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AML/CTF compliance in India


Money laundering and terrorism financing laws in India?

In India, money laundering and terrorism financing are serious offenses and are governed by the following laws: The Prevention of Money-Laundering Act, 2002,The Unlawful Activities (Prevention) Act, 1967 additionally AML/CTF Guidelines and Regulations issued by regulatory bodies such as RBI, SEBI, IRDAI, and FIU-IND.


Key obligations reporting entities have under Indian laws?

  • Customer due diligence (CDD): Identifying and verifying the identity of customers, including their beneficial owners. 
  • Monitoring customer transactions: Monitoring customer transactions involves identifying irregularities or suspicious patterns that may indicate money laundering or terrorism financing.
  • Filing suspicious transaction reports (STRs):  Submitting Suspicious Transaction Reports (STRs) to the FIU-IND is required whenever there is a suspicion of money laundering or terrorism financing.
  • Implementing internal controls: Implementing internal controls is essential to prevent money laundering and terrorism financing.
  • Keeping records: Reporting entities must keep records of transactions, customer identification information, and supporting documentation for at least ten years from the date of the last transaction. 
  • Training staff: Reporting entities must train their staff on AML/CTF compliance. 
  • Appointment of a compliance officer: Reporting entities must appoint a compliance officer to oversee AML/CTF compliance. 
  • Completing self-assessments: Reporting entities must complete self-assessments of their AML/CTF compliance. 


ML/TF regulators in India and what functions do they perform?

In India, the regulation of money laundering and terrorism financing is overseen by several key agencies:


Industry sectors subject to ML/TF regulations?


This refers to all commercial banks, rural banks, and sharia banks. They are required to conduct customer due diligence, report suspicious transactions, and maintain comprehensive records.

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Insurance Companies

All types of insurance providers, including life, general, reinsurance, and sharia insurance companies, fall under the purview of AML/CFT laws. They need to adhere to the same standards of due diligence and reporting as banks and non-bank financial institutions.

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Securities Companies and Capital Markets

Securities underwriters, brokers, dealers, and investment managers, as well as mutual funds. They are obliged to follow AML/CFT regulations in their operations.

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Non-Bank Financial Institutions

Including money remitters, finance companies, credit unions, pawnshops, and leasing companies. Similar to banks, they are also obligated to comply with AML/CFT regulations.

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Larger Financial Institutions

Are more closely regulated due to the higher risks associated with their size and the volume of transactions they handle. This includes larger banks, insurance companies, and other financial services providers.

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Penalties for non-compliance with AML/CTF laws?

  • Imprisonment: Non-compliance with AML/CTF laws in India can lead to a maximum imprisonment sentence of 10 years, with the actual sentence imposed will depend on the specific circumstances of the case. 
  • Fine: India imposes fines of up to ₹50 million for non-compliance with AML/CTF laws, with the actual fine imposed depending on the specific circumstances of the case.
  • Closure of the business: Non-compliance with AML/CTF laws may result in the closure of the business. This is a serious consequence, as it can have a significant impact on the business's employees, customers, and suppliers. 
  • Loss of licenses: Non-compliance with AML/CTF laws may result in the loss of licenses. This can prevent the business from operating in certain sectors or jurisdictions.  


Largest fines for non-compliance with AML/CTF laws?

  • Amazon Pay India: In 2022, Amazon Pay India was fined ₹3.06 crores for failing to file STRs for certain high-value transactions and for not properly implementing its AML/CTF compliance program. 
  • HDFC Bank: In 2019 HDFC Bank was fined ₹1 crore for violation of KYC norms.
  • ICICI Bank: fined ₹50 lakhs for non-compliance with KYC norms
  • Axis Bank: RBI fines Axis Bank ₹25 lakhs for flouting KYC norms
  • Kotak Mahindra Bank: RBI imposes fine of ₹1 crores for non-compliance with loan and KYC directives.
  • IndusInd Bank: RBI imposes fine of ₹1 crores for non-compliance with loan and KYC directives.