Contact details
Phone No: +91 98248 84900
Email Id: info@amlindia.in
Suspicious Transaction Identification process under PMLA, 2002
Suspicious Transaction Identification process under PMLA, 2002
The Prevention of Money Laundering Act 2002 (PMLA) mandates regulated entities to detect and report suspicious transactions to the Financial Intelligence of India (FIU-IND).
The AML regulations describe a 4-step process for the identification of suspicious transactions. The first is to review and monitor the customer’s and transactions records to assess the possible existence of red flags or any ML/FT potential risk indicator. If any risk indicators are observed, the next step would be to approach the customer for clarification or further details necessary to strengthen the identified red flag or negate the same.
Here, the regulated entities must ensure that the inquiry with the customers does not result in “tipping off”, giving information to the customer about possible reporting to the FIU-IND.
As a third step, the regulated entities must review the customer’s previous records and the information collected about the customer while conducting due diligence. This is to check whether the identified potential suspicion is aligned with the customer’s profile or is unusual to the customer’s expected activities.
Having collected all the information around the risk indicators, clarification of explanation received from the customer and customer due diligence information, the regulated entities must evaluate whether the activity is linked to the proceeds of crime or suggest the involvement of terrorism financing. If yes, the regulated entities must report the same to the FIU-IND by filing Suspicious Transaction Report (STR).
Here is an infographic simplifying the step-wise process for the identification of suspicious transactions.
NIYEAHMA Consultants LLP is a global AML consultancy service provider, with “AML India” focusing on assisting regulated entities in India. AML India provides end-to-end AML services, assisting regulated entities in designing customized AML/CFT policies and procedures, including training to implement the AML program and identify suspicious transactions effectively.
What is a suspicious transaction?
A suspicious transaction is a transaction that gives a person acting in good faith reasonable grounds to suspect that it may involve proceeds of crime, lacks an apparent economic rationale or bona fide purpose, or gives rise to a reasonable ground of suspicion that it may be linked to terrorist financing or proliferation financing. There is no monetary threshold for suspicious transaction reporting, so a transaction is reportable regardless of its value. An attempted transaction is also reportable even if it is not completed, including where the customer withdrew after being asked for documentation.
How is a suspicious transaction identified?
Identification runs through three channels working together: automated transaction monitoring against configured scenarios, staff observation at the point of contact, and review of alerts and red flags against the customer’s known profile and expected activity.
- Monitoring surfaces candidates. Only human review against the customer profile converts a candidate into a suspicion, which is why alert disposition quality matters more than alert volume.
- Staff observation catches what monitoring cannot, including customer behaviour, reluctance to answer questions and knowledge of reporting thresholds.
- Record the review either way. An alert closed with a documented rationale evidences a working programme. The same alert closed with no note is indistinguishable from one never examined.
When must a suspicious transaction report be filed?
A suspicious transaction report must be filed with FIU-IND within the prescribed period from the date on which the reporting entity concludes, after its internal review, that the transaction is suspicious. The reporting timeline therefore runs from the conclusion of suspicion, not the date of the transaction. The internal review should be completed before an STR has been filed or is under consideration, as this would amount to tipping off.
We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.
Important Links
subscribe to newsletter
