What changed
The Government of India amended the Prevention of Money-laundering Rules, 2005, via notification dated June 16, 2010. The amendment inserts an explanation that transactions involving financing of terrorism include those linked to terrorists or terrorist organizations. It also replaces sub-rules (1A) and (1B) of rule 9, requiring entities to identify beneficial owners and exercise ongoing due diligence on client transactions.
What it means for you
Payment system operators must now explicitly treat any transaction suspected of funding terrorism as a reportable activity under PMLA. The enhanced due diligence requirements mean banks and intermediaries need to verify beneficial ownership and continuously monitor transactions against client risk profiles. Non-compliance could lead to regulatory action under the PMLA framework.
What you must do
- Update your AML/KYC policies to include the new definition of terrorism financing transactions.
- Implement procedures to identify beneficial owners for all clients and verify their identity.
- Enhance transaction monitoring systems to flag and report transactions linked to terrorism.
- Train staff on the amended rules and ensure ongoing due diligence for all business relationships.
Who it affects
All entities authorized to operate payment systems in India, Banking companies, Financial institutions, Intermediaries
What is the key change introduced by the Second Amendment Rules, 2010?
The amendment adds an explanation that transactions involving financing of terrorism include those linked to terrorists or terrorist organizations. It also mandates entities to identify beneficial owners and exercise ongoing due diligence on client transactions.
When did these rules come into effect?
The rules came into force on the date of their publication in the Official Gazette, which was June 16, 2010.
Who is responsible for compliance with these rules?
All entities authorized to operate payment systems in India, including banking companies, financial institutions, and intermediaries, must comply with the amended rules.