KYC/AML norms for co-op banks: FATF non-compliant countries & shell banks
Current · Source: Reserve Bank of India · RBI/2010-11/120 · issued 20 Jul 2010 · ~2 min read
Quick answerRBI directs all state and central co-op banks to enhance scrutiny of transactions from FATF-listed and non-compliant countries, and prohibits relationships with shell banks. Banks must use public info to identify high-risk jurisdictions and document suspicious transactions.
The rule, in the simplest words
Banks must check public information (like news or reports) to find countries that don't follow FATF (a global group that fights money laundering) rules, not just rely on RBI (India's central bank) updates.
If a customer or bank from a risky country does a transaction that seems to have no real reason or legal purpose, the bank must write down why it happened and keep the records for RBI to see.
Banks are not allowed to work with shell banks (fake banks with no real office or staff) and must make sure their foreign partner banks also don't let shell banks use their accounts.
How it plays out — a real example
A KYC & compliance officer in Indore notices a transaction from a bank in a country on a public list of places with weak anti-money laundering rules. She checks the background and finds the customer has no clear business reason for the transfer, so she documents her findings and keeps the file ready for RBI inspection, following the new rule to use public information beyond RBI's FATF statements.
What changed
RBI expanded the scope of earlier KYC/AML circulars by requiring banks to also use publicly available information, not just RBI-circulated FATF statements, to identify countries with deficient AML/CFT regimes. It clarified that ongoing monitoring must include examining the background and purpose of transactions from such jurisdictions. Additionally, it reinforced the prohibition on correspondent relationships with shell banks and the need to verify that foreign respondent institutions do not allow shell bank use.
What it means for you
Co-operative banks must now proactively source and apply external intelligence on high-risk jurisdictions beyond RBI's FATF updates, increasing compliance burden. The emphasis on documenting transactions without apparent lawful purpose strengthens audit trails and regulatory scrutiny. The shell bank prohibition tightens correspondent banking due diligence, potentially limiting relationships with certain foreign institutions.
What you must do
Update KYC/AML policies to include procedures for using publicly available information to identify FATF non-compliant countries.
Enhance transaction monitoring systems to flag and examine transactions from high-risk jurisdictions, documenting findings.
Review all existing correspondent banking relationships to ensure no shell bank exposure and obtain certifications from foreign respondents.
Train staff on identifying suspicious transactions from non-compliant countries and maintaining written records for regulatory access.
Conduct periodic audits of AML/CFT compliance, focusing on FATF-related risks and shell bank prohibitions.
Who it affects
All State and District Central Co-operative Banks, Compliance and AML teams, Correspondent banking relationship managers, Internal audit departments
❓ Common questions
What is a 'shell bank' and why is it prohibited?
A shell bank is a bank without a physical presence in the country where it is incorporated and licensed, and which is not part of a regulated financial group. RBI prohibits co-op banks from entering into relationships with shell banks because they pose high money laundering and terrorist financing risks.
How should we identify countries that do not apply FATF recommendations?
In addition to FATF statements circulated by RBI, banks must use publicly available information such as FATF public statements, mutual evaluation reports, and other credible sources to identify jurisdictions with deficient AML/CFT regimes.
What documentation is required for transactions from high-risk countries?
Banks must examine the background and purpose of such transactions. If no apparent economic or lawful purpose exists, written findings and all related documents must be retained and made available to RBI or other authorities upon request.
📜 Read the original circular — full text as issued by RBI
RBI/2010-11/120
RPCD.CO.RF.AML.BC.No.11/07.40.00//2010-11
July 20, 2010
The Chairmen and Chief Executive Officers
All State and District Central Co-operative 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 our circulars RPCD.AML.BC.No.80/07.40.00/2004-05 dated February 18, 2005 and RPCD.CO.RF. No.16412/ 07.02.12/2008-09 dated June 12, 2009 on Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards and Combating of Financing of Terrorism (CFT).
Countries which do not or insufficiently apply the FATF recommendations.
2. In paragraph 2 of the circular RPCD.CO.RF.AML.No.13412/07.02.12/2008-09 dated June 12, 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 4 of the Guidelines on 'Know Your Customer' Norms and Anti Money Laundering Measures enclosed to our circular RPCD.AML.BC.No.80/07.40.00/ 2004-05 dated February 18, 2005, 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 Annex-I to the Guidelines on 'Know Your Customer' Norms and Anti-Money Laundering Measures enclosed with the Circular dated February 18, 2005, 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(As Applicable to Co-operative Societies). Any contravention thereof or non-compliance shall attract penalties under the said Act.
Yours faithfully,
(B.P.Vijayendra)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/120 · issued 20 Jul 2010. The plain-English explanation above is BankPulse’s own independent summary.
Enhance transaction monitoring systems to flag and examine transactions from high-risk jurisdictions, documenting findings.
📜 Compliance
Update KYC/AML policies to include procedures for using publicly available information to identify FATF non-compliant countries.
Review all existing correspondent banking relationships to ensure no shell bank exposure and obtain certifications from foreign respondents.
Train staff on identifying suspicious transactions from non-compliant countries and maintaining written records for regulatory access.
Conduct periodic audits of AML/CFT compliance, focusing on FATF-related risks and shell bank prohibitions.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All State and District Central Co-operative Banks, Compliance and AML teams, Correspondent banking relationship managers, Internal audit departments), your first concrete step on “KYC/AML norms for co-op banks: FATF non-compliant countries & shell banks” is: “Update KYC/AML policies to include procedures for using publicly available information to identify FATF non-compliant countries.” (RBI issued this 20 Jul 2010).
Circular: RBI/2010-11/120 -- KYC/AML norms for co-op banks: FATF non-compliant countries & shell banks
Issued: 20 Jul 2010
Action required: Update KYC/AML policies to include procedures for using publicly available information to identify FATF non-compliant countries.
Action required: Enhance transaction monitoring systems to flag and examine transactions from high-risk jurisdictions, documenting findings.
Action required: Review all existing correspondent banking relationships to ensure no shell bank exposure and obtain certifications from foreign respondents.
Action required: Train staff on identifying suspicious transactions from non-compliant countries and maintaining written records for regulatory access.
Action required: Conduct periodic audits of AML/CFT compliance, focusing on FATF-related risks and shell bank prohibitions.
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
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=5881&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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