FIU-IND and PMLA: Strengthening India’s Financial Integrity
Financial Intelligence Unit of India (FIU-IND) and the Prevention of Money Laundering Act (PMLA), 2002, play a crucial role in establishing a framework for preventive vigilance against financial crimes in India. This article explores the functions of FIU-IND, the stipulations of PMLA, and the obligations placed upon reporting entities in India to combat money laundering and terrorist financing. This article is the part of
1. AML/CFT – A Preventive Vigilance Tool.
2. Key Components of the Post Office Savings Bank AML/CFT Framework
Financial Intelligence Unit – India (FIU-IND)
Established on November 18, 2004, FIU-IND serves as India’s central national agency for addressing suspicious financial transactions. Operating under the purview of the Government of India, this independent body reports directly to the Economic Intelligence Council (EIC), chaired by the Finance Minister. With a multidisciplinary workforce comprising personnel from various agencies like the Central Board of Direct Taxes (CBDT), Reserve Bank of India (RBI), and Securities Exchange Board of India (SEBI), FIU-IND plays a crucial role in enhancing both national and international intelligence efforts against financial crimes.
Primary Functions of FIU-IND
- Receiving, Processing, and Analyzing Information: The unit is responsible for gathering data related to suspect financial activities.
- Dissemination of Information: After thorough analysis, FIU-IND shares pertinent information with relevant authorities to aid in investigations and enforcement actions.
- Coordination Among Agencies: FIU-IND strengthens collaborations between various national and international bodies to combat money laundering and the financing of terrorism effectively.
Prevention of Money Laundering Act, 2002 (PMLA)
The PMLA, which came into effect on July 1, 2005, provides the legislative framework for preventing money laundering in India. Under this act:
- Reporting Entities: Defined broadly, reporting entities encompass banking companies, financial institutions, intermediaries, and any individual engaged in designated businesses or professions.
- Key Definitions: The act outlines what constitutes a financial institution and stipulates various entities that fall under its ambit, including chit funds, housing finance institutions, and non-banking financial companies.
Compliance and Responsibilities
To ensure adherence to the PMLA, the act outlines specific obligations for reporting entities, with serious implications for non-compliance:
- Actions for Non-Compliance: If a reporting entity or its designated director fails to comply with PMLA obligations, the Authority can:
- Issue written warnings.
- Direct compliance with specific instructions.
- Require regular reporting on remedial actions.
- Impose monetary penalties ranging from ₹10,000 to ₹1,00,000 for each failure.
- Record Maintenance: Section 12 of the PMLA mandates that reporting entities maintain records of all transactions, including documentation that evidences the identity of clients and beneficial owners. These records must be kept for a minimum of five years and should allow for the reconstruction of individual transactions.
- Furnishing Information: Reporting entities have a duty to provide information to the Director of FIU-IND as specified. This includes:
- Monthly reports on cash transactions by the 15th of the following month.
- Prompt reporting of suspicious transactions within seven working days.
Risk Mitigation Obligations
To effectively mitigate risks related to money laundering and terrorist financing, reporting entities must:
- Ongoing Due Diligence: Establish and maintain robust processes for examining the nature of their business relationships, ensuring that transactions align with their understanding of clients and their risk profiles.
- Risk Assessment: Conduct comprehensive risk assessments that consider various factors, including client profiles and geographic risks. These assessments must be documented and updated regularly to remain accessible to competent authorities.