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.