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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.
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.
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:
| Aspect | Originating Reporting Entity (RE) | Beneficiary Reporting Entity (RE) |
|---|---|---|
| Submission of Originator Information | Mandatory – must submit required originator information to the beneficiary RE | Mandatory – must obtain originator information from the originating RE |
| Verification of Originator Information | Must verify accuracy as part of its Client Due Diligence (CDD) process | May rely on verification done by originating RE but must ensure data consistency |
| Submission of Beneficiary Information | Mandatory – must submit required beneficiary information to the beneficiary RE | Mandatory – must obtain beneficiary information from originating RE |
| Verification of Beneficiary Information | Must monitor transaction to ensure no suspicious activity arises | Must independently verify beneficiary information received |
| Record Keeping | Must obtain and retain originator and beneficiary information | Must obtain and retain originator and beneficiary information |
| Sanctions Screening | Must screen beneficiary to ensure the beneficiary is not a sanctioned person/entity | Must screen originator to ensure the originator is not a sanctioned person/entity |
| Transaction Monitoring | Must monitor transactions and report to FIU-IND if suspicion arises | Must monitor transactions and report to FIU-IND if suspicion arises |
| Suspicious Transaction Reporting | Mandatory reporting where suspicion is detected | Mandatory reporting where suspicion is detected |
Data sharing under the Travel Rule is mandatory, not optional. Originating RE is primarily responsible for collecting and verifying originator information. Beneficiary RE must ensure that information received is complete, consistent, and usable. Both REs must maintain records, conduct sanctions screening, and monitor transactions for suspicious activity.
In accordance with Rule 7(2) and Rule 8(2) read with Rule 3(1)(D) of the PMLR, every Reporting Entity (RE) shall promptly report suspicious transactions, including attempted suspicious transactions, identified through transaction monitoring systems, to FIU-IND.
An alert is the first step in identifying a suspicious transaction and acts as a red flag triggered by potentially suspicious activity. REs shall put in place robust systems and processes to generate alerts based on predefined Red Flag Indicators (RFIs). The design and implementation of RFIs, including minimum alerts and parameters, shall be aligned with guidance issued by FIU-IND from time to time under Rule 7(3) of the PMLR.
The format for reporting suspicious transactions (including attempted transactions), as required under Rule 7(3) and Rule 8(2) of the PMLR, shall be as prescribed by FIU-IND from time to time. All STRs submitted to FIU-IND shall contain complete, accurate, and meaningful information, including Client KYC details, Wallet addresses, Transaction details, Counterparty information, Grounds for suspicion, and Any other relevant information.
Identification and reporting of STRs is a serious statutory obligation under the PMLA. REs shall ensure that every STR is filed only after due application of mind and necessary diligence. To ensure high-quality STR reporting, REs shall effectively leverage all available data, including KYC and CDD information, Transactional data, Technical and metadata information, IP addresses and device identifiers, and Behavioral patterns and risk indicators. REs are expected to make genuine and sustained efforts to file high-quality STRs, which are a critical tool for detecting, deterring, and investigating illicit financial activities.
REs shall file an STR irrespective of the transaction amount or any threshold limit, if there are reasonable grounds to believe that the transaction involves Proceeds of crime; or Financing of terrorism.
In accordance with Section 12(2) and Section 12A(3) of the PMLA, read with Rule 8(6) of the PMLR, REs, including their Directors, Officers, and Employees (permanent and contractual) shall ensure that The fact of maintaining records; and The furnishing of information to FIU-IND is kept strictly confidential. The prohibition on tipping-off applies before, during, and after the filing of an STR. REs shall ensure that no information relating to STRs or related actions is disclosed to the client or to any unauthorized person at any level.
Pre-Registration Preparation for FIU-IND Registration
Entity registered on FINGate portal :
In accordance with Sections 12(1)(a) and 12(1)(e) of the PMLA, every Reporting Entity (RE) shall maintain and retain prescribed records relating to clients and transactions. The RE shall ensure that All records and documents are securely preserved; and No records are destroyed or altered during the mandatory retention period.
The following measures shall be implemented for the maintenance, preservation, and availability of records:
a) Client Identification Records : REs shall maintain and preserve records relating to client identification and address details obtained at the time of onboarding and during the business relationship for a minimum period of five years after the account or business relationship is closed.
b) Transaction Records : REs shall maintain and preserve complete records of all transactions for a minimum period of five years from the date of the transaction.
c) Records Related to Investigations or Disclosures : Where records relate to Ongoing investigations; or Transactions that are the subject of disclosures to FIU-IND, such records shall be retained until confirmation is received that the case has been closed. Wherever practicable, REs shall Retain relevant client identification documents; and Report any suspicious transactions in accordance with the PMLA and PMLR.
d) Transaction Reconstruction Capability : REs shall maintain sufficient information to enable reconstruction of individual transactions, including:
i. Nature and purpose of the transaction;
ii. Amount and type of Virtual Digital Asset (VDA) and/or fiat currency involved, if any;
iii. Date of the transaction;
iv. Parties to the transaction (originator and beneficiary); and
v. Any other information required for Travel Rule compliance.
e) Record Retention and Retrieval System : REs shall implement a robust record management system with clearly defined procedures for Retention, Maintenance, and Preservation of all transaction and account records as required under the PMLA, PMLR, and these Guidelines. The system shall ensure that records Can be retrieved easily and promptly, and Are made available to competent authorities whenever required.
f) Audit Trails and Data Integrity : REs shall preserve complete audit trails in a tamper-proof manner, including Verification responses, Time stamps, Authentication logs, and System access logs, to ensure data integrity, traceability, and regulatory audit readiness. Regulatory Focus Areas Minimum five-year retention is mandatory, Records must support transaction reconstruction and Tamper-proof audit trails are critical, Prompt availability to FIU-IND and law enforcement is essential
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:
This serves as a strong deterrent against non-compliance and highlights the importance of maintaining records in accordance with the law.
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