ANTI MONEY LAUNDERING POLICY

 

 

 

FORTUNE FISCAL  LTD – Depository Participant and Stock Broker

 

Policy Reviewed by: Compliance Head

Policy reviewed on:

Approval authority : Board of Directors

 

Policy approved by : Board of Directors

Policy Approved on : 18.04.2017

Periodicity of Review periodicity: Yearly

Last Reviewed on: 20.07.2016

Version No : 4.0

Effective date of Implementation :

 

FOR INTERNAL USE ONLY

INTRODUCTION :         

 

1.  The  Prevention  of  Money  Laundering  Act,  2002  (PMLA)  has  been brought into force with effect from 1st July, 2005.  Necessary Notifications / Rules under the said Act have been published in the Gazette of India on 1st July 2005 by the Department of Revenue, Ministry of Finance, Government of India.

 

2.    As per PMLA, every banking company, financial institution (which includes Chit Fund company, a co-operative bank, a housing finance institution and a non-banking financial company) and  Intermediary  (which includes  a Stock-broker,  sub-broker,  share  transfer  agent,  banker  to  an  issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, Portfolio Manager, Investment adviser and any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992) shall have to maintain a record of all the transactions, the nature and value of which has been prescribed in the Rules notified under the PMLA. For the purpose of PMLA, transactions include:

 

v  All  cash  transactions  of  the  value  of  more  than  Rs.10  lakhs  or  its equivalent in foreign currency.

v  All series of cash transactions integrally connected to each other, which have  been  valued  below  Rs.10  lakhs  or  its  equivalent  in  foreign currency, such series of transactions within one calendar month.

v  All suspicious transactions whether or not made in cash and including, inter-alia, credits or debits into from any non monetary account such as Demat account, security account maintained by the registered intermediary.

 

3.  The Anti-Money Laundering Guidelines provides a general background on the subjects of money laundering and terrorist financing in India and provides guidance on the practical implications of the PMLA. The PMLA Guidelines sets out the steps that a registered intermediary and any of its representatives, need to implement to discourage and identify any money laundering or terrorist financing activities.

 

 

OBJECTIVE :

 

The main objectives of the PMLA are as follows:

 

1.   To have a proper Customer Due Diligence (CDD) process before registering clients.

2.   To monitor/maintain records of all cash transactions of the value of more than Rs.10 lacs.

3.   To maintain records of all series of integrally connected cash transactions within one calendar month.

4.   To monitor and report suspicious transactions.

5.   To discourage and identify money laundering or terrorist financing activities.

6.   To take adequate and appropriate measures to follow the spirit of the PMLA.

 

GUIDELINES:

 

Broker being a SEBI registered intermediaries have to comply with spirit of anti money laundering provisions. To comply with PMLA, the following three specific parameters should be observed, which are related to the overall `Client Due Diligence Process':

 

1.     Policy for acceptance of clients;

2.     Procedure for identifying the clients;

3.     Transaction monitoring and reporting especially Suspicious Transactions        Reporting (STR).

Client / Customer Due Diligence (CDD):

 

For the purpose of CDD, Broker is dealing with institutional clients. According to SEBI regulation / rules Institutional clients includes:

 

·         Banks

·         Mutual Funds

·         Foreign Institutional Investors (FII)

·         Financial Institutions

·         Insurance Companies

 

According to SEBI, all trades done by institutional client should be settled through Clearing House.  In clearing house trade, trades are settled by Broker and custodian of the respective client.

 

In view of above, following steps to be taken to comply with `Customer Due Diligence' process before registering as client:

 

 

 

The client / customer due diligence (CDD) measures comprise the following:

 

1.  Client Information & Identity :

 

Before registering client, we obtain antecedent information. Verify independently information submitted by client but not limited to his identity, registered office address, correspondence address, contact details, occupation, Promoters / Directors, source of income, experience in securities market, PAN no. SEBI Registration No. etc. Obtain as many as information. Generally Institutional client are recognize at global level. We need to verify client’s identity and origin using services of Bloomberg, Reuters, internet services or any other reliable, independent source documents, data or information. After verifying information, registration form along with other supporting documents should be approved by Compliance Officer designated for verification.

 

2.  Beneficial Ownership and control:

 

After completing registration process, client account should be verified by independent employee to check the actual beneficial ownership and control of the particular account. We need to obtain the details with respect to Shareholders, Promoters from the client and it has to be verified independently. In this process we should find out who is authorized to operate the client's account and who is ultimately controlling the account. Also verify the sources of funds for funding the transaction. We also have to take care at the time of settlement regarding nature of transaction, movement /source of transaction, etc. Periodically ask for client's financial details to determine the genuineness of transaction.

 

The “Beneficial  Owner” is the natural person or persons who ultimately own, control or influence a client and / or persons on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.

 

3.       Ongoing due diligence and scrutiny :

 

The Customer Due Diligence Process includes three specific parameters -:

 

3.1        Policy for acceptance of clients

3.2        Client Identification Procedure.

3.3             Suspicious Transaction Procedure.

 

Before registering client, we need to identify the following details of the prospective client :

 

Individual

Proof of Identity (POI) :

·         PAN card with photograph

·         Aadhaar/ Passport/ Voter ID card/ Driving license.

·         Identity card/Document with applicants photo issued by Government and Regulators.

 

Proof of Address (POA):

·         Utility Bills

·         Bank account statement / passbook- Not more than 3 months old.

·         Self Declaration by High court and Supreme court judges, giving the new address in respect of their own accounts.

Corporate / Partnership Firm / Trust

POA and POI as above plus :

·         Copy of the balance sheets for the last 2 financial years (to be submitted every year)

·         Copy of latest share holding pattern duly certified by company secretary.

·         POI,POA,PAN and DIN numbers of the Whole time Director/ @ directors in charge.

·         Copies of MOA and AOA along with certificate of incorporation.

·         Copy of board resolution in securities market.

·         Authorised signatories list with specimen signatures.

HUF

POA and POI as above plus :

·         PAN of HUF

·         Deed of declaration of HUF/ List of Coparceners.

·         Bank passbook statement in the name of HUF.

Unincorporated Association or BOI

POA and POI as above plus :

·         Proof of existence/Constitutional document.

·         Power of attorney granted to transact business.

Foreign Institutional Investors

POA and POI as above plus :

·         Copy of SEBI Registered Certificate.

·         Authorized signatories list with specimen signatures.

Army / Government Bodies

POA and POI as above plus :

·         Self-certification on letter head.

·         Authorized signatories list with specimen signatures.

Registered Society

POA and POI as above plus :

·         Copy of Registered Certificate under Societies Registration Act.

·         List of committee members and signatures.

·         True copy of Society bye laws certified by chairman/secretary.

 

The following safeguards are followed while accepting the clients:

 

a)   The client account should not be opened in a fictitious / benami name or on an anonymous basis.

b)   Risk perception of the client need to defined having regard to :

1   Client's' location (registered office address, correspondence addresses and other addresses if applicable);

2   Nature of business activity, tracing turnover etc. and

3.  Manner of making payment for transactions undertaken.

 

The parameters of clients into low, medium and high risk should be classified. Clients of special category (as given below) may be classified as higher risk and higher degree of due diligence and regular update of KYC profile should be performed.

 

c)   Documentation like KYC, Broker-client agreement and Risk Disclosure Document and other information from different category of client prescribed by SEBI and any other regulatory authority to be collected depending on perceived risk and having regard to the requirement  to the Prevention of Money Laundering Act, 2002, guidelines issued by RBI and SEBI from time to time.

 

d)      Ensure that a client account is not opened where the organization is unable to apply appropriate clients due diligence measures / KYC policies. This may be applicable in cases where it is not possible to ascertain the identity of the client, information provided to the organization is suspected to be non-genuine, perceived non-co-operation of the client in providing full and complete information. Discontinue doing business with such a person and filing a suspicious activity report.

 

e)   Do not accept clients with identity matching persons known to have criminal background.

 

 f)    Clients of special category (CSC):

 

Be careful while accepting Clients of special category (CSC). Following is an illustrative list-

 

1.  Non-resident clients (NRI);

2.  High Net worth clients (HNI)

3.  Trust, Charities, NGOs and organizations receiving donations.

4.  Companies having close family shareholdings or beneficial ownership.

5.  Politically exposed persons (PEP) of foreign origin

6.  Current /Former Head of State, Current or Former Senior High profile politicians and connected persons (immediate family, close advisors and companies in which such individuals have interest or significant influence);

7. Companies offering foreign exchange offerings;

8.  Clients in high risk countries (where existence / effectiveness of money laundering controls is suspect, where there is unusual banking secrecy. Countries active in narcotics production, Countries where corruption (as per Transparency International Corruption Perception Index) is highly prevalent, Countries against  which government sanctions are applied, Countries reputed to be any of the following  -- Havens / sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent;

9.  Non-face to face clients;

10. Clients with dubious reputation as per public information available etc.;

 

The above mentioned list is only illustrative and we shall exercise independent judgment to ascertain whether any other set of clients shall be classified as CSC or not.

 

 

Acceptance of clients through Risk-Based Approach:

 

The clients may be of a higher or lower risk category depending on circumstances such as the customer's background, type of business relationship or transaction etc. We should apply each of the clients due diligence measures on a risk sensitive basis.  We should adopt an enhanced customer due diligence process for higher risk categories of customers.  Conversely, a simplified customer due diligence process may be adopted for lower risk categories of customers. In line with the risk-based approach, we should obtain type and amount of identification information and documents necessarily dependent on the risk category of a particular customer.

 

Category

Illustrations (Indicative)

Low risk clients

These are clients with low or nil risk. For eg., Good corporate / HNIs having a respectable social and financial standing.

Medium risk clients

Intra-day clients or speculative clients.

High risk clients

Clients with suspicious background. Do not have financial status, etc.

Category of Special Clients

CSC list as mentioned in point 'f' above.

 

Ø  Client identification procedure:

 

To follow the Client Identification procedure we need to follow the following factors:

 

·         The `Know Your Client' (KYC) policy should be strictly observed with respect to the client identification procedures which need to be carried out at different states i.e. while establishing the Broker – client relationship, while carrying out transactions for the client or when have any  doubts  regarding  the  veracity  or  the  adequacy  of  previously obtained client identification data.

 

·         The client should be identified by using reliable sources including documents / information.  Obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.

 

·         The information should be adequate enough to satisfy competent authorities (regulatory / enforcement authorities) in future that due diligence was  observed in compliance with the Guidelines. Each original documents should be seen prior to acceptance of a copy and it is verified and duly attested.

 

·         Failure by prospective client to provide satisfactory evidence of identity should be noted and reported to the higher authority within the organization.

 

·         SEBI has prescribed the minimum requirements relating to KYC for certain class of the registered intermediaries from time to time. Taking into account  the basic principles enshrined in the KYC norms, internal guidelines should be followed in dealing with clients and legal requirements as per the established practices. Also maintain continuous familiarity and follow-up where it notices inconsistencies in the information provided by the client. The principles enshrined in the PML Act, 2002 as well as the SEBI Act, 1992 should be followed, so that Company is aware of the clients on whose behalf it is dealing.

 

Ø  Reliance on third party for carrying out CDD.

·         We many reply on third party for the purpose of

(a)  Identification and verification of the identity of a client and

(b)  Determination of whether the client is acting on behalf of a beneficial owner, identification of the beneficial owner and verification of the identity of the beneficial owner.

Provided such third party shall be regulated, supervised or monitored for, and have measures in place for compliance with CDD and record-keeping requirements in line with the obligations under the PML Act.

·         Such reliance shall be subject to the conditions that are specified in Rule 9 (2) of the PML Rules and shall be in accordance with the regulations and circulars / guidelines issued by SEBI from time to time.

 

Ø  Procedure for freezing of funds, financial assets or economic resources or related services :

We are aware that under section 51A of Unlawful Activities (Prevention) Act, 1967, the Central Government is empowered to freeze, seize or attach funds and other financial assets or economic resources held by, on behalf of, or at the direction of the individuals or entities listed in the Schedule to the Order, or any other person engaged in or suspected to be engaged in terrorism. The Government is also further empowered to prohibit any individual or entity from making any funds, financial assets or economic resources or related services available for the benefit of the individuals or entities listed in the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism.

 

In case if any client is found to be guilty under the PMLA provisions then the following procedure will be followed by the Company:

 

1.    If the particulars of any of customer/s match the particulars of designated individuals/entities, the Company shall immediately, not later than 24 hours from the time of finding out such customer, inform full particulars of the funds, financial assets or economic resources or related services held in the form of securities, held by such customer on their books to the Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No.011-23092569 and also convey over telephone on 011-23092736. The Company would also convey the information through e-mail at jsis@nic.in.

2.    The Company would inform the IS-I Division of MHA so that they may take effective action like informing the State Police and /or the Central Agencies for conducting the verification of the individuals/ entities identified by the registered intermediaries.

3.    The Company to provide full support to the appointed agency for conducting of the verification so that the verification gets completed within a period of 5 working days

4.    The Company would not provide any prior notice to the designated individuals/entities.

 

General Guidelines

·         Always check original documents before accepting the copies

·         Obtain the latest photograph of account holder/ authorized person(s).

·         Check for latest IT return of the client/ Net worth Certificate for ascertaining the financial status of the client to know the client suitability of the product being sold to the client.

·         Review the above details on-going basis to ensure that the transactions being conducted are consistent with our knowledge of customers, its business and risk profile, taking into account, where necessary, the customer’s source of funds.

·         Scrutinize the forms submitted by the client thoroughly and cross check the details with various documents obtained like source of income. If required, ask for any additional details like salary slips, etc. to satisfy yourself whenever there is a doubt.

·         For scrutiny / background check of the clients, websites such as www.watchoutinvestors.com should be referred. Also, Prosecution Database / List of Vanishing Companies available on www.sebi.gov.in and RBI Defaulters Database available on www.cibil.com can be checked.

 

Periodic Review:

 

·         Documents taken during the CDD process shall be updated in case of inactive clients at the time of reactivation. Inactive client mean having no transaction since last 2 years.

·         Conduct review of the information submitted by the client on yearly or more on the basis depending on the category of the client.

·         Keep proper check on the bank statement and tax returns of the client on periodic basis.

·         Monitor unusual large transactions which exceeds the threshold limit provided to the client.

 

Appointment of Principal Officer:

 

1.    Mr. Rikin Shah, designated as Principal Officer, is appointed by the organization to report the suspicious transactions to the authorities and discharge legal obligations.

2.    Principal Officer is responsible for identification and assessment of the suspicious transactions and shall be able to report the same to the senior management.

3.    Details of the principal officer or any changes thereof such as name, designation and address shall be intimated to the office of FIU immediately.

Appointment of Designated Director

1.    In addition to the Principal Officer, Mr. Jayesh Ramniklal Shah- Designated Director is also appointed to comply with the Anti-Money laundering provisions as directed by SEBI.

2.    The details of the Designated Director shall also be reported to the office of the Director FIU-IND.

 Record Keeping:

 

For the purpose of the record keeping provision, we should ensure compliance with the record keeping requirements contained in the SEBI Act, 1992, Rules and Regulations made there-under, PLM act, 2002 as well as other relevant legislation, Rules, Regulations, Exchange Bye-laws and Circulars.

 

Records to be maintained should be sufficient to permit reconstruction of individual transactions (including the amounts and type of currencies involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behavior.

 

Should there be any suspected drug related or other laundered money or terrorist property, the competent investigating authorities would need to trace through the audit trail for reconstructing financial profile of the suspect's account. To enable this reconstruction, Organization should retain the following information for the accounts of their customers in order to maintain a satisfactory audit trail.

 

a.    The beneficial owner of the account;

b.     The volume of the funds flowing through the account; and

c.     For selected transactions:

·            The origin of the funds;

·            The form in which the funds were offered or withdrawn, e.g. cash, cheques, etc;

·            The identity of the person undertaking the transaction;

·            The destination of the funds;

·            The form of instruction and authority.

 

Organization should ensure that all client and transaction records and information are made available on a timely basis to the competent investigating authorities.

 

Retention of Records:

 

The following document retention terms are observed by Fortune Fiscal Ltd :-

 

a.  All necessary records on transactions, both domestic and international, are maintained at least for the minimum period of ten years (10) from the date of cessation of the transactions.

 

b.  Records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence should also be kept for the ten years from the date of cessation of the transaction.

 

c.  Records shall be maintained in hard and soft copies.

 

In situations where the records relate to on-going investigation or transactions, which have been the subject of a suspicious transaction reporting, they should be retained until it is confirmed that the case has been closed.

 

EMPLOYEES' HIRING/TRAINING and INVESTOR EDUCATION:

 

  1. Employees’ Hiring

 

·         Proper screening procedures shall be in place while hiring employees.

·         Fortune Fiscal Ltd ensures that the employees taking up such key positions are skilled, proficient and have high integrity.

·         Proper measures are taken to check the previous employment details of the employee as well as his/her background.

 

  1. Employees' Training

·         Fortune Fiscal Ltd carries out periodic training programme for the staff in Anti Money Laundering procedures and understands the rationale behind the directives, obligations and requirement.

 

·         The AML/CFT training Program consists of four fundamental elements, as outlined below :

    

Ø  Customer Acceptance Policy

Ø  Customer Identification Procedures

Ø  Monitoring of transactions & reporting.

Ø  Risk Management.

   

       3.  Investor education

 

·         Fortune Fiscal explains the client about the requirements and provisions of Anti Money Laundering.

·         The fiduciary persons in our Organization shall efficiently explain regulatory requirements and benefits of adhering to the KYC guidelines and seek co-operation of the client.

 

Monitoring of transactions:

 

Regular monitoring of transactions is required for ensuring effectiveness of the Anti Money Laundering procedures.

 

Special attention required to all complex, unusually large transactions / patterns which appear to have no economic purpose.  Internal threshold limits to specify for each class of client's accounts and pay special attention to the transaction, which exceeds these limits.

 

Should ensure that the records of transaction is preserved and maintained in terms of the  PMLA 2002  and  that  transaction  of  suspicious  nature  or  any  other  transaction notified under section 12 of the act is reported to the appropriate authority.  Suspicious transactions should also be regularly reported to the higher authorities / head of the department.

 

Further the Compliance Department should randomly examine select transaction undertaken by clients to comment on their nature i.e. whether they are in the suspicious transactions or not.

 

Ø   Suspicious Transaction Monitoring & Reporting:

 

All are requested to analyze and furnish details of suspicious transactions, whether or not made in cash. It should be ensured that there is no undue delay in analysis and arriving at a conclusion.

 

What is a Suspicious Transaction:

 

·         Suspicious transaction means a transaction whether or not made in cash, which to a person acting in good faith.

·         Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or

·         Appears to be made in circumstance of unusual or unjustified complexity; or

·         Appears to have no economic rationale or bonafide purpose

 

Reasons for Suspicion:

 

·         Identity of client

-     

 

 
 
False identification documents

-      Identification documents which could not be verified within reasonable time

-     

 

 
 
Non-face to face client

-      Clients in high-risk jurisdiction

-      Doubt over the real beneficiary of the account

-      Accounts opened with names very close to other established business entities

-      Receipt back of well -come kit undelivered at the address given by the client

 

·         Suspicious Background - Suspicious background or links with criminals

·         Multiple Accounts

-      Large  number  of  accounts  having  a  common  parameters  such  as common partners / directors / promoters / address/ email address / telephone numbers introducer or authorized signatory.

-      Unexplained transfers between such multiple accounts.

 

·         Activity In Accounts

-     

 

 
 
Unusual activity compared to past transactions.

-      Use of different accounts by client alternatively Sudden activity in dormant accounts.

-      Activity inconsistent with what would be expected from declared business.

-      Account used for circular trading.

 

·         Nature Of Transactions

-      Unusual or unjustified complexity

-     

 

 
 
No economic rationale or bonafied purpose Source of funds are doubtful

-      Appears to be case of insider trading

-      Purchases made on own account transferred to a third party through an off market transactions through DP account

-      Transactions reflect likely market manipulations Suspicious off market transactions

 

·         Value Of Transactions

-      Value just under the reporting threshold amount in an apparent attempt to avoid reporting.

-     

 

 
 
Large sums being transferred from overseas for making payments Inconsistent with the clients apparent financial standing Inconsistency in the payment pattern by client.

-      Block deal which is not at market price or prices appear to be artificially inflated / deflated.

 

What to Report

·         The nature of the transactions

·         The amount of the  transaction  and  the  currency  in  which  it  was denominated

·         The date on which the transaction was conducted: and

·         The parties to the transaction.

·         The reason of suspicion.

 

 

When to Report      

 

 

In  terms  of  the  PMLA  rules,  brokers  and  sub-brokers  are  required  to  report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND) 6th Floor, Hotel Samarat, Chanakyapuri, New Delhi - 110021 as per the schedule given below :

 

Report

 

Description

Due Date

CTR

All cash transactions of the value of more than Rs.10 Lakhs or its equivalent in foreign currency

 15th day of the succeeding month

All  series of cash  transactions Integrally connected to each other which have been valued below Rs.10 Lakhs or its equivalent in foreign  currency  where  such series of

transactions have  taken place within  a month.

 15th day of the succeeding month

CCR

All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions.

 15th day of the succeeding month

STR

 

All suspicious transactions whether or not made in cash.

 

Not later than seven working days on being satisfied that the transaction is suspicious.

NTR

Non Profit Organization Transaction

Report.

 

 15th day of the succeeding month

 

CBWTR

All cross border wire transfers of the value of more than five lakh rupees or its equivalent in foreign currency where either the origin or destination of fund is in India.

 15th day of the succeeding month

 

 

IPR

All purchase and sale by any person of immovable property valued at fifty lakh rupees or more that is registered by the reporting entity*, as the case may be.

 

 15th day of the month succeeding the quarter.

 

 

Ø  Risk Assessment

 

(i)           We shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to clients, countries or geographical areas, nature and volume of transactions, payment methods used by clients, etc. The risk assessment shall also take into account any country specific information that is circulated by the Government of India/ SEBI from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions. T these can be accessed at: http://www.un.org/sc/committees/1267/aq_sanctions_list.shtml and http://www.un.org/sc/committees/1988/list.shtml

 

(ii)         The risk assessment carried out shall consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. The assessment shall be documented, updated regularly and made available to competent authorities and self regulating bodies, as and when required.

 

Other Important Points:

 

 

·         CTR/STR filings are confidential and shall be transmitted by speed/ registered post/fax.

·         Principal Officer shall be responsible for timely submissions.

·         All reporting including nil reporting shall be made to FIU_IND.

 

Designated Principal Officer

 

In case any further information /clarification is required in this regard, the ‘Principal Officer’ may be contacted.

 

Mr. Rikin Shah,

Fortune Fiscal Ltd.,

208- Bluechip Complex,

Sayajigunj,

Vadodara-390005.

Tel: 0265-2225614, 2361450

 

Email: fortunefiscal@yahoo.co.in

 

Ø  Updation of the policy

The policy shall be revised/ updated on an annual basis

 

Approved at the Board meeting Fortune Fiscal Limited held on April 18, 2017