Overview of Financial Intelligence Unit

Financial Intelligence Unit India is a national agency which is established with a view to scrutinise suspected financial transactions. It was set up by the Central Government on 18th November 2004. The organisation is responsible for receiving, processing, analyzing and disseminating the financial transactions in order to strengthen the national efforts to tackle suspected financial transactions and offences related to money laundering under the Prevention of Money Laundering Act 2022

The Financial Intelligence Unit India also known as FIU-IND works towards strengthening the cooperation of national and international bodies to tackle money laundering activities. The FIU has collaborated with different financial institutions and foreign financial intelligence units to develop methods to tackle money laundering.

It is an independent and autonomous agency which comes under the Ministry of Finance which reports directly to the Economic Intelligence Council (EIC). This council is headed by the finance minister of India.

Functions of Financial Intelligence Unit India 

• Collection of Information

The organisation is responsible for collecting reports like cash transaction reports, reports of financial transactions carried out by non-profit  organisations, any reports related to international wire transfers, reports on the purchase of immovable properties in India and different forms of suspicious transactions reports (STR) from various reporting entities.

• Analysis of Information

The financial intelligence unit India analyses different transactions that occur in India to understand the suspected money laundering circumstances.  

• Sharing the Information 

The collected information is shared with other regulatory agencies such as the national intelligence/law enforcement agencies, national regulatory authorities and foreign Financial Intelligence Units.

• Acts as a Central Repository

Such unit act as a central repository for all forms of financial transactions and accounting reports in India. Reporting aspects related to the RBI, Banks and other institutions would directly go to the FIU-IND.

• Coordinating with Other Agencies

The unit coordinates with other institutes at a regional, national and international level in order to improve the performance of suspected financial activities in India.

• Research and Development

Apart from this, the unit also conducts research on money laundering, terrorist financing and other areas.

Meaning of Reporting Entity under the Financial Intelligence Unit India

It is necessary to understand the meaning of a reporting entity in order to understand the concept of money laundering.

A reporting entity is defined under section 2(WA) of the Prevention of Money Laundering Act (PMLA Act), 2002, as any form of company that carries out banking activities or an institution that deals with the financial activities of a company which is engaged in Chit Funds.

Types of Reporting Entities under Financial Intelligence Unit India (FIU-IND)

The following are the types of reporting entities that have to register with the financial intelligence unit of India:

• Banking Company
• Financial Institutions
• Intermediaries  
• Chit Fund Company
• Co-operative Bank
• Housing Finance Institutions
• NBFC  

Verification of Identity by the Reporting Authorities

The reporting entity is required to verify the identity of the respective client and carry out measures related to Customer Due Diligence (CDD). The provision regarding the 

Verification of identity under section 11A of the Prevention of Money Laundering Act, 2002. There are different modes to verify the identity of the client:

• Online Authentication of the Aadhaar
• Offline Authentication of Aadhaar
• Authentication of Identity through Passport
• Any other document which is officially issued by the Government of India.

As per rule 9 of the Prevention of Money Laundering (Maintenance Of Records) Rules 2005, all reporting entities must carry out customer due diligence as per the requirements of the above rules. Such verification would take place per the rules related to 'Know Your Client' (KYC verification).

Rule 10 of the Prevention of Money Laundering (Maintenance of Records) Rules 2005 requires all reporting entities to maintain physical records and relevant electronic records prepared as per rule 9 and should be maintained as per the guidelines specified from time to time.

Meaning of Suspicious Transaction under Financial Intelligence Unit India

 A suspicious transaction can be described as a transaction which may or may not take place in the form of cash made to a person in good faith. The following would be included in the meaning of a suspicious transaction under the Financial Intelligence Unit of India (FIU-IND):

• If there is any form of reasonable ground for suspicion that the transaction is an offence under the schedule.
• If the transaction is very complex and carrying out such a transaction would lead to an unsafe environment.
• If there is no form of bonafide purpose for carrying out the transaction.
• If there are any reasonable grounds that the transaction would lead to the financing of terrorism and other forms of activities.

Maintenance of Records under Financial Intelligence Unit India (FIU-IND)

As per section 12(1) of the Prevention of Money Laundering Act, 2002, every form of reporting entity is required to maintain records of transactions which are carried out by clients. As per section 12(3) of the Prevention of Money Laundering Act, 2002, such records must be stored for a period of five years from the date of the transaction.

 As per rule 3 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, the following transactions have to be maintained by the reporting entity:

• Cash Transactions are more than Rs 10 Lakh or an equivalent foreign currency denomination.
• All series of integrally connected cash transactions which took place in a month reach more than Rs. 10 Lakh. The aggregate value of the cash transactions is utilised for understanding the amount.
• If the transactions exceed more than Rs 10 lakh and are received by Non-Governmental Organisations. Any amount in the respective foreign currency would also be considered for such transactions.
• Any cash transactions were forged or counterfeit currency notes or bank notes have been used as genuine or where there is any forgery of valuable security.
• The suspicious transaction, whether in cash or not.
• All cross-border wire transfers of more than Rs. 5 lakhs or its equivalent in foreign currency where either the origin or destination of the fund is in India.
• Any purchase or sale of immovable property valued at Rs. 50 lakhs or more that is registered by the reporting entity.

When maintaining the records as per the requirements of the PMLA and allied rules, the nature of the transaction must also be recorded. This would be compliant with the requirement of Rule 4 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

The following information has to be recorded:

• Nature of Transaction
• The Currency or the amount of transaction in the relevant denomination
• The date on which the transaction was conducted; and
• The parties to the transaction

Reports to be submitted under Financial Intelligence Unit India

Under the PMLA and respective rules, there are different forms of reports which have to be submitted. The following are the types of reports which have to be submitted:

• Cash Transaction Report (CTR)
• Suspicious Transaction Report (STR)
• Counterfeit Currency Report (CCR)
• Cross-Border Wire Transfer Report (CBWTR)
• Report on sale/purchase of immovable property

The following table shows the due date and periods of submission of reports:

Documents Required for Registering as an Entity under Financial Intelligence Unit India

The following documents are required for registering under the Financial Intelligence Unit India:

Individual

• One certified copy of an officially valid document containing identity and address details.
• Any identification documents
• One recent photograph
• Such other documents, including in respect of  nature of business and financial status of the client as may be required by the reporting entity

Company

• Certificate of Incorporation (COI)/MOA & AOA of Company
• Resolution from BOD and POA granted to its managers, officers or employees to transact on its behalf
• Officially valid document for managers, officers or employees holding an attorney to transact on its behalf.

Partnership Firm

• Registration Certificate
• Partnership Deed
• An officially valid document for the person holding an attorney to transact on its behalf.

Trust

• Registration Certificate
• Trust Deed
• An officially valid document in respect of the person holding an attorney to transact on its behalf.

UIB/BOI

• Resolution of the managing body of such association or body of individuals
• POA granted to him to transact on its behalf
• An officially valid document in respect of the person holding an attorney to transact on its behalf
• Such information as may be required by reporting entity to collectively establish the legal existence of such association or Body of Individual (BOI).

Procedure Section

The Procedure of Registration under the Financial Intelligence Unit India (FIU- IND)

Two entities need to be registered with Financial Intelligence Unit India (FIU- IND) i.e. the reporting entities and the Principal Officer. The detailed procedure for the same is described below- 

Registration of Reporting Entity 

• The first step is to file the application for registration with the FIU' IND by the reporting Agency.
• After this, the applicant needs to submit the application with the necessary documents. 
• Finally, the applicant will receive the certificate of registration issued by the authority only after the verification of the application. 

Registration of Principal Officer 

• The registration of the principal officer can be done only after the registration of the reporting entity.
• For this registration, the applicant needs to file the application with the details of the principal officer. 
• Next, the applicant needs to submit the application with the necessary documents for scrutiny of the documents by the authority. 
• The authority will issue the certificate of registration after being satisfied with the documentation.