker.
• One on whose behalf the account is maintained (i.e., the beneficial
owner)
• Beneficiaries of transactions conducted by professional intermediaries,
such as Stock Brokers, Chartered Accountants, Solicitors, etc as
permitted under the law
• Any person or entity connected with a financial transaction which can
pose significant reputational or other risks to the broker, say, a wire
transfer or issue of high value demand draft as a single transaction.
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2. Customer Acceptance Policy (CAP)
a) The following Customer Acceptance Policy indicating the criteria for acceptance of
customers shall be followed in by the broker. The dealers shall accept customer strictly
in accordance with the said policy:
No account shall be opened in anonymous or fictitious/benami
name(s)
Parameters of risk perception shall be clearly defined in terms of the
nature of business activity, location of customer and his clients, mode
of payments, volume of turnover, social and financial status etc., to
enable categorization of customers into low, medium and high risk
called Level I, Level II and Level III respectively; Customers requiring
veryhigh level of monitoring e.g., Politically Exposed Persons (PEPs)
may be categorized as Level IV.
The dealers shall collect documents and other information from the
customer depending on perceived risk and keeping in mind the
requirements of AML Act, 2002 and guidelines issued by RBI from
time to time.
The dealers shall close an existing account or shall not open a new
account where it is unable to apply appropriate customer due
diligence measures i.e., branch is unable to verify the identity and/or
obtain documents required as per the risk categorization due to non
cooperation of the customer or non reliability of data/information
furnished to the branch. The dealers shall, however, ensure that
these measures do not lead to the harassment of the customer.
However, in case the account is required to be closed on this ground,
the dealers shall do so only after permission of Senior Official of their
concerned Offices is obtained. Further, the customer should be given
a prior notice of at least 20 days wherein reasons for closure of his
account should also be mentioned.
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The dealers shall make necessary checks before opening a new
account so as to ensure that the identity of the customer does not
match with any person with known criminal background or with
banned entities such as individual terrorists or terrorist organizations,
etc. RBI has been circulating lists of terrorist entities notified by the
Government of India so that brokers exercise caution against any
transaction detected with such entities. The dealers shall invariably
consult such lists to ensure that prospective person/s or organizations
desirous to establish relationship with the broker are not in any way
involved in any unlawful activity and that they do not appear in such
lists.
b) The dealers shall prepare a profile for each new customer based on risk categorization.
The broker has devised a revised Composite Account Opening Form for recording and
maintaining the profile of each new customer. Revised form is separate for Individuals,
Partnership Firms, Corporate and other legal entities, etc. The nature and extent of
due diligence shall depend on the risk perceived by the dealer. The dealers should
continue to follow strictly the instructions issued by the broker regarding secrecy of
customer information. The dealers should bear in mind that the adoption of customer
acceptance policy and its implementation does not become too restrictive and should
not result in denial of brokering services to general public, especially to those, who are
financially or socially disadvantaged.
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c) The risk to the customer shall be assigned on the following basis:
⇒ Low Risk (Level I):
Individuals (other than High Net Worth) and entities whose identities and
sources of wealth can be easily identified and transactions in whose accounts
by and large conform to the known profile may be categorized as low risk.
The illustrative examples of low risk customers could be salaried employees
whose salary structures are well defined, people belonging to lower economic
strata of the society whose accounts show small balances and low turnover,
Government Departments and Government owned companies, regulators
and statutory bodies etc. In such cases, only the basic requirements of
verifying the identity and location of the customer shall be met.
⇒ Medium Risk (Level II):
Customers that are likely to pose a higher than average risk to the broker
may be categorized as medium or high risk depending on customer’s
background, nature and location of activity, country of origin, sources of
funds and his client profile etc; such as:
Persons in business/industry or trading activity where the area of his
residence or place of business has a scope or history of unlawful
trading/business activity.
Where the client profile of the person/s opening the account,
according to the perception of the branch is uncertain and/or
doubtful/dubious.
⇒ High Risk (Level III):
The dealers may apply enhanced due diligence measures based on the risk
assessment, thereby requiring intensive ‘due diligence’ for higher risk
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customers, especially those for whom the sources of funds are not clear. The
examples of customers requiring higher due diligence may include
a) Non Resident Customers,
b) High Net worth individuals
c) Trusts, charities, NGOs and organizations receiving donations,
d) Companies having close family shareholding or beneficial ownership
e) Firms with ‘sleeping partners’
f) Politically Exposed Persons (PEPs) of foreign origin
g) Non-face to face customers, and
h) Those with dubious reputation as per public information available, etc.
The persons requiring very high level of monitoring may be categorized as
Level IV.
3. Customer Identification Procedure (CIP)
Customer identification means identifying the person and verifying his/her identity by
using reliable, independent source documents, data or information. The dealers need
to obtain sufficient information necessary to establish, to their satisfaction, the
identity of each new customer, whether regular or occasional, and the purpose of
the intended nature of brokering relationship. Being satisfied means that the dealer
is able to satisfy the competent authorities that due diligence was observed based on
the risk profile of the customer in compliance of the extant guidelines in place.
Besides risk perception, the nature of information/documents required would also
depend on the type of customer (individual, corporate, etc). For customers that are
natural persons, the dealers shall obtain sufficient identification data to verify the
identity of the customer, his address/location, and also his recent photograph. For
customers that are legal persons or entities, the dealers shall (i) verify the legal
status of the legal person/entity through proper and relevant documents (ii) verify
that any person purporting to act on behalf of the legal person/entity is so
authorized and identify and verify the identity of that person (iii) understand the
ownership and control structure of the customer and determine who are the natural
persons who ultimately control the legal person. Customer Identification
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requirements in respect of a few typical cases, especially, legal persons requiring an
extra element of caution are given in Annexure I for the guidance of dealers.
If the dealer decides to accept such accounts in terms of the Customer Acceptance
Policy, the dealer shall take reasonable measures to identify the beneficial owner(s)
and verify his/her/their identity in a manner so that it is satisfied that it knows who
the beneficial owner(s) is/are. An indicative list of the nature and type of
documents/information that may be relied upon for customer identification is given
in Annexure – II.
4. Monitoring of Transactions
Continuous monitoring is an essential ingredient of effective KYC procedures and the
extent of monitoring should be according to the risk sensitivity of the account.
Dealers shall pay special attention to all complex, unusually large transactions and all
unusual patterns which have no apparent economic or visible lawful purpose.
Transactions that involve large amount of cash inconsistent with the size of the
balance maintained may indicate that the funds are being ‘washed’ through the
account. High risk accounts shall be subjected to intensive monitoring.
The Compliance Department shall ensure adherence to the KYC policies and
procedures. Concurrent/Internal Auditors shall specifically check and verify the
application of KYC procedures and comment on the lapses if any observed in this
regard. The compliance in this regard shall be put up before the Meeting of the
Board on quarterly intervals. All staff members shall be provided training on Anti
Money Laundering. The focus of training shall be different for frontline staff,
compliance staff and staff dealing with new customers.
5. Risk Management
The broker’s KYC policies and procedures covers management oversight,
systems and controls, segregation of duties, training and other related
matters. For ensuring effective implementation of the broker’s KYC polices
and procedures, the dealers shall explicitly allocate responsibilities within the
branch. The Branch Dealer shall authorize the opening of all new accounts.
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The dealers shall prepare risk profiles of all their existing and new customers
and apply Anti Money Laundering measures keeping in view the risks
involved in a transaction, account or brokering/business relationship.
Training encompassing applicable money laundering laws and recent trends
in money laundering activity as well as the broker’s policies and procedures
to combat money laundering shall be provided to all the staff members of the
broker periodically in phases.
The Accounts Department shall be empowered to prescribe threshold limits
for a particular group of accounts and the dealers shall pay particular
attention to the transactions which exceed these limits. The threshold limits
shall be reviewed annually and changes, if any, conveyed to dealers for
monitoring.
6. Customer Education
Implementation of KYC procedures requires dealers to demand certain information
from the customers that may be of personal in nature or which have hitherto never
been called for. This can sometimes lead to a lot of questioning by the customer as
to the motive and purpose of collecting such information. Therefore, the front desk
staff needs to handle such situations tactfully while dealing with customers and
educate the customer of the objectives of the KYC programme. The dealers shall
also be provided specific literature/pamphlets to educate customers in this regard.
7. New Technologies
The KYC procedures shall invariably be applied to new technologies to such other
product which may be introduced by the broker in future that might favour
anonymity, and take measures, if needed to prevent their use in money laundering
schemes.
Dealers should ensure that appropriate KYC procedures are duly applied before
issuing the clientcode to the customers. It is also desirable that if at any point of
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time broker appoints/engages agents for marketing of products are also subjected to
KYC measures.
While, the revised guidelines shall apply to all new customers/accounts, dealers shall
apply these to the existing customers on the basis of materiality and risk. However,
transactions in existing accounts shall be continuously monitored and any unusual
pattern in the operation of the account should trigger a review of the Customer Due
Diligence (CDD) measures. It has however to be ensured that all the existing
accounts of companies, firm, trusts, charitable, religious organizations and other
institutions are subjected to minimum KYC standards which would establish the
identity of the natural/legal person and those of the ‘beneficial owners’.
8. Appointment of Principal Officer
To ensure compliance, monitoring and report compliance of Anti Money Laundering
policy of the broker, Senior Executive heading the Compliance Department of the
broker at Corporate Office shall act as Principal Officer. He/She shall be responsible
to monitor and report transactions and share information on Anti Money Laundering
as required under the law. The Principal Officer shall maintain close liaison with
enforcement agencies, brokers and any other institutions that are involved in the
fight against money laundering and combating financing of terrorism. The Principal
Officer shall furnish a compliance certificate to the Board on quarterly basis certifying
that Revised Anti Money laundering Policy is being strictly followed by all the dealers
of the broker.
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Annexure- I
Customer Identification Requirements – Indicative Guidelines
Particulars Guidelines
Trust/Nominee or There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer
Fiduciary Accounts identification procedures. The dealers should determine whether the customer is acting on behalf of another person as
trustee/nominee or any other intermediary. If so, dealers shall insist on receipt of satisfactory evidence of the identity of
the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or
other arrangements in place. While opening an account for a trust, dealers should take reasonable precautions to verify
the identity of the trustees and the settlers of trust (including any person settling assets into the trust), grantors,
protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the case of a
‘foundation', steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined.
Accounts of companies Dealers need to be vigilant against business entities being used by individuals as a ‘front’ for maintaining accounts with
and firms brokers. Dealers should examine the control structure of the entity, determine the source of funds and identify the
natural persons who have a controlling interest and who comprise the management. These requirements may be
moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the
shareholders. But at least promoters, directors and its executives need to be identified adequately.
Client accounts When the dealer has knowledge or reason to believe that the client account opened by a professional intermediary is on
opened by behalf of a single client, that client must be identified. Dealers may hold 'pooled' accounts managed by professional
professional intermediaries on behalf of Entities like mutual funds, pension funds or other types of funds. Dealers should also
intermediaries maintain 'pooled' accounts managed by lawyers/chartered accountants or stockbrokers for funds held 'on deposit' or 'in
escrow' for a range of clients. Where funds held by the Intermediaries are not co-mingled at the branch and there are
'sub-accounts', each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such
accounts are co-mingled at the branch, the branch should still look through to the beneficial owners. Where the broker
rely on the 'customer due diligence' (CDD) done by an intermediary, it shall satisfy itself that the intermediary is
regulated and supervised and has adequate systems in place to comply with the KYC requirements.
Accounts of Politically Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign
Exposed Persons(PEPs) country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior
resident outside India executives of state-owned corporations, important political party officials, etc. Dealers should gather sufficient
information on any person/customer of this category intending to establish a relationship and check all the information
available on the person in the public domain. Dealers should verify the identify of the person and seek information about
the sources of funds before accepting the PEP as a customer. The dealers should seek prior approval of their concerned
Heads for opening an account in the name of PEP.
Accounts of non-face- With the introduction of telephone and electronic brokering, increasingly accounts are being opened by brokers for
to-face customers customers without the need for the customer to visit the broker branch. In the case of non-face-to-face customers, apart
from applying the usual customer identification procedures, there must be specific and adequate procedures to mitigate
the higher risk involved. Certification of all the documents presented shall be insisted upon and, if necessary, additional
documents may be called for. In such cases, dealers may also require the first payment to be effected through the
customer's account if any with another broker which, in turn, adheres to similar KYC standards. In the case of cross-
border customers, there is the additional difficulty of matching the customer with the documentation and the dealers
might have to rely on third party certification/introduction. In such cases, it must be ensured that the third party is a
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regulated and supervised entity and has adequate KYC systems in place.
Annexure-II
Customer Identification Procedure
Features to be verified and documents that may be obtained from
Customers
Features Documents
Accounts of individuals • Legal name and any other names
used
• Correct permanent address
(i) Passport
(ii) PAN card
(iii) Voter’s Identity Card
(iv) Driving licence
(v) Identity card (subject to the satisfaction
of the branch)
(vi) Letter from a recognized public
authority or public servant verifying the
identity and residence of the customer to
the satisfaction of branch
(vii) Telephone bill
(viii) Broker account statement
(ix) Letter from any recognized public
authority
(x) Telephone bill
(xi) Electricity Bill
(xii) Ration Card
(xiv) Letter from the employer, (subject to
the satisfaction of the branch )
(xv) Any other document which provides
customer information to the satisfaction of
the broker will suffice.
Accounts of companies • Name of the company
• Principal place of business
• Mailing address of the company
• Telephone/Fax Number
(i) Certificate of incorporation and
Memorandum & Articles of Association
(ii)Resolution of the Board of Directors to
open an account and identification of
those who have authority to operate the
account
(iii) Power of Attorney granted to its
managers, officers or employees to
transact business on its behalf
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(iv) Copy of PAN allotment letter
(v) Copy of the telephone bill
Accounts of partnership firms • Legal name
• Address
• Names of all partners and their
addresses
• Telephone numbers of the firm and
partners
(i) Registration certificate, if registered
(ii) Partnership deed
(iii)Power of Attorney granted to a partner
or an employee of the firm to transact
business on its behalf
(iv) Any officially valid document identifying
the partners and the persons holding the
Power of Attorney and their addresses
(v) Telephone bill in the name of
firm/partners
Accounts of trusts & foundations • Names of trustees, settlers,
beneficiaries and signatories
• Names and addresses of the
founder, the managers/directors
and the beneficiaries
• Telephone/fax numbers
(i) Certificate of registration, if registered
(ii) Power of Attorney granted to transact
business on its behalf
(iii) Any officially valid document to identify
the trustees, settlors, beneficiaries and
those holding Power of Attorney,
founders/managers/ directors and their
addresses
(iv) Resolution of the managing body of the
foundation/association
(v) Telephone bill
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POLICIES AND PROCEDURE FOR PREVENTION OF MONEY LAUNDERING
(As per the requirements of the PMLA Act 2002)
1. Firm Policy
It is the policy of the firm to prohibit and actively prevent money laundering and
any activity that facilitates money laundering or the funding of terrorist or
criminal activities. Money laundering is generally defined as engaging in acts
designed to conceal or disguise the true origins of criminally derived proceeds so
that the unlawful proceeds appear to have derived from legitimate origins or
constitute legitimate assets.
2. Principal Officer Designation and Duties
The firm has a Principal Officer for its Anti-Money Laundering Program, who
takes full responsibility for the firm’s AML program and is qualified by
experience, knowledge and training . The duties of the Principal Officer will
include monitoring the firm’s compliance with AML obligations and overseeing
communication and training for employees. The Principal Officer will also
ensure that proper AML records are kept. When warranted, the Principal Officer
will ensure filing of necessary reports with the Financial Intelligence Unit (FIU –
IND)
3. Customer Identification and Verification
At the time of opening an account or executing any transaction with it, the firm
will verify and maintain the record of identity and current address or addresses
including permanent address or addresses of the client, the nature of business of
the client and his financial status as under
Constitution Proof of Identity Proof of Others
of Client Address
Individual 1. PAN Card 2. Copy of 3. N.A.
Bank
Statement, etc
Company 4. PAN Card 8. As above 9. Proof of
5. Certificate of Identity of the
incorporation Directors/ Others
6. Memorandum and authorized to trade
Articles of on behalf of the
Association firm
7. Resolution of Board of
Directors
Partnership 10. PAN Card 13. As above 14. Proof of
Firm 11. Registration Identity of the
Certificate Partners/Others
12. Partnership deed authorized to trade
on behalf of the
firm
Trust 15. PAN Card 18. As above 19. Proof of
16. Registration certificate Identity of the
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17. Trust deed Trustees/others
authorized to trade
on behalf of the
trust
AOP/BOI 20. PAN Card 23. As above
24. Proof of
21. Resolution of the Identity of the
managing body Persons authorized
22. Documents to to trade on behalf
collectively establish the of the AOP/BOI
legal existence of such an
AOP/BOI
25. If a potential or existing customer either refuses to provide the information
described
above when requested, or appears to have intentionally provided misleading
information, our firm will not open the new account.
26. All PAN Cards received will verified form the Income Tax/ NSDL website
before the account is opened.
27. The firm will maintain records of all identification information for ten years
after the account has been closed.
4. Maintenance of records
The Principal Officer will be responsible for the maintenance for following
records:
• all cash transactions of the value of more than rupees ten lakhs or its
equivalent in foreign currency;
• all series of cash transactions integrally connected to each other which
have been valued below rupees ten lakhs or its equivalent in foreign
currency where such series of transactions have taken place within a
month;
• all cash transaction where forged or counterfeit currency notes or bank
notes have been used as genuine and where any forgery of a valuable
security has taken place;
• all suspicious transactions whether or not made in cash. Suspicious
transaction means a transaction whether or not made in cash 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 bonafide purpose; or
- gives rise to a reasonable ground of suspicion that it may involve
financing of the activities relating to terrorism
The records shall contain the following information:
• the nature of the transactions;
• the amount of the transaction and the currency in which it was
denominated;
• the date on which the transaction was conducted; and
• the parties to the transaction.
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The records will be updated on daily basis, and in any case not later than 5
working days
5. Monitoring Accounts For Suspicious Activity
The firm will monitor through the automated means of Back Office Software for
unusual size, volume, pattern or type of transaction. For non automated
monitoring, the following kinds of activities are to be mentioned as Red Flags and
reported to the Principal Officer.
• The customer exhibits unusual concern about the firm’s compliance with
government reporting 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 information concerning business
activities, or furnishes unusual or suspicious identification or business
documents.
• The customer wishes to engage in transactions that lack business sense or
apparent investment strategy, or are inconsistent with the customer’s
stated business or investment strategy.
• The information provided by the customer that identifies a legitimate
source for funds is false, misleading, or substantially incorrect.
• Upon request, the customer refuses to identify or fails to indicate any
legitimate source for his or her funds and other assets.
• The customer (or a person publicly associated with the customer) has a
questionable background or is the subject of news reports indicating
possible criminal, civil or regulatory violations.
• The customer exhibits a lack of concern regarding risks, commissions, or
other transaction costs.
• 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 otherwise evasive regarding that
person or entity.
• The customer has difficulty describing the nature of his or her business or
lacks general knowledge of his or her industry.
• The customer attempts to make frequent or large deposits of currency,
insists on dealing only in cash, or asks for exemptions from the firm’s
policies relating to the deposit of cash.
• The customer engages in transactions involving cash or cash equivalents
or other monetary instruments that appear to be structured to avoid the Rs.
10,00,000 government reporting requirements, especially if the cash or
monetary instruments are in an amount just below reporting or recording
thresholds.
• For no apparent reason, the customer insists for multiple accounts under a
single name or multiple names, with a large number of inter-account or
third-party transfers.
• The customer engages in excessive journal entries between unrelated
accounts without any apparent business purpose.
• The customer requests that a transaction be processed to avoid the firm’s
normal documentation requirements.
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• The customer, for no apparent reason or in conjunction with other red
flags, engages in transactions involving certain types of securities, such as
Z group and T group stocks, which although legitimate, have been used in
connection with fraudulent schemes and money laundering activity. (Such
transactions may warrant further due diligence to ensure the legitimacy or
the customer’s activity.)
• The customer’s account shows an unexplained high level of account
activity.
• The customer maintains multiple accounts, or maintains accounts in the
names of family members or corporate entities, for no apparent purpose.
• The customer’s account has inflows of funds or other assets well beyond
the known income or resources of the customer.
When a member of the firm detects any red flag he or she will escalate the same
to the Principal Officer for further investigation.
Broad categories of reason for suspicion and examples of suspicious transactions
for an intermediary are indicated as under:
i. 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
ii. Suspicious Background
- Suspicious background or links with known criminals
iii. Multiple Accounts
- Large number of accounts having a common account holder,
introducer or authorized signatory with no rationale.
- Unexplained transfers between multiple accounts with no rationale
iv. 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
v. 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
vi. Value of Transactions
- Value just under the reporting threshold amount in an apparent attempt
to avoid reporting
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- 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
artificially inflated/deflated
6. Reporting to FIU IND
For Cash Transaction Reporting
• All dealing in Cash that requiring reporting to the FIU IND will be done in
the CTR format and in the matter and at intervals as prescribed by the FIU
IND
For Suspicious Transactions Reporting
We will make a note of Suspicion Transaction that have not been explained to the
satisfaction of the Principal Officer and thereafter report the same to the FIU IND
and the required deadlines. This will typically be in cases where we know,
suspect, or have reason to suspect:
• the transaction involves funds derived from illegal activity or is intended
or conducted in order to hide or disguise funds or assets derived from
illegal activity as part of a plan to violate or evade any the transaction
reporting requirement,
• the transaction is designed, whether through structuring or otherwise, to
evade the any requirements of PMLA Act and Rules framed thereof
• the transaction has no business or apparent lawful purpose or is not the
sort in which the customer would normally be expected to engage, and we
know, after examining the background, possible purpose of the transaction
and other facts, of no reasonable explanation for the transaction, or
• the transaction involves the use of the firm to facilitate criminal activity.
We will not base our decision on whether to file a STR solely on whether the
transaction falls above a set threshold. We will file a STR and notify law
enforcement of all transactions that raise an identifiable suspicion of criminal,
terrorist, or corrupt activities.
All STRs will be reported quarterly to the Board of Directors, with a clear
reminder of the need to maintain the confidentiality of the STRs
We will not notify any person involved in the transaction that the transaction has
been reported, except as permitted by the PMLA Act and Rules thereof.
7. AML Record Keeping
i. STR Maintenance and Confidentiality
We will hold STRs and any supporting documentation confidential. We
will not inform anyone outside of a law enforcement or regulatory agency or
securities regulator about a STR. We will refuse any requests for STR
information and immediately tell FIU IND of any such request we receive.
We will segregate STR filings and copies of supporting documentation from
other firm books and records to avoid disclosing STR filings. Our Principal
Officer will handle all requests or other requests for STRs.
ii. Responsibility for AML Records and SAR Filing
Principal Officer will be responsible to ensure that AML records are
maintained properly and that STRs are filed as required.
iii. Records Required
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As part of our AML program, our firm will create and maintain STRs and
CTRs and relevant documentation on customer identity and verification.
We will maintain STRs and their accompanying documentation for at least
ten years.
8. Training Programs
We will develop ongoing employee training under the leadership of the Principal
Officer. Our training will occur on at least an annual basis. It will be based on our
firm’s size, its customer base, and its resources.
Our training will include, at a minimum: how to identify red flags and signs of
money laundering that arise during the course of the employee’s duties; what to
do once the risk is identified; what employees’ roles are in the firm’s compliance
efforts and how to perform them; the firm’s record retention policy; and the
disciplinary consequences (including civil and criminal penalties) for non-
compliance with the PMLA Act.
We will develop training in our firm, or contract for it. Delivery of the training
may include educational pamphlets, videos, intranet systems, in-person lectures,
and explanatory memos.
We will review our operations to see if certain employees, such as those in
compliance, margin, and corporate security, require specialized additional
training. Our written procedures will be updated to reflect any such changes.
9. Programe to Test AML Program
i. Staffing: The testing of our AML program will be performed by the
Statutory Auditors of the company
ii. Evaluation and Reporting: After we have completed the testing, the
Auditor staff will report its findings to the Board of Directors. We will
address each of the resulting recommendations.
10. Monitoring Employee Conduct and Accounts
We will subject employee accounts to the same AML procedures as customer
accounts, under the supervision of the Principal Officer. We will also review the
AML performance of supervisors, as part of their annual performance review.
The Principal Officer’s accounts will be reviewed by the Board of Directors
11. Confidential Reporting of AML Non-Compliance
Employees will report any violations of the firm’s AML compliance program to
the Principal Officer, unless the violations implicate the Principal/Compliance
Officer, in which case the employee shall report to the Chairman of the Board.
Such report will be confidential, and the employee will suffer no retaliation for
making them.
12. Board of Directors Approval
We have approved this AML program as reasonably designed to achieve and
monitor our firm’s ongoing compliance with the requirements of the PMLA and
the implementing regulations under it.
KMS STOCK BROKING COMPANY PVT LTD
ANAND KANAKIA
PRINCIPAL OFFIVER
Director/Authorised Signatory
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ADDITIONAL LITERATURE FOR AML REQUIRMENTS
As per the requirements of SEBI, implementation of Anti Money Laundering (AML)/
Combating Financing of Terrorism requires trading members as intermediaries to demand
certain information from investors which may be of personal nature or has hitherto never
been called for. Such information can include documents evidencing source of
funds/income tax returns/bank records etc. This can sometimes lead to raising of
questions with regard to the motive and purpose of collecting such information. To,
sensitize about these requirements as the ones emanating from AML and CFT
framework, General FAQs as published by The Financial Action Task Force (FATF), an
inter-governmental body whose purpose is the development and promotion of policies,
both at national and international levels, to combat money laundering and terrorist
financing is reproduced herewith. Kindly feel free to visit the websites of
http://www.fatf-gafi.org/ and http://fiuindia.gov.in for more information on the subject
FAQ
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 jeopardising their source.
Illegal arms sales, smuggling, and the activities of organised 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 “legitimise” 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.
In response to mounting concern over money laundering, the Financial Action Task
Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989
to develop a co-ordinated international response. One of the first tasks of the FATF was
to develop Recommendations, 40 in all, which set out the measures national governments
should take to implement effective anti-money laundering programmes.
How much money is laundered per year?
By its very nature, money laundering is an illegal activity carried out by criminals which
occurs outside of the normal range of economic and financial statistics. Along with some
other aspects of underground economic activity, rough estimates have been put forward
to give some sense of the scale of the problem.
The International Monetary Fund, for example, has stated in 1996 that the aggregate size
of money laundering in the world could be somewhere between two and five percent of
the world’s gross domestic product.
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Using 1996 statistics, these percentages would indicate that money laundering ranged
between US Dollar (USD) 590 billion and USD 1.5 trillion. The lower figure is roughly
equivalent to the value of the total output of an economy the size of Spain.
However it must be said that overall it is absolutely impossible to produce a reliable
estimate of the amount of money laundered and therefore the FATF does not publish any
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figures
How is money laundered?
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.
Where does money laundering occur?
As money laundering is a consequence of almost all profit generating crime, it can occur
practically anywhere in the world. Generally, money launderers tend to seek out countries
or sectors in which there is a low risk of detection due to weak or ineffective anti-money
laundering programmes. Because the objective of money laundering is to get the illegal
funds back to the individual who generated them, launderers usually prefer to move funds
through stable financial systems.
Money laundering activity may also be concentrated geographically according to the
stage the laundered funds have reached. At the placement stage, for example, the funds
are usually processed relatively close to the under-lying activity; often, but not in every
case, in the country where the funds originate.
With the layering phase, the launderer might choose an offshore financial centre, a large
regional business centre, or a world banking centre – any location that provides an
adequate financial or business infrastructure. At this stage, the laundered funds may also
only transit bank accounts at various locations where this can be done without leaving
traces of their source or ultimate destination.
Finally, at the integration phase, launderers might choose to invest laundered funds in
still other locations if they were generated in unstable economies or locations offering
limited investment opportunities.
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How does money laundering affect business?
The integrity of the banking and financial services marketplace depends heavily on the
perception that it functions within a framework of high legal, professional and ethical
standards. A reputation for integrity is the one of the most valuable assets of a financial
institution.
If funds from criminal activity can be easily processed through a particular institution –
either because its employees or directors have been bribed or because the institution turns
a blind eye to the criminal nature of such funds – the institution could be drawn into
active complicity with criminals and become part of the criminal network itself. Evidence
of such complicity will have a damaging effect on the attitudes of other financial
intermediaries and of regulatory authorities, as well as ordinary customers.
As for the potential negative macroeconomic consequences of unchecked money
laundering, one can cite inexplicable changes in money demand, prudential risks to bank
soundness, contamination effects on legal financial transactions, and increased volatility
of international capital flows and exchange rates due to unanticipated cross-border asset
transfers. Also, as it rewards corruption and crime, successful money laudering damages
the integrity of the entire society and undermines democracy and the rule of the law.
What influence does money laundering have on economic development?
Launderers are continuously looking for new routes for laundering their funds.
Economies with growing or developing financial centres, but inadequate controls are
particularly vulnerable as established financial centre countries implement
comprehensive anti-money laundering regimes.
Differences between national anti-money laundering systems will be exploited by
launderers, who tend to move their networks to countries and financial systems with
weak or ineffective countermeasures.
Some might argue that developing economies cannot afford to be too selective about the
sources of capital they attract. But postponing action is dangerous. The more it is
deferred, the more entrenched organised crime can become.
As with the damaged integrity of an individual financial institution, there is a damping
effect on foreign direct investment when a country’s commercial and financial sectors are
perceived to be subject to the control and influence of organised crime. Fighting money
laundering and terrorist financing is therefore a part of creating a business friendly
environment which is a precondition for lasting economic development.
What is the connection with society at large?
The possible social and political costs of money laundering, if left unchecked or dealt
with ineffectively, are serious. Organised crime can infiltrate financial institutions,
acquire control of large sectors of the economy through investment, or offer bribes to
public officials and indeed governments.
The economic and political influence of criminal organisations can weaken the social
fabric, collective ethical standards, and ultimately the democratic institutions of society.
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In countries transitioning to democratic systems, this criminal influence can undermine
the transition. Most fundamentally, money laundering is inextricably linked to the
underlying criminal activity that generated it. Laundering enables criminal activity to
continue.
How does fighting money laundering help fight crime?
Money laundering is a threat to the good functioning of a financial system; however, it
can also be the Achilles heel of criminal activity.
In law enforcement investigations into organised criminal activity, it is often the
connections made through financial transaction records that allow hidden assets to be
located and that establish the identity of the criminals and the criminal organisation
responsible.
When criminal funds are derived from robbery, extortion, embezzlement or fraud, a
money laundering investigation is frequently the only way to locate the stolen funds and
restore them to the victims.
Most importantly, however, targeting the money laundering aspect of criminal activity
and depriving the criminal of his ill-gotten gains means hitting him where he is
vulnerable. Without a usable profit, the criminal activity will not continue.
What should individual governments be doing about it?
A great deal can be done to fight money laundering, and, indeed, many governments have
already established comprehensive anti-money laundering regimes. These regimes aim to
increase awareness of the phenomenon – both within the government and the private
business sector – and then to provide the necessary legal or regulatory tools to the
authorities charged with combating the problem.
Some of these tools include making the act of money laundering a crime; giving
investigative agencies the authority to trace, seize and ultimately confiscate criminally
derived assets; and building the necessary framework for permitting the agencies
involved to exchange information among themselves and with counterparts in other
countries.
It is critically important that governments include all relevant voices in developing a
national anti-money laundering programme. They should, for example, bring law
enforcement and financial regulatory authorities together with the private sector to enable
financial institutions to play a role in dealing with the problem. This means, among other
things, involving the relevant authorities in establishing financial transaction reporting
systems, customer identification, record keeping standards and a means for verifying
compliance.
Should governments with measures in place still be concerned?
Money launderers have shown themselves through time to be extremely imaginative in
creating new schemes to circumvent a particular government’s countermeasures. A
national system must be flexible enough to be able to detect and respond to new money
laundering schemes.
Anti-money laundering measures often force launderers to move to parts of the economy
with weak or ineffective measures to deal with the problem. Again, a national system
must be flexible enough to be able to extend countermeasures to new areas of its own
economy. Finally, national governments need to work with other jurisdictions to ensure
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that launderers are not able to continue to operate merely by moving to another location
in which money laundering is tolerated.
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What about multilateral initiatives?
Large-scale money laundering schemes invariably contain cross-border elements. Since
money laundering is an international problem, international co-operation is a critical
necessity in the fight against it. A number of initiatives have been established for dealing
with the problem at the international level.
International organisations, such as the United Nations or the Bank for International
Settlements, took some initial steps at the end of the 1980s to address the problem.
Following the creation of the FATF in 1989, regional groupings – the European Union,
Council of Europe, Organisation of American States, to name just a few – established
anti-money laundering standards for their member countries. The Caribbean, Asia,
Europe and southern Africa have created regional anti-money laundering task force-like
organisations, and similar groupings are planned for western Africa and Latin America in
the coming years.
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Client Sign Place MUMBAI Date
22/22