Obligations for Maintenance of Records under PMLA- FIU-IND

Obligations for Maintenance of Records under PMLA – FIU-IND

Under Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), every reporting entity is required to maintain records of all transactions in a manner that enables the reconstruction of individual transactions. This ensures that the information can be used for analysis and investigation if required. These obligations are outlined in more detail under Rule 3 of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

Definition of Records under Prevention of Money Laundering Act

According to Section 12(1), records include books, documents, and transactions stored in electronic form (e.g., computers or any prescribed format). & these records must be easily accessible for reconstruction and examination in case of an investigation or inquiry.

What are key requirements for maintenance of records after FIU-IND registration? 

1. Transaction Records: Reporting entities must maintain records of all transactions, including:
   • Cash transactions exceeding ₹10 lakh or its equivalent in foreign currency.
   • Series of cash transactions below ₹10 lakh but aggregating to more than ₹10 lakh within a month.
   • Transactions involving non-profit organizations exceeding ₹10 lakh.
   • Transactions involving forged or counterfeit currency or valuable securities.
   • Suspicious transactions, irrespective of whether they involve cash.
   • Cross-border wire transfers exceeding ₹5 lakh or equivalent in foreign currency.
   • Purchase or sale of immovable property worth ₹50 lakh or more, registered by the reporting entity.
2. Identity Records: Reporting entities must also maintain documentation evidencing the identity of their clients and beneficial owners, as well as records of account files and business correspondence relating to clients.
3. Retention Period: Transaction records should be maintained for five years from the date of the transaction. and Documents evidencing client identity: These should be kept for five years after the end of the business relationship or the closure of the account, whichever is later.

What Constitutes a Suspicious Transaction under PMLA?

A suspicious transaction under Rule 2 of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 can include any transaction or attempted transaction that raises reasonable suspicion. Suspicious transactions include:

• Reasonable grounds for suspicion that the transaction may involve proceeds of a crime.
• Transactions made under unusual or unjustified complexity.
• The Transactions that appear to lack economic rationale or bona fide purpose.
• Transactions that reasonably suspect financing of terrorism, including those linked to terrorist acts or organizations.

Reporting a Transaction under Both CTR and STR

• A transaction can be reported under both Cash Transaction Report and Suspicious Transaction Report. For instance, if a cash transaction exceeds the prescribed threshold (e.g., ₹10 lakh) and has elements that raise suspicion (e.g., irregular or unexplained sources), it should be reported both under Cash Transaction Report and Suspicious Transaction Report.

FIU-IND Registration Checklist for VDA Service Providers (VDA SPs)

FIU-IND Registration Eligibility & Applicability

• Entity engaged in notified VDA activities under Notification S.O. 1072(E) dated 07-03-2023
• Activities are business-based, irrespective of physical presence in India
• The entity qualifies as a Reporting Entity (RE) under PMLA & PMLR

Pre-Registration Preparation for FIU-IND Registration

• Appointment of Designated Director (DD)
• Appointment of Principal Officer (PO)
• Internal AML/CFT/CPF Policy approved by the board/partners
• Risk-Based Approach (RBA) framework documented
• KYC, CDD, transaction monitoring, and Sanctions Screening systems in place

Online Registration of FIU-IND Registration (FINGate Portal)

Entity registered on FINGate portal :

• Status shows “Awaiting Approval.”
• Temporary Reference ID generated
• Acknowledgement email received

Documents & Information to be Submitted for FIU-IND Registration

1. Business & Ownership

• Note on nature of services and mapping to notified VDA activities
• Corporate structure note with organogram
• Significant Beneficial Ownership (SBO) details

2. Statutory & Financial Records

• Incorporation documents (MCA)
• Annual Returns, BS & P&L – last 3 financial years
• Registered office / principal place of business details

3. Tax & GST Compliance

• GST registration certificates (all States/UTs)
• GST returns—last 3 financial years
• Income-tax Returns
• TDS Forms 26Q / 26QF / 26QE (VDA transactions)

4. Contracts & Business Relationships

• Agreements with exchanges, brokers, custodians, intermediaries, VDA SPs
• Brief scope note for each agreement
• PACT certificates from FIU-IND registered VDA SPs (where applicable)

5. Declarations & Questionnaires

• Self-declaration – no criminal / law enforcement proceedings
• Duly filled FIU-IND AML/CFT/CPF Questionnaire

6. Cybersecurity & Technology

• Cyber Security Audit Certificate from CERT-In empanelled auditor
• Compliance with CERT-In Directions dated 28-04-2022
• Audit covers KYC, AML systems, wallets, APIs, cloud, incident response

In-Person Meeting Readiness

• All documents submitted at least 15 days in advance
• DD & PO availability confirmed (mandatory)
• Live demo readiness of:
• KYC & CDD systems
• Transaction Monitoring
• Blockchain Analytics
• Travel Rule compliance
• Sanctions screening tools

Registration Outcome

• FIU-IND due diligence completed
• Approval granted by Director, FIU-IND
• FIU Reporting Entity ID (FIU RE-ID) issued

Penalty for Non-Compliance: Maintenance of Records under PMLA

Non-registration attracts action under Section 13(2) of PMLA,  FIU-IND may deny or cancel registration for non-compliance, Obligations are activity-based, not location-based.  Failure to comply with the record-keeping obligations under PMLA may result in penalties. As per Section 13: The Director of FIU-IND may issue:

• • Written warnings.
  • Specific instructions for compliance.
  • Directions to send periodic reports on compliance efforts.
  • Monetary penalties, ranging from ₹10,000 to ₹1 lakh for each failure.

This serves as a strong deterrent against non-compliance and highlights the importance of maintaining records in accordance with the law.