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PMLA Policy

Prevention of Money Laundering Act & Anti Money Laundering Policy

POLICY FOR PREVENTION OF MONEY LAUNDERING ACT (PMLA) & ANTI MONEY LAUNDERING (AML)
OF
"RR GROUP OF COMPANIES"
(here-in-after mentioned as "RR GROUP")
(IN VIEW OF SEBI'S CONCERNED MASTER CIRCULAR 2019)
Part - I : Overview
  1. Introduction
    1. Money Laundering (ML)
    2. Financial Intelligence Unit (FIU)-INDIA
  2. Background
  3. Policy and Procedures to Combat Money Laundering (CML) and Terrorist financing(TF).
Part - II : Detailed Obligations
  1. Objectives
  2. Client Due Diligence (CDD) & Enhanced Due Diligence (EDD)
    1. Elements of Client Due Diligence
    2. Policy for acceptance of clients
    3. Risk Based Approach
    4. Clients of special category (CSC)
    5. Risk Assessment
    6. Client Identification Procedure (CIP)
    7. Reliance on third party for carrying out Client Due Diligence (CDD)
  3. Record Keeping
  4. Information to be maintained
  5. Retention of Records
  6. Monitoring of transactions
  7. Suspicious Transaction Monitoring & Reporting (STRs)
  8. List of Designated Individuals/Entities
  9. Designation of an officer for reporting of suspicious transaction
1. INTRODUCTION
(a) Money Laundering

Money laundering is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal/illegal activities. The term "Money Laundering" is also used in relation to the financing of terrorist activity (where the funds may, or may not, originate from crime). It is a process of making dirty money clean. Money is moved around the financial system again and again in such manner that its origin gets hidden. Money generated from illegitimate source is converted into that derived from legitimate source. The PMLA states that "Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering." Failure to understand and deal with money laundering can lead to significant:

(i) Regulatory risk

(ii) Reputation risk

(iii) Litigation risk

(iv) Operational risk

(b) Financial Intelligence Unit (FIU) – INDIA

Financial Intelligence Unit – India (FIU-IND) was set by the Government of India on dated 18th November 2004 as an independent body to report directly to the Economic Intelligence Council (EIC) headed by the Finance Minister. FIU-INDIA is responsible for receiving, processing, analysing and disseminating information relating to suspicious financial transactions information about money laundering, other related offences and financing of terrorism. It also coordinates & strengthen efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering and related crimes.

2. BACKGROUND

The PMLA came into effect from 1st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on 1st July, 2005 by the Department of Revenue, Ministry of Finance and Government of India. The PMLA has been further amended vide notification dated March 6, 2009 and inter alia provides that violating the prohibitions on manipulative and deceptive devices, insider trading and substantial acquisition of securities or control as prescribed in Section 12 A read with Section 24 of the Securities and Exchange Board of India Act, 1992 (SEBI Act) will now be treated as a scheduled offence under schedule B of the PMLA.

As per the provisions of the PMLA, every banking company, financial institution (which includes chit fund company, a co-operative bank, a housing finance 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 trust 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 SEBI Act , shall have to maintain a record of all 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 lakh or its equivalent in foreign currency.

All series of cash transactions integrally connected to each other which have been valued below Rs 10 lakh 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 non-monetary account such as demat account, security account maintained by the registered intermediary.

Stock Exchanges, Commodity Exchanges and their brokers/members i.e. intermediaries are under the ambit of the Prevention of Money Laundering Act, 2002 (PMLA).RR GROUP OF COMPANIES "RR GROUP", with memberships at the National stock Exchange, Bombay Stock Exchange and Multi commodity exchange in India, is bound by the guidance and directives relating to the implementation of the provisions of the PML Act – to prevent money laundering in the securities market and commodity derivatives markets in India and to combat financing terrorism within the country and outside so that objects of the PML Act are achieved.

3. POLICY AND PROCEDURES TO COMBAT MONEY LAUNDERING AND TERRORIST FINANCING
4. OBJECTIVES

The objectives of the AML are as follows:

  • To prevent company from being used, intentionally or unintentionally, by criminal elements for money laundering activities.
  • Create awareness and provide clarity on KYC standards and AML measures.
  • To have a proper Customer Due Diligence (CDD) process before registering clients.
  • To monitor and report suspicious transactions.
  • To discourage and identify money laundering or terrorist financing activities.
  • To monitor / maintain records of all cash transactions of the value of more than Rs.10 lacs.
5. CLIENT DUE DILIGENCE
(a) Elements of Client Due Diligence

At the time of opening an account or executing any transaction, we will obtain, verify the identity of the person and maintain the record of client's current address or addresses including permanent address, the nature of business of the client and his financial status. Wherever it is apparent that the securities/commodities acquired or maintained through an account are beneficially owned by a party other than the client, that party will be identified using client identification and verification procedures. The beneficial owner is the natural person or persons on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.

(b) Policy for acceptance of clients

The following Customer Acceptance Policy indicates the criteria for acceptance of customers and shall be followed by "RR GROUP".

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 Politically Exposed Persons (PEPs) etc., to enable categorization of customers into low, medium and high risk.

"RR GROUP" 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 SEBI/ Exchanges /RBI or any other statutory govt. body from time to time.

(c) Risk Based Approach

The risk to the customer shall be assigned on the following basis:

(i) Low Risk:

Individuals and entities whose identities and sources of wealth can be easily identified and transactions in whose accounts by and large confirm 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.

(ii) 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:

(d) Clients of special category (CSC): High Risk (Level III)

"RR GROUP" may apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive "due diligence' for higher risk customers, especially those for whom the sources of funds are not clear. The examples of customers requiring higher due diligence may include:

  • Non Resident Customers
  • High Net Worth Individuals
  • Trusts, charities, NGOs and organizations receiving donations
  • Companies having close family shareholding or beneficial ownership
  • Firms with 'sleeping partners'
  • Politically Exposed Persons (PEPs)
  • Those with dubious reputation as per public information available, etc.
  • Companies offering foreign exchange offerings - Clients in high risk countries
  • Clients with dubious reputation as per public information available etc.
(e) Risk Assessment

The Risk Assessment is required in order to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to its clients, countries or geographical areas, nature and volume of transactions, payment methods used by clients, etc. The risk assessment will also consider any country specific information that is circulated by the Government of India , SEBI and Exchanges from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions.

Risk Assessment is dependent on kind of customers the Company deals with.

(f) Client Identification Procedure

Customer identification means identifying the person and verifying his/her identity by using reliable, independent source documents, data or information. "RR GROUP" needs to obtain sufficient information necessary to establish to it's 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 "RR GROUP" 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, "RR GROUP" 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, (RR GROUP) shall

Verify the legal status of the legal person/entity through proper and relevant documents.

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.

Understand the ownership and control structure of the customer and determine, who are the natural persons who ultimately control the legal person.

Customer Identification 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 the members of "RR GROUP".

If "RR GROUP" decides to accept such accounts in terms of the Customer Acceptance Policy, "RR GROUP" 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.

(g) Reliance on third party for carrying out Client Due Diligence (CDD)

Company may rely on a third party subject to the conditions that are specified in Rule 9(2) of the PML Rules and shall be in accordance with the regulations and circulars/ guidelines issued by SEBI from time to time for the purpose of Identification and verification of the identity of a client and Determination of whether the client is acting on behalf of a beneficial owner, identification of the beneficial owner and verification of the identity of the beneficial owner.

Such third party shall be regulated, supervised or monitored for, and have measures in place for compliance with CDD and record- keeping requirements in line with the obligations under the PML Act.

6. RECORD KEEPING
7. INFORMATION TO BE MAINTAINED
  • 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 suspicious transactions. 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.

The records will be updated on daily basis, and in any case not later than 5 working days

8. RETENTION OF RECORDS

There is a proper mechanism for maintenance and preservation of such records and information in a manner that allows easy and quick retrieval of data as and when requested by the competent authorities.

All record of information related to transactions, whether attempted or executed, that are reported to FIU will be maintained for a period of five years.

Country Specific Disclosures India – For private circulation only, not for sale.

9. MONITORING OF TRANSACTIONS

"RR GROUP" 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.

Whenever any of our employee 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:

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.
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.
Suspicious Background
  • Suspicious background or links with known criminals.
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.
Nature of Transactions
  • Unusual or unjustified complexity.
  • No economic rationale or bona fide 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.
10. SUSPICIOUS TRANSACTION MONITORING & REPORTING (STM & STRs)

"RR GROUP" will not base it's decision on whether to file a STR solely on whether the transaction falls above a set threshold. "RR GROUP" 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.

11. LIST OF DESIGNATED INDIVIDUALS / ENTITIES
12. DESIGNATION OF AN OFFICER FOR REPORTING OF SUSPICIOUS TRANSACTION
Appointment of Principal Officer

To ensure compliance, monitoring and report compliance of Anti Money Laundering policy, 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/regular basis certifying that Revised Anti Money laundering Policy is being strictly followed by "RR GROUP", consisting reference of alerts so generated, if any, STRs, if any so made during that period.

Appointment of a Designated Director

As per the PML rules, in addition to the requirement of a Principal Officer, the company has appointed Designated Director to ensure overall compliance.

Detail of Principal Officer and Designated Director :

In the Case of any further Information/clarification is required in this regards, the "Principal Officer" may be contacted.

Principal Officer

Mr. Pawan Gupta

Tel. No. : 01123354802

Mob No. : 9312940491

E-mail : compliance@rrfcl.com

Designated Director

Mr. Jeetesh Kumar

Mob No. : 9312940485

Tel. No. : 01123354802

E-mail : compliance@rrfcl.com

"RR GROUP" shall report information relating to suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND) at the following address; or to the address which may prescribe hereafter:

13. DESIGNATION OF AN OFFICER FOR REPORTING OF SUSPICIOUS TRANSACTION
Employees' Hiring

"RR GROUP" adopts a professional and ethical hiring policy based on meritocracy. Hiring process involves the following procedure

Reference through known sources

  • CV of the candidate is obtained with relevant information Screening of the candidate profile
  • Call-for multi-stage interview is done
  • Qualitative factor check (Basic qualitative factors such as Qualification, work experience, personal and work details are checked)
  • First round of interview with dept head
  • Second round with senior management HR verification
  • Appointment letter issuance Confirmation of date of joining
  • Doc verification (Submission of proof of evidence such as id & address proof, Bank details, Pan card and educational background credentials are obtained)
  • Employee code generation and thumb impression for electronic access and attendance
Employees' Training

"RR GROUP" 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 noncompliance with the PMLA Act. We will develop training in our company, 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, depository, require specialized additional training. Our written procedures will be updated to reflect any such changes.

Investor Education

Implementation of KYC procedures requires "RR GROUP" 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 program.

REVIEW OF THIS AML POLICY
ANNEXURE-I
Customer Identification Requirements – Indicative Guidelines
Trust/Nominee or Fiduciary Accounts

There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. "RR GROUP" should determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, "RR GROUP" 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, "RR GROUP" 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 and firms

"RR GROUP" need to be vigilant against business entities being used by individuals as a'front' for maintaining accounts with brokers. "RR GROUP" 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.

Accounts of Politically Exposed Persons (PEPs)

Politically exposed persons are individuals who are or have been entrusted with prominent public functions e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. . "RR GROUP" 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. "RR GROUP" should verify the identity of the person and seek information about the sources of funds before accepting the PEP as a customer. "RR GROUP" should seek prior approval of their concerned Heads for opening an account in the name of PEP. In this regard a declaration from every proposed client may be taken at the time of opening of his/her/it account, whether he/she/it is related with any political party /organization etc. or not, to establish a PEP customer or not a PEP customer.

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

  • UID (Aadhaar Card)
  • Passport
  • Voter ID
  • Driving License
  • PAN Card with Photograph
  • Card / Document with Applicants Photo issued by various Central and state Undertaking and other institutions as per KYC form Instructions / Checklist

Where the client is an individual, who is not eligible to be enrolled for an Aadhaar number, he shall for the purpose of sub-rule (1), submit to the reporting entity, the Permanent Account Number or Form No. 60. If client does not submit the PAN, he/she shall submit one certified copy of an 'officially valid document' containing details of his identity and address, one recent photograph and such other documents including in respect of the nature or business and financial status of the client as may be required by the reporting entity.

Correct permanent address

  • Passport
  • UID (Aadhaar Card)
  • Voter's Identity Card
  • Ration Card
  • Registered Lease or Sale Agreement of Residence
  • Driving license
  • Latest Utility Bills (Telephone, Electricity or Gas) not old more than 3 months
  • Other Identity cards/ documents with Address issued by various State and Central Undertaking and other institutions as per KYC Instructions/Checklist
Accounts of companies

Name of the company

Principal place of business

Mailing address of the company

Telephone/Fax Number

  • Certificate of incorporation and Memorandum & Articles of Association
  • Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account
  • Power of Attorney granted to its managers, officers or employees to transact business on its behalf

  • Aadhaar Numbers

    Permanent Account Numbers or Form 60 as defined in the Income-tax Rules, 1962 issued to managers, officers or employees holding an attorney to transact on the company's behalf or where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar and in case Permanent Account Number is not submitted an officially valid document shall be submitted.

  • Copy of the Landline telephone bill not old more than 3 months

If the managers, officers or employees holding an attorney to transact on the company's behalf are not eligible to be enrolled for Aadhaar number and do not submit the Permanent Account Number, certified copy of an officially valid document shall be submitted.

ANNEXURE III ABBREVIATIONS USED IN THE PMLA POLICY OF RREB:
S. NO. WORD FULL FORM
1. AML Anti-Money Laundering
2. CFT Combating financing of Terrorism
3. PMLA Prevention of Money Laundering Act,2002
4. FATF Financial Action Task Force
5. ML Money Laundering
6. TF Terrorist Financing
7. CSC Client of Special Category
8. CDD Client Due Diligence
9. FIU-IND Financial Intelligence Unit- India
10. STR Suspicious Transaction Monitoring & Reporting (STRs)
11. PEP Politically Exposed Persons
12. EDD Enhanced Due Diligence
13. RREB RR GROUP OF COMPANIES
14. PO Principal Officer
15. DD Designated Director
16. CIP Client Due Diligence
17. KYC Know Your Client