Circular to All Unit Secretaries / Members: No. 56 /17/ th April You Should Know - 7

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1 STATE BANK OF INDIA OFFICERS ASSOCIATION [Chennai Circle] State Bank Buildings, Telephone : # 84, Rajaji Salai, Post Box No.1992, Fax : Chennai Telegram : SUPSTAFF sbioacc@yahoo.com sbioachennaicircle@gmail.com Website: Circular to All Unit Secretaries / Members: No. 56 /17/ th April 2014 Dear Comrade, You Should Know - 7 Know Your Customer (KYC) is the subject matter of this circular on the You Should Know series. Know Your Customer (KYC) norms have been formulated and introduced by RBI to avoid frauds, money laundering and misuse of Bank Accounts. The cause for many of the charge sheets issued to our comrades is non- observance of KYC norms. By following the norms strictly, we can save our skin and safeguard the Bank. DEFINITION OF A CUSTOMER: A Customer is A person or entity who maintains an account and/or has a business relationship with the bank (borrower, guarantor, Locker holders etc.) One on whose behalf the account is maintained. Beneficiary of transactions conducted by professional bodies such as Chartered Accountants/ Stock Brokers etc. Any person or entity connected with a financial transaction. Any person fulfilling account opening requirements and agrees to comply with the prescribed rules, as applicable to various accounts, provided she/ he furnishes proof of identity and proof of address as required by the Bank. Key elements of KYC/AML/CFT Policy are : (1) Customer Acceptance (2) Customer Identification (3) Monitoring of Transaction (4) Risk Management Customer Acceptance: Accept customers only after verifying their identity, as laid down in Customer Identification Procedures. Identity of a new customer to be checked so as to ensure that it does not match with any person with known criminal background. Accounts for persons having relationships with banned entities such as individual terrorists or terrorist organizations etc. are not to be opened. Accounts should not be opened for persons convicted for predicate offences such as money laundering, terrorist activities, drug trafficking, bank frauds, immoral trafficking etc. Accounts of persons who have been convicted and are lodged in jails can be opened, only with suitable safeguards decided on case to case basis, jointly with the Superintendent of the respective Jail. Classify customers into various risk categories and, based on risk perception, apply the acceptance criteria for each category of customers. - No account is to be opened in anonymous or fictitious/benami name(s)/entity(ies). In other words, thorough checking of antecedents to avoid opening of accounts in fictitious/benami names. - It is to be noted that the adoption of Customer Acceptance Policy and its implementation should not become too restrictive and must not result in denial of banking services to general public, especially to those, who are financially or socially disadvantaged. Customer identification The customer identification shall have to be done on the basis of documents provided by the customer as (a) Proof of identity and (b) proof of address For Individual Accounts: As Proof of identity please obtain any one of the following with authenticated photographs thereon): (i) Passport (ii) Voter ID card 1

2 (iii) PAN Card (iv) Government/Defence ID card (v) ID cards of reputed employers (vi) Driving License (vii) Pension Payment Orders issued to the retired employees by Central/State Government Departments, Public Sector Undertakings (viii) Photo ID cards issued by Post Offices (ix) Photo identity cards issued to bonafide students by a University, approved by the University Grants Commission (UGC) and/or an Institute approved by All India Council for Technical Education (AICTE). (x) Photo identity issued by any public authority having proper record of issuance of identity proof which is verifiable at a later date from such records. (xi) Aadhaar card/letter issued by UIDAI containing details of name, address. - e-aadhaar downloaded from UIDAI website as an officially valid document subject to the following: a) If the prospective customer knows his/her Aadhaar number, the bank may print the prospective customer s e-aadhaar letter in the bank directly from the UIDAI portal; or adopt e-kyc procedure. b) If the prospective customer carries a copy of the e-aadhaar downloaded elsewhere, the bank may print the prospective customer s e-aadhaar letter in the bank directly from the UIDAI portal; or adopt e- KYC procedure or confirm identity and address of the resident through simple authentication service of UIDAI. e-kyc service of UIDAI is a process under which the individual user authorizes the UIDAI, by explicit consent, to release her or his identity/address through biometric authentication to the bank branches/business correspondents (BCs). The UIDAI then transfers the data of the individual comprising name, age, gender, and photograph of the individual, electronically to the bank/bcs, which may be accepted as valid process for KYC verification. (xii) NREGA Job Card can be accepted as an officially valid document for opening of bank accounts without the limitations applicable to Small Accounts. Document accepted for proof of identity should be verified through internet using public/concerned authority website wherever such information is available online. Passport or Voter ID card or Aadhar card or Pension Payment Orders (Govt./PSUs) alone, whereon the address is the same as mentioned in account opening form can be accepted as proof of identity and address. Branch Manager can permit ID cards that are not in the RBI specified list of acceptable IDs, if he is satisfied with the bona-fides of the customer. The Branch Manager allows acceptance of the IDs with his specific approval in a register maintained for this purpose by entering the ID serial number - a serial number prefixed with branch code against ID number. The serial ID number needs to be recorded in the Account Opening Forms as well as on the ID furnished by the customer under the signature of Branch Manager and his SS number. As Proof of current address, please obtain any of the following : (i) Credit Card Statement- not more than 3 months old (ii) Salary slip with address (iii) Income/Wealth Tax Assessment Order (iv) Electricity Bill- not more than 6 months old (v) Landline Telephone Bill - not more than 3 months old (vi) Bank account statement (vii) Letter from reputed employer (viii) Letter from any recognized public authority having proper and verifiable record of issuance of such certificates. (ix) Ration Card (x) Voter ID Card (only if it contains the current address) (xi) Pension Payment Orders issued to retired employees by Government Departments, both Public Sector Undertakings, if they contain current address. (xii) Copies of Registered Leave & License agreement/sale Deed/Lease Agreement may be accepted as proof of address. (xiii) Certificate and also proof of residence, incorporating local address as well as permanent address, issued by the Hostel Warden of the University/Institute, where the student resides, duly countersigned by the Registrar/Principal/Dean of Student Welfare. Such accounts shall however, be required to be closed on completion of education/leaving the University/Institute provided the constituent does not give any other acceptance proof of residence to the Bank. (xiv) For students residing with relatives, address proof of relatives, along with their identity proof, can also be accepted provided declaration is given by the relative that the student is related to him and is staying with him. (xv) In respect of close relatives e.g. wife, son, daughter and parents etc. who live with their husband, father/mother and son/daughter, as the case may be, branch can obtain an identity document and a utility bill of the relative with whom the prospective customer is living, along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her. Supplementary evidence such as a letter received through post only (and not by courier service), can also be taken on record for further verification of the address. However, in case of joint accounts, applicants who are not closely related to each other would be required to establish their identity and address independently. (xvi) In respect of officials of Central/State Governments and Public Sector undertakings, who are low risk customers for Bank, Branch Heads may verify the photo/identity and confirm residential address of such officials from independently verifiable sources, to their satisfaction, and permit opening of accounts. This facility is extended only to the Gazetted officers of Central/State Government and Senior Management and above functionaries of Public Sector Undertakings. 2

3 XVII) Rent agreement duly registered with State Government or similar registration authority indicating the address of the customer Document accepted for proof of address should be verified through internet using public/concerned authority website wherever such information is available online. Note: While the above set should normally suffice to establish the identity and the correct address of the applicant, wherever this is not so, additional documents may be called for. In case of joint accounts, the applicants who are not closely related to each other would require to establish their identity and address independently. For opening of Accounts for companies obtain copies of the following documents and details: Details: Name of the company Principal place of business Mailing address of the company Telephone/Fax Number i) Certificate of incorporation ii) Memorandum & Articles of Association iii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account iv) Details of Promoter Directors with names, addresses and percentage of shareholding. v) Certificate of commencement of business (wherever applicable), vi) Power of Attorney, if any granted to its managers, officers or employees to transact business on its behalf vii) Full KYC (as applicable to individuals) for persons authorised to operate the account. viii) Copy of PAN allotment letter ix) Copy of the telephone bill x) Details of registration of companies should be verified through company master data from Ministry of Corporate Affairs, Govt. of India website xi) Copy of latest Financial Statement xii) Copy of latest Income Tax return The directors, and significant owners (> 20%) should also be subjected to KYC norms. For opening of Accounts for partnership firms obtain copies of the following details and documents Details: Legal name Address Names of all partners and their addresses Telephone numbers of the firm and partners i) Registration certificate, if registered ) ii) Partnership deed iii) Partnership letter iv) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf v) Details of Partners with names, addresses and percentage share vi) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses vii) Telephone bill in the name of firm/partners viii) Copy of latest Income Tax return Partners, and significant owners (> 20%) should be subjected to KYC norms. For opening of Accounts for Trusts & Foundations obtain the following details and documents:- Details:- Names of trustees, settlers, beneficiaries and signatories Names and addresses of the founder, the managers/directors and the beneficiaries Telephone/fax numbers - i) A copy of the Resolution, ii) Trust deed, iii) Certificate of registration, if registered iv) Power of Attorney granted to transact business on its behalf v) Any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders/managers/ directors and their addresses vi) Resolution of the managing body of the foundation/ association vii) Telephone bill Trustees and significant owners (> 20%) should be subjected to KYC norms For Opening Accounts To Societies/Associations/Clubs: 3

4 Details: Name of the Society/Association/ Club Address Name of persons authorised to operate the account Resolution for opening of the account A copy of Bye-laws Copy of Certificate of Registration in the case of Registered Clubs Societies and Associations. Proof of Identification of the office bearers who are opening and operating the account. For opening of Accounts of Proprietorship Concerns please obtain the following details and documents: Details: Proof of the name, Address and activity of the concern Any two of the following documents in the name of the proprietary concern. Registration certificate (in the case of a registered concern) Certificate/licence issued by the Municipal authorities under Shop & Establishment Act, Sales and income tax returns CST/VAT certificate Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/ Department, etc. Banks may also accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT as an identity document for opening of the bank account etc. The complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm's income is reflected, duly authenticated/ acknowledged by the Income Tax Authorities. Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern. Hindu Undivided Family (HUF): HUF comes into being because of a particular concept under Hindu Law whereby all the members of the family reside together jointly, carry on a business activity jointly and hold the property jointly and therefore, it is termed as Hindu Undivided Family. Declaration from the Karta. Proof of Identification of Karta. Prescribed Joint Hindu Family Letter signed by all the adult coparceners For Opening of Accounts for those who are not in a position to submit the documents as per KYC norms, Accounts can be opened for them- -if the balance does not exceed Rs 50,000/ and credit summation does not exceed Rs 1 lakh in a year in all their accounts subject to: a) Introduction from another account holder who has been subjected to full KYC procedure. The introducer s account with the bank should be at least six months old and should show satisfactory transactions. Photograph of the customer who proposes to open the account and also his address needs to be certified by the introducer. or a) At villages, Kisan Bahi/Kisan Passbook issued by revenue authorities and containing photograph/ address of the land holder will be accepted. b) Any other evidence as to the identity and address of the customer to the satisfaction of the bank. However, if at any point of time, the balances in the accounts of such customers with the Bank (taken together) and the total credit summation exceed the above threshold, no further transactions will be permitted until full KYC procedures are completed. Non Face to Face Customers Verification of KYC for Non face to face Customers -Customers with whom Branch has no direct interaction at the time of opening of account e.g. NRI customers who opened the account without visiting the branch should be done by - Banker - Notary Public - Indian Embassy - A person known to the Bank whose signatures are verifiable from Bank s records. - Branches may also accept verification of documents by officers of correspondent banks whose signatures are verifiable through an authorized forex branch of the Bank. ACCOUNTS OPENED BY BUSINESS FACILITATORS AND BUSINESS CORRESPONDENTS. 4

5 BCs and BFs will facilitate filling up of account opening forms, procurement of KYC documents, photograph etc. for accounts opened through them and put up to the home branch where the account will be maintained. For accounts with threshold limit of Rs.50,000/- the Link Branch should verify KYC through personal visits for a minimum of 5% of such accounts. The services of Channel Manager/ Channel Management Facilitator or a Special Assistant may be used for verification of KYC. For accounts that cross the threshold limit of Rs.50,000/-, necessary verification of KYC in a detailed manner will be done at Home branch. Primary responsibility of ensuring KYC compliance in respect of all accounts maintained with it including review of KYC, risk categorization, monitoring of transactions etc. will rest with the parent branch. VERIFICATION OF KYC. The officer-in-charge vested with the authority to open the account, should ensure compliance with the KYC guidelines. The employee/officer, who has interviewed the customer should subscribe his signature, in the space provided in the account opening form, for having interviewed the prospective customer and should ensure that all aspects of KYC guidelines are complied with. Letters of Thanks in all instances of opening of new accounts to be sent by registered post at the recorded addresses to all customers and introducers with dual purpose of thanking them for opening the account with the Bank and for verification of genuineness of address furnished by the account holder. Undelivered envelopes in this regard would be required to be followed-up closely at branch / CPC level and proper noting is to be made in the formalities register at the branches. Copies of letters are to be kept on record. Verification of KYC documents particularly for loan accounts where the loan applicants are already our customers should invariably be done and a pre sanction inspection to verify the recorded address also should be carried out. Most importantly evidence of verification of KYC is to be recorded by branding the verified with original seal and signing in full on the Xerox copies of the KYC documents. Periodical KYC Updation: Customers accounts need to be classified into various risk categories namely Low risk accounts, Medium risk accounts and High risk accounts. Based on the risk category of accounts KYC has to be updated periodically. For determining the Risk category the following details should be obtained from the applicants. a) purpose/reason for opening the account or establishing the relationship b) anticipated level and nature of the activity that is to be undertaken c) expected source of funds d) details of occupation / employment and sources of wealth or income Low Risk Accounts : a) Salaried employee/ pensioners whose income structures are well defined. b) People belonging to lower economic strata of the society whose accounts show small balances and low turnover. c) Other individuals with debit or credit summations below Rs 10 lacs p.a. d) Small business enterprises and small public Ltd Cos with debit or Credit summation below Rs 10 lacs pa. e) Government departments and government owned Companies State and Central Regulators, F Is, Statutory bodies etc. For low risk accounts the customer identification data, including photographs have to be updated once in 5 years. Medium Risk Accounts : a) Individuals and persons engaged in Business. b) Firms in Private sector, Private Limited Companies, Public Ltd Companies with debit or credit summations of Rs 10 lacs to Rs 1 crores p.a. For medium risk accounts the customer identification data, including photographs have to be updated once in 2 years. High Risk Accounts: a) Accounts of firms in Private Sector, Private Limited Company and individuals with Debit or Credit Summations above Rs. 1 crore per annum. b) Customers domiciled in the some country identified e.g. Myanmar, Nigeria etc. c) Trusts, charities, NGOs and organizations receiving donations from India and abroad. d) Politically Exposed persons (PEP)s of foreign origin. e) Non face to face customers. f) Those with dubious reputation. g) Borrowal accounts which are NPAs. For high risk accounts the customer identification data, including photographs have to be updated once in 2 years. Discretion for closure of a/c due to non compliance of KYC norms - is vested with the Branch Head if there is RMPB/ RM-MM 5

6 - in all other cases, the Regional Manager of the respective RBO MISCELLANEOUS PROVISIONS: There should be reasonable gap of say, 6 months between the time an introducer opens his account and introduces another prospective account holder to the bank In HUF prescribed Joint Hindu Family letter is signed by all the adult Coparceners. In minor is less than 10 year old, ID proof of the person who will operate the account is to be obtained. KYC verification of all the members of SHG need not be done while opening the savings bank account of the SHG and KYC verification of all the office bearers would suffice. As regards KYC verification at the time of credit linking of SHGs, no separate KYC verification of the members or office bearers is necessary. Branches may exercise enhanced due diligence at the time of opening accounts by intermediaries such as guardians of estates, executors, administrators, assignees, receivers etc. e.g : while opening of the account of an administrator of the estate, it would be necessary to examine the Letter of Administration (Authority) as it would give a clear picture of the assets of the estate. Introduction of large number of accounts, (where opening of accounts by way of introduction are permissible) by a single introducer either staff or account holder (other than an employer company or institution) - to be probed thoroughly. MONITORING OF TRANSACTIONS: It is necessary to [i] maintain a record of prescribed transactions [ii] furnish information of prescribed transactions to the specified authority [iii] verify and maintain records of the identity of its clients and [iv] preserve records in respect of [i], [ii], [iii] above for a period of TEN YEARS from the date of cessation of transactions with the clients. Payment for imports should be made by debit to the accounts maintained with the same bank or any other bank and under no circumstances cash should be accepted for retirement of import bills. Branches/offices also should ensure that demand drafts/iois of Rs.20,000/- and above are issued invariably with account payee crossing. Banks to issue banker s cheques, demand drafts, RTGS, NEFT, SWIFT etc. for Rs. 50,000/- and above only by debit to customers accounts or against cheques only and not against cash. Banks to ensure that withdrawals from cash credit/overdraft accounts are strictly for the purpose for which the credit limits were sanctioned by them. There should be no diversion of working capital finance for acquisition of fixed assets, investments in associate Companies/ subsidiaries and acquisition of shares, debentures, units of UTI and other mutual funds and other investments in the capital market.. Under the Money Transfer Service Scheme (MTSS) remittances received through money gram, Western Union etc. the Maximum limit per transaction is USD 2,500. A beneficiary can receive a maximum of 30 transactions in a calendar year. A Maximum cash amount of Rs.50, can be paid to the receiver. If the amount exceeds Rs.50, an account payee cheque should be issued or the account of the beneficiary has to be credited for the entire amount. Money Gram paying Branches are to take self attested address proof along with identity proof for compliance. CASH TRANSACTIONS REPORTS. The following types of transactions are to be reported to controlling office every month. Cash withdrawals and deposits for Rs lacs and above in deposit, cash credit and overdraft accounts to be recorded in a separate register All cash transactions of the value of more than Rupees Ten lacs or its equivalent in foreign currency. A series of connected transactions, the aggregate value of which exceeds Rs.10 lacs in a month. SUSPICIOUS TRANSACTION REPORTS Suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith (a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime or (b) appears to be made in circumstances of unusual or unjustified complexity; or (c) appears to have no economic rationale or bonafide purpose; If a customer is intentionally structuring a transaction into a series of transactions below the threshold of Rs.50,000/- the branch should verify identity and address of the customer and also consider filing a suspicious transaction report in this regard. Report Suspicious transactions to FIU-IND (Financial Intelligence Unit- India) at the following address: The Director Financial Intelligence Unit-India (FIU_IND) 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi Maintenance of Records Maintain proper record of all transactions involving receipts by non-profit organisations of value more than rupees ten lakh or its equivalent in foreign currency and to forward a report to FIU-IND of all such transactions in the prescribed format every month by the 15th of the succeeding month. Maintain for at least ten years from the date of cessation of transaction between the bank and the client, all necessary records of transactions, both domestic or international, which will permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity. Ensure that records pertaining to the identification of the customer and his address (e.g. copies of 6

7 documents like passports, identity cards, driving licenses, PAN, card, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved for at least ten years after the business relationship is ended RISK MANAGEMENT: Scrutiny of unusual transactions that may lead to suspicion should be done by officials at branches/ offices on a daily basis as indicated below: AMOUNT INVOLVED - PARTICULARS OF TRANSACTIONS SCRUTINISING OFFICIAL SCRUTINY BY Cash transactions up to Rs.50,000/- Cash transactions up to Rs.1,00,000/- Cash transactions up to Rs.2,00,000/- Cash transactions above Rs.2,00,000/- Transfer transactions up to Rs. 1,00,000/- Transfer transactions up to Rs. 4,00,000/- Transfer transactions up to Rs. 5,00,000/- Transfer transactions above Rs. 5,00,000/- Senior Assistant for transactions handled by him Special Assistant for transactions handled by him Senior Special Assistant for transactions handled by him. Manager of Division Services Manager / Branch Manager for all such transactions not scrutinized by any of the above. Observe 1st August every year as KYC Compliance and Fraud Prevention Day so that KYC/AML/CFT compliance related issues are kept in focus on an ongoing basis. Information collected from the customers for KYC compliance should not to be used/divulged for cross selling or any other such purpose. Extra precautions: Accounts transferred from other Branches within a short time of opening have to be monitored carefully and the new local address must be verified. Many frauds have come to light in such accounts. Frequent transfer of money from/into new accounts should be monitored Transactions for large amounts in all new accounts should be carefully monitored to avoid frauds. With Greetings, Comradely yours, (D. THOMAS FRANCO RAJENDRA DEV) GENERAL SECRETARY Please read, circulate, file and refer. Please copy the e mail and store in a separate folder for reference 7