The Prevention of Money Laundering Act (PMLA) places significant compliance responsibilities on banks, financial institutions, and other reporting entities. These entities must maintain robust systems for Client Due Diligence (CDD) and record-keeping, while ensuring timely reporting to the Financial Intelligence Unit – India (FIU-IND).
Below is a structured overview of the core requirements under PMLA.
1. Client Due Diligence (CDD)
Reporting entities are required to implement strong CDD measures to prevent money laundering risks:
• Verify Identity: Establish reliable processes to identify and verify the identity of clients and their beneficial owners.
• Understand Business Relationship: Collect information on the intended purpose and nature of the client’s business relationship.
• Periodic Review: Carry out regular reviews to ensure client information remains accurate and up to date.
2. Record-Keeping Requirements
Accurate and detailed records form the foundation of compliance under PMLA:
• Client and Transaction Records: Maintain records of client identity, account files, business correspondence, and all financial transactions.
• Prescribed Period: Retain records for at least five years, starting from the date of the transaction or the end of the business relationship, whichever is later.
• Reportable Information: Entities must maintain details of specific high-risk or large-value transactions, including:
– Receipts by non-profit organizations exceeding INR 10 lakhs.
– Transactions involving counterfeit currency.
– All suspicious transactions, regardless of value.
– Cross-border wire transfers over INR 5 lakhs, where India is either the origin or destination.
– Purchase or sale of immovable property valued at INR 50 lakhs or more.
3. Reporting to FIU-IND
To ensure transparency, reporting entities must establish formal reporting mechanisms:
• Appoint Key Officers: Nominate a Principal Officer and a Designated Director, and communicate their details to FIU-IND.
• Submit Reports: Furnish monthly reports on cross-border wire transfers and other prescribed transactions.
• Suspicious Transaction Reports (STRs): Report suspicious transactions to FIU-IND within seven working days of identifying the activity as suspicious.
✅ Takeaway for Reporting Entities
Compliance with PMLA is not just about meeting regulatory requirements—it also protects institutions from reputational and operational risks. A well-designed framework for due diligence, record maintenance, and timely reporting is essential for building trust and ensuring financial system integrity.
📋 PMLA Compliance Checklist (Quick Summary)
| Area | Key Requirement | Action Point ✅ |
| Client Due Diligence | Verify identity of clients & beneficial owners | ⬜ Verify & document |
| Understand purpose and nature of business relationship | ⬜ Record purpose | |
| Conduct periodic reviews of client information | ⬜ Review regularly | |
| Record-Keeping | Maintain client identity, account files, and transaction records | ⬜ Store securely |
| Retain for minimum 5 years from end of relationship/transaction | ⬜ Track retention | |
| Capture details of NPO receipts > ₹10 lakh, counterfeit notes, STRs, etc. | ⬜ Monitor closely | |
| Reporting to FIU-IND | Appoint Principal Officer & Designated Director | ⬜ Notify FIU-IND |
| Submit monthly reports (cross-border transfers & prescribed transactions) | ⬜ Report monthly | |
| File Suspicious Transaction Reports (STRs) within 7 working days | ⬜ Report promptly |
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