AML Laws and Regulations for Dealers in Precious Metals and Stones in India

Across the legal framework, the regulations require a dealer to do the following. This article keeps each at the level required by law; a compliance requirements guide explains how to do each.

• Register with FIU-IND. Enrol with the Financial Intelligence Unit of India on the FINnet 2.0 / FINGate 2.0 portal before undertaking any reportable transaction. Dealers may proactively register even before their first cash transaction of Rupees 10 lakh or above with a customer, as early enrolment ensures that the dealer is fully prepared to meet its reporting obligations as soon as they arise.
• Appoint officers. Appoint a Designated Director and a management-level Principal Officer under Rule 7 of the PMLR. The same person cannot hold both roles, and both are to be informed to FIU-IND.
• Conduct the internal risk assessment. Assess money laundering, terror financing and proliferation financing risk across customers, products, transaction types, delivery channels and geographies, and keep it current. It is the bedrock of the risk-based approach, and its outcome guides the programme.
• Document AML policy, controls and procedures. Adopt an approved policy that turns the risk assessment into the dealer’s operating procedures, as required by the DG Audit Guidelines.
• Customer identification and CDD. Identify and verify every customer and the beneficial owner (a controlling interest of more than 10 per cent for a company or partnership, and more than 15 per cent for an unincorporated association or body of individuals), with enhanced due diligence for politically exposed persons and high-risk customers, under Section 11A of the PMLA, Rule 9 of the PMLR and the DG Audit Guidelines, using the officially valid documents the Guidelines list.
• Ongoing monitoring and periodic update. Monitor transactions on an ongoing basis, and refresh KYC at least once every 2, 8 and 10 years for high, medium and low-risk customers respectively. Review each customer’s risk categorisation at least once every six months and decide whether enhanced due diligence is required.
• Sanctions screening. Screen customers and beneficial owners against the designated lists under Section 51A of the UAPA and Section 12A of the WMD Act and freeze and report any match. Verify the relevant UNSC and domestic designated lists on a daily basis, following the DG Audit screening SOP. This duty applies to every dealer, whatever its turnover.
• Regulatory reporting. File cash transaction reports for cash of Rupees 10 lakh or above and for connected cash transactions that add up to or more than Rupees 10 lakh, reports on cash transactions involving counterfeit currency, forged valuable security or forged documents, and suspicious transaction reports of any value, including attempted transactions, under Rule 3 and Rule 8 of the PMLR. Cash and counterfeit or forged document reports are filed monthly, by the 15th day of the succeeding month; a suspicious transaction report is filed promptly once the Principal Officer is satisfied that the transaction is suspicious.
• Record management, CKYCR and FINnet 2.0. Keep transaction records for five years from the date of the transaction and keep identity records and business correspondence for five years after the business relationship ends, under Section 12 of the PMLA. Upload customer KYC records to the Central KYC Records Registry under Rule 9A, reuse an existing record where applicable, and file all prescribed reports through FINnet 2.0.
• Training and awareness. Train staff by role to apply the controls and recognise red flags, including the development of an internal mechanism for indicators under Rule 7(3).
• Independent testing and audit. Test the programme through internal audit, compliance assurance or independent review, and close every finding.