Prevention of Money Laundering Act, 2002
FIU-IND and Compliance Action: Sections 13 to 15
Every report filed by a reporting entity goes to one place: the Financial Intelligence Unit, India (FIU-IND). It collects financial intelligence, analyses it, and passes it on to the agencies that investigate. Its Director also polices compliance: under Section 13, he may inquire into a reporting entity's failures and impose warnings, directions and monetary penalties. Section 14 protects those who report, and Section 15 provides for the procedure. This note covers FIU-IND, its enforcement powers, and what an effective compliance programme requires.
FIU-IND's intelligence cycle, the Director's enforcement staircase under Section 13, and the compliance programme
1. The Financial Intelligence Unit, India
Aspect | The position |
|---|---|
Established | By the Government of India on 18 November 2004 |
Placement | Under the Department of Revenue, Ministry of Finance; reports to the Economic Intelligence Council |
Head | The Director, FIU-IND, who exercises powers under the Act and the Rules |
Role | The central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions |
International | Member of the Egmont Group since 2007; exchanges intelligence with foreign FIUs |
2. Functions: Collect, Analyse, Disseminate
§ The intelligence cycle • Collection. Receiving CTRs, STRs, CCRs, CBWTRs, NTRs and other reports from reporting entities through its electronic reporting system. • Analysis. Linking reports, identifying networks and patterns, and producing operational analysis on specific cases and strategic analysis on trends and typologies. • Dissemination. Sharing intelligence with the Enforcement Directorate, tax authorities, police and intelligence agencies, regulators, and foreign FIUs. • Supervision and guidance. Issuing guidelines to reporting entities, registering them, and enforcing compliance under Section 13. |
3. Section 13: Powers of the Director
§ The staircase of enforcement Inquiry, s. 13(1). The Director may, on his own motion or on an application, make or cause an inquiry into a reporting entity's compliance with Chapter IV. Audit, s. 13(1A). Having regard to the nature and complexity of the case, he may direct that the entity's records be audited by an accountant from a panel. Measures, s. 13(2). If the entity, its designated director or employees have failed to comply, he may, without prejudice to other action: (a) issue a warning in writing; (b) direct compliance with specific instructions; (c) direct the entity to send reports at intervals on the measures it takes; or (d) impose a monetary penalty of not less than ten thousand rupees, which may extend to one lakh rupees, for each failure. Show-cause and hearing. The entity must be given a reasonable opportunity to be heard before an adverse order, which is usually preceded by a show-cause notice. Appeal. An order under Section 13 is appealable to the Appellate Tribunal under Section 26. Aggregation. Because the penalty is per failure, large numbers of reporting failures can produce penalties running into crores of rupees. |
4. Sections 14 and 15
i. Section 14: protection. No civil or criminal proceedings lie against a reporting entity, its directors or employees for furnishing information under the Act.
ii. Section 15: procedure. The Central Government, in consultation with the RBI, prescribes the procedure and manner of maintaining and furnishing information, which it has done through the Maintenance of Records Rules, 2005.
5. The AML/CFT Compliance Programme
Element | What it requires |
|---|---|
Internal policies, controls and procedures | A board-approved, risk-based policy covering customer acceptance, identification, monitoring and reporting |
Designated Director and Principal Officer | Senior individuals accountable for compliance and reporting, notified to FIU-IND |
Customer due diligence and monitoring | Systems to identify, verify, categorise and monitor clients and transactions, with alerts |
Employee training and screening | Regular, role-specific training so staff can recognise and escalate suspicious activity; screening at hiring |
Independent audit | Periodic testing of the AML system by internal or external audit to ensure it works as designed |
Record-keeping and reporting | Accurate records kept for the required periods; reports filed on time; confidentiality maintained |
6. Frequently Asked Questions
What is FIU-IND?
The Financial Intelligence Unit, India, set up in 2004 under the Department of Revenue, which receives, analyses and disseminates financial intelligence and enforces reporting entities' compliance.
What penalties can FIU-IND impose?
Under Section 13, after inquiry, a warning, directions, a requirement to report, or a monetary penalty of ten thousand to one lakh rupees for each failure, on the entity, its designated director or employees.
Are reporting entities protected for filing reports?
Yes. Section 14 bars civil or criminal proceedings against them, their directors and employees for furnishing information under the Act.
What does an AML compliance programme require?
Policies and controls, accountable officers, customer due diligence and monitoring, training, independent audit, and proper record-keeping and reporting.