How dirty money tries to enter the financial system, and the legal and reporting framework â PMLA, FIU-IND, STR/CTR â that Indian banks use to detect and stop it.
Money laundering is the process of disguising the origin of illegally obtained money (proceeds of crime) so it appears to come from a legitimate source. Anti-Money Laundering (AML) is the set of laws, regulations and bank procedures designed to detect and prevent this.
Banks sit at the centre of the AML effort because cash generated from crime must, at some point, enter the formal financial system to become usable â making transaction monitoring at the account level one of the most effective detection points.
Illicit cash is introduced into the financial system â small deposits, cash-intensive businesses, or smuggling across borders.
Funds are moved through multiple accounts, shell companies and jurisdictions to obscure the audit trail.
Laundered funds re-enter the legitimate economy as seemingly clean assets â real estate, business investment, or luxury goods.
The Prevention of Money Laundering Act (PMLA), 2002 is India's primary AML legislation. It criminalises money laundering, provides for attachment and confiscation of proceeds of crime, and casts specific obligations on "reporting entities" â including banks, financial institutions and intermediaries.
The Financial Intelligence Unit â India (FIU-IND), under the Department of Revenue, is the national agency responsible for receiving, analysing and disseminating information on suspicious financial transactions. Banks, NBFCs, insurance companies, mutual funds, and certain other intermediaries are all "reporting entities" required to file reports with FIU-IND through the FINnet 2.0 portal.
Filed whenever a transaction (or a series of transactions) appears inconsistent with the customer's known profile, or suggests an attempt to evade the AML framework â regardless of amount.
Filed monthly for all cash transactions (individually or in aggregate) of âš10 lakh and above in a calendar month.
Filed when counterfeit currency notes are detected during any transaction.
Filed for cross-border wire transfers above the prescribed threshold, aiding trace-back on international fund flows.
Reporting entities must preserve transaction records for a minimum of 5 years from the date of the transaction, and KYC records for 5 years after the account relationship ends â long enough to support any subsequent investigation.
Related: AML works hand-in-hand with KYC â identity verification is what makes suspicious-activity detection possible in the first place. See also the JAIIB notes on KYC / AML for exam-focused MCQs.
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