RBI Tightens KYC/AML Rules for High-Risk Jurisdictions and Shell Banks
Current · Source: Reserve Bank of India · RBI/2009-10/494 · issued 15 Jun 2010 · ~2 min read
Quick answerRBI mandates banks to scrutinize transactions from countries with weak AML/CFT regimes, using public info beyond FATF statements, and prohibits relationships with shell banks or foreign respondents that allow shell bank use.
The rule, in the simplest words
Banks must use publicly available information to identify countries with weak AML/CFT regimes, not just FATF statements.
Banks must examine the background and purpose of transactions from high-risk jurisdictions and retain findings for authorities.
Banks are prohibited from entering into relationships with shell banks and must verify that foreign respondent institutions do not allow shell bank use.
How it plays out — a real example
Rahul, a KYC & compliance officer in Indore, must carefully review transactions from countries with weak AML/CFT regimes, using publicly available information beyond FATF statements. He must also examine the background and purpose of these transactions and retain written findings for authorities. If he suspects a transaction is suspicious, he will not establish a relationship with the shell bank involved and will verify that the foreign respondent institution does not permit shell bank use.
What changed
RBI clarified that banks must use publicly available information, not just FATF statements, to identify countries with deficient AML/CFT regimes. It also reinforced that banks must examine the background and purpose of transactions from such jurisdictions and retain findings for authorities. Additionally, RBI explicitly prohibited entering into relationships with shell banks and required banks to verify that foreign respondent institutions do not allow shell bank use.
What it means for you
Banks must now proactively monitor and document transactions from high-risk jurisdictions, even if not explicitly listed by FATF, increasing compliance burden. The shell bank prohibition tightens correspondent banking due diligence, potentially limiting relationships with foreign institutions that have weak controls. Non-compliance risks penalties under the Banking Regulation Act, 1949.
What you must do
Update KYC/AML policies to include publicly available information for identifying high-risk jurisdictions beyond FATF statements.
Implement enhanced due diligence for all transactions and relationships with persons or entities from countries with deficient AML/CFT regimes.
Document and retain written findings for transactions lacking apparent economic or lawful purpose, and make them available to RBI on request.
Ensure no correspondent relationship is established with shell banks or foreign institutions that permit shell bank use, and verify this before onboarding.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), All India Financial Institutions, Local Area Banks
❓ Common questions
What sources should we use to identify high-risk jurisdictions beyond FATF statements?
RBI advises using publicly available information, such as reports from international bodies or credible sources, to identify countries that do not or insufficiently apply FATF recommendations.
What are the consequences of non-compliance with these guidelines?
Non-compliance or contravention of these guidelines, issued under Section 35A of the Banking Regulation Act, 1949, will attract penalties under the same Act.
How should we handle transactions from high-risk jurisdictions that seem to have no lawful purpose?
Examine the background and purpose of such transactions, document written findings, retain all related documents, and make them available to RBI or other authorities upon request.
📜 Read the original circular — full text as issued by RBI
RBI/2009-10/494
DBOD. AML.BC. No. 111/14.01.001/2009-10
June 15, 2010
The Chairmen and Chief Executive Officers
All Scheduled Commercial Banks excluding RRBs/
All India Financial institutions/ Local Area Banks
Dear Sir,
Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under Prevention of Money Laundering Act ( PMLA), 2002.
Please refer to the Master Circular DBOD.AML.BC. No.2/14.01.001/ 2009-10 dated July 01, 2009 on Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/ Obligation of banks under Prevention of Money Laundering Act (PMLA), 2002.
Countries which do not or insufficiently apply the FATF recommendations.
2. In paragraph 2.11 ( c ) of the Master circular dated July 1, 2009 referred to above, banks have been advised to take into account risks arising from the deficiencies in AML/CFT regime of the jurisdictions included in the FATF Statement. It is further advised that banks should, in addition to FATF Statements circulated by Reserve Bank of India from time to time, also consider publicly available information for identifying countries, which do not or insufficiently apply the FATF Recommendations. It is clarified that banks should also give special attention to business relationships and transactions with persons (including legal persons and other financial institutions) from or in countries that do not or insufficiently apply the FATF Recommendations and jurisdictions included in FATF Statements.
3. In terms of paragraph 2.7 of the Master Circular dated July 1, 2009, ongoing monitoring is an essential element of effective KYC procedures. It is advised that banks should examine the background and purpose of transactions with persons (including legal persons and other financial institutions) from jurisdictions included in FATF Statements and countries that do not or insufficiently apply the FATF Recommendations. Further, if the transactions have no apparent economic or visible lawful purpose, the background and purpose of such transactions should, as far as possible be examined, and written findings together with all documents should be retained and made available to Reserve Bank/other relevant authorities, on request.
Shell Banks
4. In terms of instructions contained in Para 2.12(b) of the Master Circular dated July 1, 2009 referred to above, banks should guard against establishing relationships with respondent foreign financial institutions that permit their accounts to be used by shell banks. It is clarified that banks should not enter into relationship with shell banks and before establishing correspondent relationship with any foreign institution, banks should take appropriate measures to satisfy themselves that the foreign respondent institution does not permit its accounts to be used by shell banks.
5. These guidelines are issued under Section 35A of the Banking Regulation Act, 1949. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.
Yours faithfully,
(Vinay Baijal)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/494 · issued 15 Jun 2010. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All Scheduled Commercial Banks (excluding RRBs), All India Financial Institutions, Local Area Banks), your first concrete step on “RBI Tightens KYC/AML Rules for High-Risk Jurisdictions and Shell Banks” is: “Update KYC/AML policies to include publicly available information for identifying high-risk jurisdictions beyond FATF statements.” (RBI issued this 15 Jun 2010).
Circular: RBI/2009-10/494 -- RBI Tightens KYC/AML Rules for High-Risk Jurisdictions and Shell Banks
Issued: 15 Jun 2010
Action required: Update KYC/AML policies to include publicly available information for identifying high-risk jurisdictions beyond FATF statements.
Action required: Implement enhanced due diligence for all transactions and relationships with persons or entities from countries with deficient AML/CFT regimes.
Action required: Document and retain written findings for transactions lacking apparent economic or lawful purpose, and make them available to RBI on request.
Action required: Ensure no correspondent relationship is established with shell banks or foreign institutions that permit shell bank use, and verify this before onboarding.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5726&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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