In India, there had been laws and regulations for quite some time to address certain aspects of money laundering prevention, like Criminal Law Amendment Ordinance 1944 for attachment of proceeds of certain crimes or Reserve Bank of India (RBI) instructions regarding identification requirements for opening of the bank accounts. However, a consolidated anti-money laundering specific legislation, Prevention of Money Laundering Act, 2002 (PMLA), came in to effect with the Government of India Gazette notification on 1st July 2005. The Financial Intelligence Unit-India (FIU-IND) constituted by Government of India on 18th November 2004 as a nodal agency for the anti-money laundering measures also got statutory recognition on 1st July 2005. In October, 2005 Indian Banks’ Association (IBA) issued the “Know Your Customer (KYC) Standards and Anti-Money Laundering (AML) – Guidance Notes for Banks”, basically for giving broad outlines of policy frame work based on international practices to serve as a reference guide to the banks in complying with the provisions of the RBI Circular dated 29th November 2004 on “Know Your Customer (KYC) Guidance – Anti-Money Laundering Standards” and also to meet the obligations of banks under the PMLA. The Guidance Notes helped in ensuring uniformity of approach among the banks in implementing the KYC Standards and AML measures. Since 2005, there has been a number of developments in the Anti-Money Laundering (AML) / Combating of Financing of Terrorism (CFT) internationally and within India that it was considered necessary to review and revise the Guidance Note to incorporate the new developments and to give a more detailed Note that could serve as a reference document to the banks on all KYC / AML / CFT.
The purpose of this Guidance Notes is to:
- Create awareness to the legal and regulatory frame work for AML/CFTrequirements and systems across the banking sector,
- Interpret the obligations under the PMLA and other relevant regulations andhow they may be implemented in practice,
- Help banks to align their operations with good international industry practicein AML/CFT procedures through a proportionate risk based approach, and
- Provide a framework for banks to design and implement the systems andcontrols necessary to mitigate the risks of the bank being used in connection with money laundering and terrorist financing.
The scope of these Guidance Notes covers all member banks of IBA. Although these Guidance Notes are designed primarily to cover the activities of banks, the contents are generally applicable to other financial institutions and intermediaries covered under the PMLA and are required to adopt KYC Standards. It should be noted that these Guidance Notes issued by IBA are voluntary and recommendatory in nature. Failure to comply with these Guidance Notes does not mean that a Bank has automatically breached the Rules under PMLA or any of the Guidelines issued by RBI. They do, however, provide an indication of what the supervisors/ regulators may take into account as being expected of banks. When tailored by a bank to its own risk management architecture and business processes, these Guidelines provide a safety net in respect of Rules and Regulations pertaining to AML. It may please be noted that these Guidance Notes is an IBA document and the information contained therein is only for the guidance of the industry and ease of understanding of the legal provisions, and for legal purposes the provisions contained in the PMLA and rules there under and instructions issued by RBI from time to time would be applicable.
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