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
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.