What changed
The Government amended the Prevention of Money-laundering Rules, 2005 via notification dated June 16, 2010. Key changes include a new explanation that transactions financing terrorism are covered, substituted rules 9(1A), 9(1B), and 9(1C) requiring identification of beneficial owners, ongoing due diligence, and prohibition of anonymous accounts, and inserted rule 9(1D) for review of due diligence when suspicions arise, plus an explanation in rule 10 on records of identity and cessation of transactions.
What it means for you
Banking companies, financial institutions, and intermediaries must now explicitly identify beneficial owners behind clients and continuously monitor transactions for consistency with client profiles. Non-compliance with these AML rules for foreign exchange transactions will be treated as failure to comply with RBI directions under sections 10(4) and 11(1) of FEMA 1999.
What you must do
- Update internal AML/KYC policies to incorporate the new beneficial owner identification and ongoing due diligence requirements.
- Train staff handling forex transactions on the expanded definition of terrorism financing and enhanced monitoring obligations.
- Ensure systems can flag transactions linked to terrorism financing and verify beneficial ownership for all clients.
- Review compliance frameworks to treat any failure under these rules as a FEMA violation for reporting and penalty purposes.
Who it affects
All authorised persons, Banking companies, Financial institutions and intermediaries covered under PMLA
What is the key change in the Second Amendment Rules 2010?
The amendment inserts an explanation covering transactions financing terrorism, substitutes rules 9(1A), 9(1B), and 9(1C) to mandate identification of beneficial owners, ongoing due diligence, and prohibition of anonymous accounts, inserts rule 9(1D) for review of due diligence when suspicions arise, and adds an explanation in rule 10 on records of identity and cessation of transactions.
Do these rules apply only to new clients or existing ones too?
The ongoing due diligence requirement applies to every business relationship with every client, so existing clients are also subject to review for beneficial ownership and transaction consistency.