ABML POLICY ON ANTI MONEY LAUNDERING

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1 ABML POLICY ON ANTI MONEY LAUNDERING Preamble In terms of the guidelines issued by the Securities Exchange Board of India (SEBI) for both trading and demat accounts on Know Your Customer(KYC) standards and Anti Money Laundering(AML) measures, intermediaries (both brokers and depository participants) are required to put in place a comprehensive policy frame work covering KYC Standards and AML Measures. This policy document is prepared in line with the SEBI guidelines and incorporate Aditya Birla Money approach to customer identification procedures, customer profiling based on the risk perception and monitoring of transactions on an ongoing basis. The objective of this policy document is to prevent Aditya Birla Money Ltd from being used, intentionally or unintentionally, by criminal elements for money laundering activities and for identifying, monitoring and reporting suspected money laundering or terrorist financing transactions to the law enforcement authorities. Definition of Money Laundering Section 3 of the Prevention of Money Laundering [PML] Act 2002 has defined the offence of money laundering as under: Whosever directly or indirectly attempts to indulge or knowingly assists or knowingly is party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering. Money launders may use the broking system for cleansing money earned through criminal activities with the objective of hiding/disguising its source. The process of money laundering involves creating a web of financial / trading transactions so as to hide the origin and true nature of these funds. Money launders also disguise the true source of funds by investing the funds earned out of terrorist / criminal activities through third party accounts. 1 P a g e

2 Obligations under Prevention of Money Laundering [PML] act 2002 Section 12 of PML Act 2002 places certain obligations on every banking company, financial institution and intermediary which include (i) maintaining a record of prescribed transactions (ii) Furnishing information of prescribed transactions to the specified authority(iii) Verifying and maintaining records of the identity of its clients(iv) Preserving records in respect of (i), (ii), (iii) above for a period of 5 years from the date of cessation of transactions with the clients. These requirements would come into effect after Govt. of India frames rules under the Act. Policy Objectives 1. To prevent criminal elements from using the Aditya Birla Money Ltd trading / demat system for money laundering activities. 2. To enable Aditya Birla Money Ltdto know / understand its customers and their financial dealings better, which in turn would help Aditya Birla Money Ltd to manage risks prudently. 3. To put in place appropriate controls for detection and reporting of suspicious activities in accordance with applicable laws/laid down procedures. 4. To comply with applicable laws and regulatory guidelines related to anti money laundering. 5. To take necessary steps to ensure that the concerned staff are adequately trained in KYC/AML procedures. Scope This policy is applicable to all branches/offices of Aditya Birla Money Ltd and is to be read in conjunction with related operational guidelines issued from time to time. Key Elements of the Policy 1. Policy for acceptance of clients 2 P a g e

3 2. Transaction monitoring 3. Reporting 4. Maintenance of records Client Acceptance Policy Aditya Birla Money Ltd should identify the types of customers that are likely to pose a higher than the average risk of money laundering or terrorist financing. By establishing such policies and procedures, Aditya Birla Money Ltd will be in a better position to apply customer due diligence on a risk sensitive basis depending on the type of customer business relationship or transaction. Money laundering is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecution, conviction and confiscation of the criminal funds. The term Money Laundering is also used when the funds are used for terrorist financing though the origin of the funds may be legitimate. The level of Money Laundering risks that ABML is exposed to by a client relationship depends on: 1. Type of the client and nature of business 2. Type of product / service availed by the client Based on the above criteria, the clients may be classified into three Money laundering Risk levels Low / Medium / High. Some examples of the risk categories are enumerated below: 3 P a g e

4 Low Risk 1. Salaried employees who have well defined salary structure 2. Government Departments 3. Government Owned Companies, 4. Regulators and 5. Statutory bodies Medium Risk 1. Businessmen 2. Listed Companies 3. HUF 4. Sole Proprietorship concern High Risk 1. HNIs 2. Politically Exposed Persons 3. Heads of State or Central Government 4. Ministers of State or Central Government 5. Senior Politicians 6. Important Party Officials 7. Senior Government Officials 4 P a g e

5 8. Senior Military Officers 9. Senior executives of state-owned corporations 10. Trust, Charities, Non-Governmental Organizations (NGOs) and organizations receiving donations 11. Non Face to Face Clients 12. Professional Intermediaries like Mutual Funds etc. 13. Companies offering foreign exchange offerings 14. NRI clients 15. Antique Dealers 16. Arms Dealers 17. Persons with criminal track record 18. Family Members / Relatives of all the above categories 19. Clients with dubious reputation as per public information available etc. 20. Unregistered Partnership Firms The following criteria should be adopted by sales personnel while opening accounts: 1. Accept clients after verifying their identity as laid down in Client Identification Policy. 2. Not open accounts in the name of anonymous / fictitious / benami persons 3. Not to open accounts when it is not possible to ascertain the identity of the client, or the information provided by the client is suspected to be non genuine, or there is perceived non co-operation of the client in providing full and complete information 5 P a g e

6 4. Not to open accounts if care of address is furnished by the client. Client shall have to furnish his actual residential address or his permanent address. 5. Not to open accounts when identity of the client matches with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide. 6. Collect complete details of the nature of business / occupation in which a client is engaged in and the same to be recorded in the appropriate column provided in the client registration form. 7. Collect complete and accurate details of the networth of the client and the same to be recorded in the appropriate column provided in the client registration form to enable classification of client and to monitor client transactions based on declared networth. 8. Collect accurate annual income details of the client and the same to be recorded in the appropriate column provided in the client registration form. to enable classification of client and to monitor client transactions based on declared networth. 9. Collect any of the following documents as proof of annual income and / or networth: a. Copy of ITR acknowledgements b. Copy of Annual Accounts c. Copy of Form 16 in case of salary income d. Networth Certificate attested by a Practicing Chartered Accountant e. Salary Slip f. Bank Statement for last six months g. Copy of demat account holding statement h. Any other document substantiating ownership of assets 6 P a g e

7 i. Self declaration alongwith relevant supporting Opening of the High Risk Category accounts would need specific approval of Zonal Managers and additional due diligence measures to be adopted for registering the client. Approval of senior management personnel i.e. Head Sales and Chief Operating Officer is required for registering PEPs Sales personnel shall have direct interaction with the client while opening an account i.e. the client shall be met in person and In Person Verification procedures shall be carried out. Sales Personnel shall ensure that all the details required to be collected as per the client registration form are collected and filled in the respective columns. No column should be left blank. Further sales shall necessarily collect the necessary proofs enumerated in the client registration form while registering a client. While collecting the information required to open an account clients might, sometimes, raise questions with regard to the motive and purpose of collecting such information. There is, therefore, a need for the sales personnel to sensitize clients about these requirements as the ones emanating from AML and CFT framework and shall educate them about the necessity for sharing the same. In case the business and residential address are one and the same, the premises shall be visited by the branch manager and shall have to attest the validity of the address. 7 P a g e

8 Client Identification Policy Sufficient information about the client would enable authorities to counter the efforts of laundering the proceeds of crime. In addition to minimizing the risk of being used for illicit activities, adequate KYC information provides protection against fraud, enables suspicious activity to be recognized and protects ABML from reputational and financial risks. Sales personnel should not establish a business relationship with a client until all relevant parties to the relationship have been identified and the nature of the business they expect to conduct has been established. The first requirement of knowing your client for money laundering purposes is to be satisfied that a prospective client is who he/she claims to be. It is important to determine whether an applicant for business is undertaking a one-off transaction or whether the transaction is, or will be, part of a business relationship as this can affect the identification requirements. The second requirement of knowing the client is to ensure that sufficient information is obtained on the nature of the business that the client expects to undertake, and any expected, or predictable, pattern of transactions. A risk based approach will be needed in respect of the extent of the additional information that might be required or validated for this purpose. Identity of a client is established using the following parameters: 1. Name including all other names used 2. Photograph 3. Proof of Identity documents 4. Date of Birth 8 P a g e

9 5. Address at which a client can be located The failure or refusal by an applicant to provide satisfactory identification evidence within a reasonable time scale and without adequate explanation may lead to a suspicion that the client is engaged in money laundering. In such circumstances, sales personnel should not attempt to open accounts for such clients. While opening accounts for individuals sales personnel shall adopt the following parameters: 1. In Person Verification to be conducted for all clients i.e. all clients shall be met in person / original proof of identity to be verified / photocopy of proof of identity to be compared with photograph of client, original proof of identity and the client himself / herself and if all the three match, IPV to be recorded in the respective column in the client application form. IPV has to be carried out by the employees or by registered Intermediaries of ABML only 2. Originals of Proof of Identity to be verified 3. Compare photograph with the photograph available on the proof of identity 4. Compare signature of the client with the signature available on the proof of identity 5. Collect multiple proof of identity 6. Seek details of residential address if official address is furnished by client 7. Seek details of permanent address if temporary residential address is furnished. 9 P a g e

10 8. Original Proof of Identity to be verified 9. Obtain latest photographs 10. Obtain additional proof of identity if the face is unclear in the proof of identity is furnished by the applicant 11. Details of occupation / employment to be sought 12. Details of annual income and networth to be sought 13. In case of sole proprietorship concern, letter from banker verifying the identity (photograph of sole proprietor to be affixed on bank letter and certified by banker), name of the sole proprietorship concern, name of the sole proprietor, residential address / office address of the sole proprietor and bank account number shall be taken. 14. Collect visiting cards of clients 15. Collect constituent profile and interest in stock broking to be properly recorded in the application form at the respective column. 16. Clients shall have to self certify all proofs submitted by them i.e. signatures of clients shall be taken from all clients under the tag True copy. 17. Sales personnel shall also affix their signature on all proofs, with their name, employee code and date under the tag verified with originals. 10 P a g e

11 18. List of proof of identity / address / bank accounts / annual income / networth are clearly enumerated in the application form. 19. Introducer details are to be clearly indicated in the application form. Proof of identity of the introducer to be obtained. Address details of introducer shall be enumerated in the application form. 20. Introduction of large number of accounts by a single introducer [either account holder or staff] to be accepted with caution. 21. Additional documents establishing the correct legal name of the client shall be obtained in case of mismatch of names in the proofs provided by the client and the name entered by the client in the application form. 22. Additional proof of identity / proof of address shall be obtained from clients whose name differs in documents furnished by them. 23. Proof of address details should be obtained in proper format and as prescribed by Exchanges and SEBI. No leverage should be adduced to the client in this regard as it forms the basis of identifying the client at a particular location. While opening accounts for non individual accounts sales personnel shall adopt the following parameters: 1. In Person Verification of the authorized signatory / partner / trustee (i.e. person authorized to operate the account) to be undertaken 11 P a g e

12 2. Capture details of all the promoters / directors / partners / trustees of the respective entities 3. In case of corporates / firms / trusts being promoters of non individual client, details of the promoter entity to be obtained i.e. details of promoters / directors / partners / trustees etc. 4. In case of non-individuals other than an individual or trust, viz., company, partnership or unincorporated association/body of individuals, identification of the ultimate beneficial owner to be carried out through the following information: The identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest. Explanation: Controlling ownership interest means ownership of/entitlement to: i. more than 25% of shares or capital or profits of the juridical person, where the juridical person is a company; ii. more than 15% of the capital or profits of the juridical person, where the juridical person is a partnership; or iii. more than 15% of the property or capital or profits of the juridical person, where the juridical person is an unincorporated association or body of individuals. In case of a trust, identify beneficial owners of the client and take reasonable measures to identify such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. In case the client or owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies. 12 P a g e

13 5. Proof of identity details of all promoters / directors / partners / trustees to be taken 6. Proof of address details of all promoters / directors / partners / trustees to be taken 7. Proof of identity and address to be taken for authorized signatory (i.e. person authorized to operate the account) if different from promoter / director / partner / trustee. 8. Nature of business of the company to be clearly established and recorded in the client registration form though main objects clause in Memorandum of Articles is an indicator 9. Photographs of promoters / directors / authorized signatories to be obtained. 10. Copy of PAN card of the company to be obtained 11. Form 32 in case of company / Partnership Deed and / or Form V in case Partnership Firm / Trust Deed or list of promoters / partners / trustees on the respective letters heads to be taken to maintain a record of owners / beneficiaries. 12. Collect these details on an annual basis or atleast get a confirmation on the letter head of the respective entities that there is no change in the shareholding pattern / directors / partners / trustees. 13. Collect on an annual basis audited balance sheets / net worth certificate attested by a chartered accountant from the respective entities 14. Introduction of a non individual client by an existing non individual client or banker of the non individual client is a must. Signature of the authorized signatory with 13 P a g e

14 seal in case of existing non individual client and signature of bank manager with name, designation and employee number with bank seal shall be taken at the appropriate place in the application form 15. When authorized signatories change, care should be taken to ensure that the identity of any new signatories has been verified and captured properly and updated as per the parameters listed above. 16. In case of HUF, proof of identity of Kartha, Proof of Address of Kartha, List of coparceners in listed by seniority, Declaration by all members of the HUF shall be Pobtained. Factors / Parameters of risk perception (in terms of monitoring suspicious transactions) 1. Clients location (registered office address, correspondence addresses and other addresses if applicable), 2. Nature of business activity, 3. Trading turnover etc. 4. Manner of making payment for transactions undertaken. Apart from the above parameters, SEBI guidelines on AML Policy has classified the following clients of high risk / special category for whom risk categories have to be assigned and who shall have to be monitored on an ongoing basis: 1. Non resident clients 2. High networth clients, 3. Trust, Charities, NGOs and organizations receiving donations 4. Companies having close family shareholdings or beneficial ownership 5. Politically exposed persons (PEP) 6. Politically exposed persons (PEP) of foreign origin 14 P a g e

15 7. Current / Former Head of State, Current or Former Senior High profile politicians and connected persons (immediate family, close advisors and companies in which such individuals have interest or significant influence) 8. Companies offering foreign exchange offerings 9. Clients in high risk countries (where existence / effectiveness of money laundering controls is suspect, where there is unusual banking secrecy, countries active in narcotics production, countries where corruption, countries against which government sanctions are applied, countries reputed to be any of the following havens / sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent. 10. Non face to face clients 11. Clients with dubious reputation as per public information available etc. Once the client s background in identified, verification of the customer s identity using reliable, independent source documents, data or information shall be undertaken. Ensure that an account is not opened where Aditya Birla Money Ltdis unable to apply appropriate clients due diligence measures / KYC policies. This may be applicable in cases where it is not possible to ascertain the identity of the client, information provided to the intermediary is suspected to be non-genuine, perceived non-cooperation of the client in providing full and complete information. Transaction monitoring: Regular monitoring of transactions is vital for ensuring effectiveness of the Anti Money Laundering procedures. The following activities / transactions to be monitored on an ongoing basis to enable Aditya Birla Money Ltd to submit periodical CTRs / STRs: 1. Monitor clients having large deposits (in the form of monies credit in trading accounts and value of shares in base capital / demat accounts) kept with Aditya Birla Money Ltd where the proportion of trading turnover is inconsistent with the deposit of client. Report on monthly trading 15 P a g e

16 turnover of the client to be compared with the income /net worth declared and the value of the portfolio of the client available in demat account / base capital. 2. Monitor clients whose monthly turnover is five times his / her / its annual income Monitor transactions in illiquid stocks (B2, Z, & T2T) as a percentage of scripts traded during a period by a client. Monitor percentage of illiquid stock traded by a client as a percentage of market turnover of that scrip for NSE/BSE on a daily basis with a consolidation on monthly basis. 3. Monitor multiple client codes with same PAN number 4. Monitor substantial increase in turnover in a dormant account (i.e. account which is inactive for more than six continuous months both trading and demat accounts) without apparent cause. 5. Monitor instances of same address / contact number in case of multiple (more than 10) accounts. 6. Monitor Top 10% clients by volume across segment 7. Monitor 100% of NRI clients by volume (clients of special category) 8. Verification of amounts paid through third party cheques 9. Verification of amounts paid through demand drafts 10. Off market transfers in dormant demat accounts 16 P a g e

17 Reporting Any suspicious transaction should be immediately notified to the Principal Officer or any other designated officer within the intermediary. The notification may be done in the form of a detailed report with specific reference to the clients, transactions and the nature / reason of suspicion. The following details shall be part of the report: 1. Complete KYC details of client 2. Cumulative Credit Turnover of the client 3. Cumulative Debit Turnover of the client 4. Date of transaction 5. Total number of securities involved 6. Brief note on the transaction However, it should be ensured that there is continuity in dealing with the client as normal until told otherwise and the client should not be told of the report / suspicion. In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended, in one or more jurisdictions concerned in the transaction, or other action taken. Maintenance of records: In terms of sub-clause 8.1 of Part II regarding maintenance of records pertaining transactions of clients the intermediary should ensure a record of transaction is preserved and maintained for a period of five years. In sub-clause 8.2 of Part II regarding maintenance of records pertaining to identity of clients Records evidencing the identity of its clients and beneficial owners as well as account files and business correspondence shall be maintained and preserved for a period of five years after the business relationship between a client and intermediary has ended or the account has been closed, whichever is later. Suspicious transactions should also be regularly reported to the higher authorities / head of the department. 17 P a g e

18 KYC for the existing accounts While the KYC guidelines will apply to all new clients, the same should be applied to the existing customers on the basis of materiality and risk. KYC details should be obtained from all existing clients within the time frame specified by SEBI and other regulatory authorities. However, transactions in existing accounts would be continuously monitored for any unusual pattern in the operation of the accounts. Recruitment and Training of Employees Employees shall be screened at the time of recruitemnet and shall be trained on antimoney laundering procedures. Principal Officer Principal Officer appointed under AML guidelines, shall with the help of AML team shall monitor all the transactions listed above and shall submit periodical CTRs and STRs. Designated Director Designated Director appointed under AML guidelines, will overview and responsible for ABML to comply with AML/CFT obligation from time to time. AML Team An AML team shall be formed which will monitor the transactions listed above on an ongoing basis, analyze transactions, identify transactions that are suspicious in nature and report the same to the concerned authority through the Principal Officer. Review of the Policy The policy will be reviewed basis regulatory changes to the Act or Regulations or once in a year or as and when considered necessary by the Board. 18 P a g e