KYC/AML norms for UCBs: FATF countries & shell banks
Current · Source: Reserve Bank of India · RBI/2010-11/180 · issued 25 Aug 2010 · ~2 min read
Quick answerRBI directs Primary Urban Co-operative Banks to monitor transactions from FATF-identified jurisdictions and countries with weak AML/CFT regimes. Banks must also avoid relationships with shell banks and verify foreign respondent institutions don't enable shell bank use.
The rule, in the simplest words
Watch transactions from countries that don't follow FATF (a global group that fights money-laundering) rules.
If a transaction has no clear reason, write down what you found and keep the papers for RBI (Reserve Bank of India) to see.
Never do business with shell banks (fake banks with no real office or staff).
Before working with a foreign bank, check that it doesn't let shell banks use its accounts.
How it plays out — a real example
A KYC & compliance officer in Indore notices a large deposit from a customer whose address is in a country on the FATF warning list. She checks the transaction's purpose, finds no clear reason, writes a note, and keeps the records ready for RBI inspection, following the rule to monitor such transactions closely.
What changed
RBI reiterated and clarified existing KYC/AML guidelines for UCBs, emphasizing ongoing monitoring of transactions from countries that don't apply FATF recommendations. It also reinforced the prohibition on relationships with shell banks and the need to verify foreign respondent institutions.
What it means for you
UCBs must now systematically screen transactions and business relationships involving persons from FATF-listed or deficient AML/CFT countries. They must also ensure no correspondent relationship allows shell bank access, with non-compliance attracting penalties under the Banking Regulation Act.
What you must do
Review and update KYC/AML policies to include FATF statements and publicly available information on deficient countries.
Implement enhanced monitoring for transactions with persons from FATF-listed or insufficiently compliant jurisdictions.
Ensure no correspondent relationship is established with shell banks or foreign institutions that permit shell bank use.
Document findings of unusual transactions and retain records for RBI or other authorities upon request.
Who it affects
Primary (Urban) Co-operative Banks, Compliance officers at UCBs, Correspondent banking teams at UCBs
❓ Common questions
What are FATF Statements and how should UCBs use them?
FATF Statements identify jurisdictions with deficiencies in AML/CFT regimes. UCBs must consider these statements, along with publicly available information, to identify countries that do not or insufficiently apply FATF recommendations and give special attention to transactions from such countries.
What is a shell bank and why can't UCBs deal with them?
A shell bank is a bank without a physical presence in any country. RBI prohibits UCBs from entering into relationships with shell banks or with foreign respondent institutions that allow their accounts to be used by shell banks, to prevent money laundering and terrorist financing.
What are the penalties for non-compliance with these guidelines?
These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 (AACS). Any contravention or non-compliance may attract penalties under the same Act.
📜 Read the original circular — full text as issued by RBI
RBI/2010-11/180
UBD.BPD. (PCB). No. 11/12.05.001/2010-11
August 25, 2010
The Chief Executive Officers
All Primary (Urban) 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 circular UBD. PCB. Cir. 30 / 09.161.00 / 2004-05 dated December 15, 2004 on KYC guidelines / AML Standards and UBD. (PCB) CO. BPD.Cir. No. 18 / 14.01.062 / 2009- 10 dated October 28, 2009 on Know Your Customer (KYC) norms / AML Standards / CFT.
Countries which do not or insufficiently apply the FATF recommendations
2. In terms of paragraph 4 of the guidelines on KYC norms and AML measures contained in the circular December 15, 2004 banks were advised that on-going 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.
3. In terms of circular dated October 28, 2009, UCBs have been advised to take into account risks arising from the deficiencies in AML/CFT regime of the countries 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.
Shell Banks
4. In terms of the indicative guidelines on customer identification requirements contained in Annex – I of circular dated December 15, 2004, 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 35 A of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies). Any contravention thereof or non-compliance shall attract penalties under the Banking Regulation Act, 1949 (AACS).
Yours faithfully
(Uma Shankar)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/180 · issued 25 Aug 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 (Primary (Urban) Co-operative Banks, Compliance officers at UCBs, Correspondent banking teams at UCBs), your first concrete step on “KYC/AML norms for UCBs: FATF countries & shell banks” is: “Review and update KYC/AML policies to include FATF statements and publicly available information on deficient countries.” (RBI issued this 25 Aug 2010).
Circular: RBI/2010-11/180 -- KYC/AML norms for UCBs: FATF countries & shell banks
Issued: 25 Aug 2010
Action required: Review and update KYC/AML policies to include FATF statements and publicly available information on deficient countries.
Action required: Implement enhanced monitoring for transactions with persons from FATF-listed or insufficiently compliant jurisdictions.
Action required: Ensure no correspondent relationship is established with shell banks or foreign institutions that permit shell bank use.
Action required: Document findings of unusual transactions and retain records for RBI or other authorities upon request.
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.
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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=5965&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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