TJSB Sahakari Bank Ltd KYC & AML Policy PDF 2023-24

KYC AND AML POLICY F.Y.2023-24 TJSB Sahakari Bank Ltd (Multi-State Scheduled Co-operative Bank) KNOW YOUR CUSTOMER (KYC) AND ANTI MONEY LAUNDERING (AML) POLICY (For Private Circulation Only) (Prepared by: Operations Department) ...

KYC AND AML POLICY F.Y.2023-24 TJSB Sahakari Bank Ltd (Multi-State Scheduled Co-operative Bank) KNOW YOUR CUSTOMER (KYC) AND ANTI MONEY LAUNDERING (AML) POLICY (For Private Circulation Only) (Prepared by: Operations Department)  KYC AND AML POLICY F.Y.2023-24 Policy Custodian Division: Operations Department Version: KYC & AML Policy_2023-24_1.0 Officer-in-charge: Operation Head Policy Version Control S.N Version Number Version Date Summary of Changes 01. KYC & AML Policy_2023-24_1.0 Policy updated as per RBI, Master Direction circular no. updated upto 17th October, 2023. Policy Governance Frequency of Review Annual Last reviewed on 28th March, 2023 Approval Path Board of Management > Audit & Ethics > Board Page 1 of 62  KYC AND AML POLICY F.Y.2023-24 1. Introduction:................................................................................................................................................. 4 2. Purpose:........................................................................................................................................................ 4 3. Objectives of the Policy:................................................................................................................................ 4 4. Scope of the policy:....................................................................................................................................... 5 5. Ownership of The Policy:.............................................................................................................................. 5 6. Definitions:.................................................................................................................................................... 5 7. General:....................................................................................................................................................... 11 8. Compliance of KYC Policy:........................................................................................................................... 11 8.1 Designated Director:............................................................................................................................. 11 8.2 Principal Officer:................................................................................................................................... 12 9. Key Elements of the Policy:......................................................................................................................... 12 9.1 Customer Acceptance Policy:............................................................................................................... 12 9.2 Risk Management:................................................................................................................................ 14 9.2.1 Money Laundering and Terrorist Financing Risk Assessment by Bank:........................................ 19 9.3 Customer Identification Procedure (CIP):............................................................................................. 20 9.3.1 Beneficial Owner (BO):................................................................................................................... 21 9.3.2 Customer Due Diligence Procedure:.............................................................................................. 22 9.3.2a CDD Procedure in case of Individuals:..................................................................................... 22 9.3.3 V-CIP:.............................................................................................................................................. 24 9.3.4 Small Accounts:.............................................................................................................................. 27 9.3.2b CDD Measures for Sole Proprietary firms:............................................................................... 28 9.3.2c CDD Measures for Legal Entities:............................................................................................. 29 i. For opening an Account of a partnership firm......................................................................... 29 ii. For opening an Account of Limited Liabilities Partnership....................................................... 29 iii. For opening an account of a company..................................................................................... 29 iv. For opening an Account of a trust............................................................................................ 30 v. For opening an Account of an unincorporated association or a body of individuals............... 30 vi. For opening an Account of Registered Society......................................................................... 30 vii. For opening an Account of Hindu Undivided Family................................................................ 31 9.3.2d Restrictions on opening of Savings Deposit Accounts in the name of entities:...................... 31 10. On-going Due Diligence:........................................................................................................................... 33 10.1 Enhanced Monitoring Procedures for certain customer categories - ongoing risk management:.... 34 10.2 Accounts of non-face-to-face customers:.......................................................................................... 34 10.3 Accounts of Politically Exposed Persons (PEPs) and India PEPs:........................................................ 35 10.4 Simplified Due Diligence:.................................................................................................................... 36 11. Updation / Periodic Updation of KYC:...................................................................................................... 36 12. Transaction Monitoring - Ongoing Due Diligence:................................................................................... 40 13. Record Management:............................................................................................................................... 41 Page 2 of 62  KYC AND AML POLICY F.Y.2023-24 14. Reporting Requirements to Financial Intelligence Unit-India:................................................................. 42 14.1 Cash Transaction Report (CTR):.......................................................................................................... 42 14.2 Suspicious Transaction Reports (STR):................................................................................................ 43 14.3 Counterfeit Currency Report (CCR):................................................................................................... 44 14.4 Non-Profit Organization Transaction report (NTR):........................................................................... 44 14.5 Cross-border Wire Transfer Report (CWTR):...................................................................................... 44 15. Requirement / Obligation under International Agreements –................................................................. 44 Communications from International Agencies:.......................................................................................... 44 15.1 Obligations under the Unlawful Activities (Prevention) (UAPA) Act, 1967:....................................... 45 15.2 Obligations under Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act, 2005):................................................................................. 46 16. Secrecy Obligations and Sharing of Information:.................................................................................... 47 17. Compliance with the provisions of Foreign Contribution (Regulation) Act, 2010.................................... 48 18. CDD Procedure and sharing KYC information with Central KYC Records Registry (CKYCR):.................... 48 19. Reporting requirement under Foreign Account Tax Compliance Act (FATCA) and................................. 49 Common Reporting Standards (CRS):............................................................................................................. 49 20. Period for presenting payment instruments:........................................................................................... 50 21. Operation of Bank Accounts & Money Mules:......................................................................................... 50 21.1 Identification and monitoring of Money Mule Accounts................................................................... 50 22. Collection of Account Payee Cheques:..................................................................................................... 51 23. Unique Customer Identification Code:..................................................................................................... 51 24. Introduction of New Technologies - Mobile Banking / RTGS / NEFT / IMPS etc.:.................................... 51 25. Issue and Payment of Demand Drafts, etc.:............................................................................................. 51 26. Quoting of PAN:........................................................................................................................................ 51 27. Introduction of New Technologies – Credit cards / debit cards / smart cards / gift cards:..................... 52 28. Selling Third party products:..................................................................................................................... 52 29. Correspondent Banking:........................................................................................................................... 52 30. Wire transfers:.......................................................................................................................................... 54 30.1 Cross-border wire transfers:............................................................................................................... 57 30.2 Domestic wire transfers:..................................................................................................................... 58 31. At-par cheque facility availed by co-operative banks:............................................................................. 58 32. Issuance of Prepaid Payment Instruments (PPIs):.................................................................................... 59 33. Customer Education:................................................................................................................................. 59 34. Responsibilities of the Staff:..................................................................................................................... 59 35. Hiring of Employees:................................................................................................................................. 59 36. Review of the Policy:................................................................................................................................. 60 37. Annexure:.................................................................................................................................................. 60 37.1 Risk Indicators:.................................................................................................................................... 60 Page 3 of 62  KYC AND AML POLICY F.Y.2023-24 1. Introduction: Bank has a policy in place on KNOW YOUR CUSTOMER (KYC) norms and ANTI MONEY LAUNDERING (AML) measures. It has last been reviewed and approved by the Board on 28th March, 2023. The policy has been compiled taking into account, cognizance of the guidelines enumerated in RBI Master Circular No:- Master Direction/DBR.AML.BC.NO.81/14.01.001/2015-16,dated 25th February 2016. RBI has been updating and amending the Master Direction from time to time. This policy has now been updated to reflect the changes in the RBI Master Direction up to 17th October, 2023 and are now been incorporated in our policy. The Policy guidelines on Know Your Customer (KYC) Norms / Anti Money laundering (AML) Standards / Combating of Financing of terrorism (CFT) Measures / Obligation of the Bank under Prevention of Money Laundering Act (PMLA), 2002 shall be called as Know Your Customer (KYC) Policy. Further, the bank will take necessary action including application of additional measures to manage the ML/TF risks, as advised by RBI time to time. The contents of the policy shall always be read in tandem / with the changes / modifications which may be advised by RBI and / or by PMLA and its amendments / or by any regulators and / or by Bank from time to time. In case of any changes in regulatory guidelines / directions, the Bank’s KYC & AML Policy will be appropriately updated. 2. Purpose: The purpose of the KYC policy is to put in place customer acceptance, identification, ongoing due diligence and risk management procedures for opening of accounts and monitoring transactions in the accounts for detection of transactions of suspicious nature. 3. Objectives of the Policy: To lay down policy framework for abiding by the Know Your Customer Norms and Anti Money Laundering Measure as set out by Reserve Bank of India, based on the recommendations of the Financial Action Task Force (FATF) and the paper issued on Customer Due Diligence (CDD) for banks issued by the Basel Committee on Banking Supervision To prevent the Bank from being used, intentionally or unintentionally, by criminal elements for money laundering activities or terrorists financing activities KYC procedures also enable the Bank to know / understand the customers and their financial dealings better and manage their risks prudently To put in place appropriate controls for detection and reporting of suspicious activities in accordance with applicable laws / laid down procedures and regulatory guidelines To take necessary steps to ensure that the dealing staff is adequately trained in KYC / AML procedures Page 4 of 62  KYC AND AML POLICY F.Y.2023-24 Our KYC policy covers the following areas: ✓ Customer Acceptance Policy ✓ Customer identification Procedures. ✓ Monitoring of Transactions and ✓ Risk Management 4. Scope of the policy: All branches / offices of the Bank shall take all necessary steps to implement this KYC policy and provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, as amended from time to time, including operational instructions issued in pursuance of such amendment(s). 5. Ownership of The Policy: KYC Section, Head-Operations Department will be the owner and shall be responsible for formulating / reviewing / periodic updating of the policy. 6. Definitions: In terms of RBI’s Master Direction on KYC, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below: A. Terms bearing meaning assigned in terms of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005: i. “Aadhaar number” shall have the meaning assigned to it in clause (a) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016) ii. “Act” and “Rules” means the Prevention of Money-Laundering Act, 2002 and the Prevention of Money- Laundering (Maintenance of Records) Rules, 2005, respectively and amendments thereto. “Central KYC Records Registry" (CKYCR) means an entity defined under Rule 2(1) (aa) of the Rules, to receive, store, safeguard and retrieve the KYC records in digital form of a customer iii. “Authentication”, in the context of Aadhaar authentication, means the process as defined under sub- section (c) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. iv. “Certified Copy of OVD” – Obtaining a certified copy by the bank shall mean comparing the copy of officially valid document so produced by the customer with the original and recording the same on the copy by the authorized officer of the branch. Branch Official will also attest the duly signed photograph of the customer. Provided that in case of Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), as defined in Foreign Exchange Management (Deposit) Regulations, 2016 {FEMA 5(R)}, alternatively, the original certified copy, certified by any one of the following, may be obtained: Page 5 of 62  KYC AND AML POLICY F.Y.2023-24 Authorized officials of overseas branches of Scheduled Commercial Banks registered in India Branches of overseas banks with whom Indian banks have relationships Notary Public abroad Court Magistrate Judge Indian Embassy / Consulate General in the country where the non-resident customer resides v. “Central KYC Records Registry” (CKYCR) means an entity defined under Rule 2(1) of the Rules, to receive, store, safeguard and retrieve the KYC records in digital form of a customer vi. “Designated Director" means a person designated by the Bank to ensure overall compliance with the obligations imposed under chapter IV of the PML Act and the Rules vii. “Digital KYC” means the capturing live photo of the customer and officially valid document or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorized officer of the Bank as per the provisions contained in the Act viii. “Digital Signature” shall have the same meaning as assigned to it in clause (p) of subsection (1) of section (2) of the Information Technology Act, 2000 (21 of 2000) ix. “Equivalent e-document” means an electronic equivalent of a document, issued by the issuing authority of such document with its valid digital signature including documents issued to the digital locker account of the customer as per rule 9 of the Information Technology (Preservation and Retention of Information by Intermediaries Providing Digital Locker Facilities) Rules, 2016 x. “Group” – The term “group" shall have the same meaning assigned to it in clause (e) of sub-section (9) of section 286 of the Income-tax Act,1961 (43 of 1961) xi. “Know Your Client (KYC) Identifier” means the unique number or code assigned to a customer by the Central KYC Records Registry xii. “Non-profit organizations” (NPO) means any entity or organization, constituted for religious or charitable purposes referred to in clause (15) of section 2 of the Income-tax Act, 1961 (43 of 1961), that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a company registered under Section 8 of the Companies Act, 2013. (18 of 2013) xiii. “Officially Valid Document” (OVD) means the passport, the driving license, proof of possession of Aadhaar number, the Voter's Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government and letter issued by the National Population Register containing details of name and address Provided that, a. where the customer submits his proof of possession of Aadhaar number as an OVD, he may submit it in such form as are issued by the Unique Identification Authority of India Page 6 of 62  KYC AND AML POLICY F.Y.2023-24 b. where the OVD furnished by the customer does not have updated address, the following documents or the equivalent e-documents thereof shall be deemed to be OVDs for the limited purpose of proof of address: - utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill) property or Municipal tax receipt pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address Letter of allotment of accommodation from employer issued by State Government or Central Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions, listed companies and leave and license agreements with such employers allotting official accommodation c. Further, at the time of on-boarding of the customer, an undertaking should be obtained from the customer along with AOF / OVDs stating that Customer shall submit his OVD with updated current address within 3 months d. Where the OVD presented by a foreign national does not contain the details of address, in such case the documents issued by the Government departments of foreign jurisdictions and letter issued by the Foreign Embassy or Mission in India shall be accepted as proof of address Explanation: For the purpose of this clause, a document shall be deemed to be an OVD even if there is a change in the name subsequent to its issuance provided it is supported by a marriage certificate issued by the State Government or Gazette notification, indicating such a change of name. xiv. “Offline verification” shall have the same meaning as assigned to it in clause (pa) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016) xv. “Person” has the same meaning assigned in the Act and includes: an individual a Hindu Undivided Family a company a firm an association of persons or a body of individuals, whether incorporated or not every artificial juridical person, not falling within any one of the above persons, and any agency, office or branch owned or controlled by any of the above persons xvi. “Principal Officer” means an officer at the management level nominated by the Bank, responsible for furnishing information xvii. “Suspicious transaction” means a “transaction” as defined below, including an attempted transaction, whether or not made in cash, which, to a person acting in good faith: a. gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or Page 7 of 62  KYC AND AML POLICY F.Y.2023-24 b. appears to be made in circumstances of unusual or unjustified complexity; or c. appears to not have economic rationale or bona-fide purpose; or d. Gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism. Explanation: Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist organization or those who finance or are attempting to finance terrorism xviii. “Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes: a. opening of an account; b. deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means; c. the use of a safety deposit box or any other form of safe deposit; d. entering into any fiduciary relationship; e. any payment made or received, in whole or in part, for any contractual or other legal obligation; or f. Establishing or creating a legal person or legal arrangement. xix. “UCIC” means Unique Customer Identification Code, i.e., unique customer-ID allotted to individual customers while entering into new relationships as well as to the existing customers. All the accounts of an individual customer will be opened under his / her UCIC xx. “Video based Customer Identification Process (V-CIP)”: an alternate method of customer identification with facial recognition and customer due diligence by an authorized official of the Bank by undertaking seamless, secure, live, informed-consent based audio-visual interaction with the customer to obtain identification information required for CDD purpose, and to ascertain the veracity of the information furnished by the customer through independent verification and maintaining audit trail of the process. Such processes complying with prescribed standards and procedures shall be treated on par with face-to-face CIP for the purpose of this Master Direction. B) Terms bearing meaning assigned, unless the context otherwise requires, shall bear the meanings assigned to them below: i. “Common Reporting Standards” (CRS) means reporting standards set for implementation of multilateral agreement signed to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters ii. “Customer” means a person who is engaged in a financial transaction or activity with the Bank and includes a person acting on behalf of the person who is engaged in the transaction or activity, iii. “Walk-in Customer” means a person who does not have an account-based relationship with the Bank, but undertakes transactions with the Bank. iv. “Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using reliable and independent sources of identification. Page 8 of 62  KYC AND AML POLICY F.Y.2023-24 Explanation: The CDD, at the time of commencement of an account-based relationship or while carrying out occasional transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, shall include: a. Identification of the customer, verification of their identity using reliable and independent sources of identification, obtaining information on the purpose and intended nature of the business relationship, where applicable; b. Taking reasonable steps to understand the nature of the customer's business, and its ownership and control; c. Determining whether a customer is acting on behalf of a beneficial owner, and identifying the beneficial owner and taking all steps to verify the identity of the beneficial owner, using reliable and independent sources of identification. v. “Customer identification” means undertaking the process of CDD vi. “FATCA” means Foreign Account Tax Compliance Act of the United States of America (USA) which, inter alia, requires foreign financial institutions to report about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest vii. “IGA” means Inter Governmental Agreement between the Governments of India and the USA to improve international tax compliance and to implement FATCA of the USA viii. “KYC Templates” means templates prepared to facilitate collating and reporting the KYC data to the CKYCR, for individuals and legal entities ix. “Non-face-to-face customers” means customers who open accounts without visiting the branch / offices of the Bank or meeting the officials of Bank x. “Payable-through accounts” The term payable-through accounts refer to correspondent accounts that are used directly by third parties to transact business on their own behalf xi. “On-going Due Diligence” means regular monitoring of transactions in accounts to ensure that those are consistent with Bank’s knowledge about the customers, customers’ business and risk profile, the source of funds / wealth. xii. “Periodic Updation” means steps taken to ensure that documents, data or information collected under the CDD process is kept up-to-date and relevant by undertaking reviews of existing records at periodicity prescribed by the Reserve Bank xiii. “Politically Exposed Persons” (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, including the Heads of States / Governments, senior politicians, senior government / judicial / military officers, senior executives of state-owned corporations, important political party officials Customers who are closed relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner. As PEPs under PMLA cover individuals in prominent public functions in a foreign country, the following category of customers has been additionally defined: Page 9 of 62