Financial Intelligence Unit (India)

Introduction

Money Laundering has always been a matter of discussion for government of all the countries. Money laundering is the process of concealing the source of money obtained by illicit means. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In India The Prevention of Money-Laundering Act, 2002 comes into effect on 1 July 2005. Section 12 (1) prescribes the obligations on banks, financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and t records of the identity of all its clients. Section 12 (2) prescribes that the records referred to in sub-section (1) as mentioned above, must be maintained for ten years after the transactions finished. It is handled by the Indian Income Tax Department.

The provisions of the Act are frequently reviewed and various amendments have been passed from time to time.

The recent activity in money laundering in India is through political parties, corporate companies and the shares market. It is investigated by the Indian Income Tax Department.

Bank accountants must record all the transactions whose amount will be more than Rs. 10 Lacs. Bank accountants must maintain these records for 10 years. Banks will also make cash transaction reports (CTRs) and suspicious transaction reports whose amounts are more than RS. 10 Lacs within 7 days of doubt. This report will be submitted to enforcement directorate and income tax department.

Reserve Bank of India has been one of the major regulators of money laundering. Reserve Bank of India takes appropriate actions from time to time in order to check the money laundering activity.

Role & Importance

Financial Intelligence Unit – India (FIU-IND) is a government body. It acts as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

The main function of FIU-IND is to receive cash/suspicious transaction reports, analyse them and, as appropriate, disseminate valuable financial information to intelligence/enforcement agencies and regulatory authorities .The functions of FIU-IND are:

1) Collection of Information: Act as the central reception point for receiving Cash Transaction reports (CTRs) and   Suspicious Transaction Reports (STRs) from various reporting entities.

2) Analysis of Information: Analyze received information in order to uncover patterns of transactions suggesting suspicion of money laundering and related crimes.

3) Sharing of Information: Share information with national intelligence/law enforcement agencies, national regulatory authorities and foreign Financial Intelligence Units.

4) Act as Central Repository: Establish and maintain national data base on cash transactions and suspicious transactions on the basis of reports received from reporting entities.

5) Coordination: Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.

6) Research and Analysis: Monitor and identify strategic key areas on money laundering trends, typologies and developments.

Overview of scheduled offences

The Prevention of Money-laundering Act, 2002, and the rules thereunder require every banking company, financial institution and intermediary, to furnish to FIU-IND information relating to:

a) All cash transactions of the value  of more than rupees ten Lacs or its equivalent in foreign currency;

b) All series of cash transactions integrally connected to each other which have been valued below rupees ten Lacs or its equivalent in foreign currency where such series of transactions have taken place within a month;

c) All transactions involving receipts by non-profit organizations of  value more than rupees ten Lacs, or its equivalent in foreign currency;*

d) All cash transactions where 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;*

Financial Institution means a Financial Institution as defined in clause (c) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) and includes a chit fund company, a co-operative bank, a housing finance institution and a non banking financial company. Financial Institution includes:

a. Financial Institutions as defined in Section 45-I of the RBI Act. RBI regulates and supervises 8 All- India Financial Institutions namely EXIM Bank, NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. And TFCI Ltd.

b. Insurance companies,

c. Hire Purchase companies,

d. Chit fund companies as defined in the Chit Funds Act.

e. Co-operative banks.

f. Housing finance institutions as defined in the National Housing Bank Act such as HDFC.

g. Non-banking financial companies as defined in section 45-I of the RBI Act such as private finance companies - motor and general, hire purchase companies, leasing companies, investment companies etc.

h. Authorised person as defined in clause (c) of section 2 of the Foreign Exchange Management Act, 1999

Intermediary includes following persons registered under Section 12 of SEBI Act:-

1) Stock-Brokers

2) Sub-Brokers

3) Share-Transfer Agents

4) Bankers to an issue

5) Trustees to trust deed

6) Registrars to issue

7) Merchant bankers

8) Underwriters

9) Portfolio Managers

10) Investment advisors

11) Depositories and Depository Participants

12) Custodian of Securities

13) Foreign Institutional Investors

14) Credit Rating Agencies

15) Venture Capital Funds

16) Collective Investment Schemes including Mutual Funds.

As per 2(1) (y) of the Prevention of Money Laundering Act, 2002, Scheduled offence means:

(i) The offences specified under Part A of the Schedule, or

(ii) The offences specified under Part B of the Schedule if the total value involved in such offences is thirty Lacs  rupees or more, or

(iii) The offences specified under Part C of the schedule.

Who has the responsibility to furnish information to Director, FIU-IND?

Every banking company, financial institution and intermediary is required by Rule 7 of the Rules notified by Notification No.9/2005 dated 1/7/2005 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 banking company, financial institution and intermediary, as the case may be. A copy of such information shall also be retained by the Principal Officer for the purpose of official record. One thing to be noted here that NBFC (Non-Banking Financial Companies) are also coming under the scanner of FIU-IND as NBFC’s shall be considered as equivalent to Banking Companies.

What type of information is required to be furnished under PMLA?

Every banking company, financial institution and intermediary is required to furnish information about -

i)  All cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign.

ii) 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;

iii) All cash transactions where 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

iv) All suspicious transactions whether or not made in cash

Who has the responsibility to furnish information to Director, FIU-IND?

Every banking company, financial institution and intermediary is required by Rule 7 of the Rules notified by Notification No.9/2005 dated 1/7/2005 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 banking company, financial institution and intermediary, as the case may be.

Due dates for filing various reports

FINnet Gateway

Among some of the recent important moves, FINnet Gateway is a new step. With the concept of global village, Financial Intelligence Unit has also started to receive reports and documents in electronic mode. However presently this is not mandatory. One can submit the documents either in electronic or manual mode. But it is expected that in future the filing will be compulsorily made in electronic mode. However this registration on FINnet gateway i.e. the portal for filing of various reports, has to be done in the name of Principal Officer, which again gives due emphasize on role and responsibility of Principal Officer.    

Summary: Establishment of Financial Intelligence Unit –India can be called a very serious and positive step to curb money laundering. However it was established in the year 2004, but the recent move on the appointment of “Principal Officer” is appreciable. Appointment of Principal Officer of Company has to be intimated to FIU-IND and such intimation has to be forwarded to Reserve Bank of India as a yearly compliance. It is expected that this step of Government will surely help to curb the money laundering globally.