Overview on Obligations of Financial Sector Entities under PMLA, 2002

Overview on Obligations of Financial Sector Entities under PMLA, 2002

About FIU-IND

• Financial Intelligence Unit – India (FIU-IND) is the central national agency responsible for Receiving and analyzing financial transaction reports and sharing intelligence with law enforcement agencies. It works towards combating money laundering and Terrorist financing .
• Filing is done through the FINnet Gateway Portal (Financial Intelligence Unit – India (FIU-IND)). Registration of entity and Principal Officer is mandatory before filing

Objective of Prevention of Money Laundering Act, 2002

• The Prevention of Money Laundering Act, 2002, provides the legal framework to prevent money laundering in India. Money laundering includes Concealment or use of proceeds of crime and Projecting illegal income as legitimate

Reporting Entities under Prevention of Money Laundering Act, 2002

• The law applies to the banking sector (Nationalized banks, Private banks, cooperative banks, and Regional rural banks), Financial Institutions (Non-Banking Financial Companies, Insurance companies, Housing finance companies, Payment system operators and Money changers) and Intermediaries (Stockbrokers, Mutual funds, Portfolio managers, depositories, and Investment advisors)
• Compliance under the Prevention of Money Laundering Act is not optional but a continuous regulatory responsibility. Financial sector entities must Maintain robust KYC processes, Track and report specified transactions, ensure internal compliance systems and adhere to strict timelines

• Timeline for FIU‑IND Registration : The registration process with FIU‑IND generally takes around 1 month, subject to verification by authorities, completeness of documentation submitted, and successful registration on the FINnet portal.

Key Obligations of Reporting Entities under Financial Intelligence Unit – India (FIU-IND)

• Appointment of Compliance Officers: Appointment of Compliance Officers & also appoint a Principal Officer (for reporting obligations) and a Designated Director (for overall compliance). Their details must be submitted to Financial Intelligence Unit – India (FIU-IND).
• Client Due Diligence (CDD / KYC) : Entities must Identify and verify clients. Understand the nature of the business relationship and Purpose of transactions. Identify beneficial owners and conduct periodic verification.
• Record Maintenance under Financial Intelligence Unit – India (FIU-IND): Entities must maintain records of Client identity, transaction details, and Both physical and electronic records

Reporting Requirements to Financial Intelligence Unit – India (FIU-IND)

• Transactions to be reported: Cash transactions above INR 10 lakh, series of linked transactions exceeding INR 10 lakh, transactions of NGOs above INR 10 lakh, suspicious transactions (STR), cross-border transfers above INR 5 lakh and property transactions above INR 50 lakh.
• Reporting Timelines for STR: Within 7 working days and other reports: monthly (by 15th of the next month). In case of property transactions: Quarterly
• Suspicious Transaction: A transaction is suspicious if it Involves proceeds of crime, Has no economic basis, Is unusually complex, and indicates possible terrorist financing.
• Timely and accurate reporting to FIU‑IND is critical to avoid penalties and ensure AML compliance. Entities should implement Robust transaction monitoring systems, clear internal escalation mechanisms for STR, and proper documentation and reconciliation processes. Reporting entities are required to file the following reports:

STR reporting is time-sensitive and must be filed immediately upon identifying suspicious activity. All other reports are generally filed monthly, except property transactions, which are filed quarterly

Penalties for non-compliance under Financial Intelligence Unit – India (FIU-IND)

• Monetary penalty between INR 10,000 to INR 100,000 per failure: Financial Intelligence Unit – India (FIU-IND) has powers similar to a civil court for enforcement. Reporting entities are protected from civil/criminal liability when reporting transactions in good faith.

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