Recently, the DGA of the Central Board of Direct Taxes and Customs, also known as CBIC, has issued a set of new guidelines. These guidelines specifically pertain to AML (Anti-Money Laundering) and CFT (Countering the Financing of Terrorism) guidelines for Dealers in Precious Metals and Precious Stones.
In this insightful article, we aim to delve into these guidelines and present them in a simplified manner. Our goal is to help you gain a better understanding of these regulations and strengthen your compliance with the law.
Before we dive into the guidelines, let’s start by covering the fundamentals.
In the Guidelines, you will often read words like Beneficial Owner, Dealer etc. so let us understand what they mean.
Who is a Beneficial Owner?
Who is a Dealer?
Registration with FIU-IND
The guidelines emphasize the importance of all transactions, particularly highlighting a specific criterion for cash transactions.
As cash is commonly used in the precious market dealings, the guidelines state that any dealer making a payment of 10 lakhs or above in cash to any person must register with the Director of FIUIND.
Now, before your “Jugadoo” mind triggers let me clarify that Slicing the payment will not change the applicability of the registration requirements.
Even if you engage in multiple transactions that can be linked together, you are still obligated to register.
To illustrate this, imagine a customer visiting your jewellery store to sell their old gold jewellery. After testing the jewellery, its value is determined to be, let’s say, 11.5 lakhs. You might think that by paying 5 lakhs in cash now and the remaining amount later, you can avoid registration. However, according to the guidelines, if multiple transactions can be connected to a single transaction, you are still required to register.
It is advisable to either conduct transactions using official banking channels or, if you choose to use cash, ensure that you register with the FIU-IND. Registering demonstrates your commitment to building a better and safer India. It is a way of informing the government and reputable financial departments that you are dedicated to improving the financial landscape.
Currently, there is a significant amount of smuggled black gold in the black and gray markets in India, which has the potential to finance international war crimes for years!
How can you stop this as a Dealer?
As a dealer, you play a crucial role in combating illicit activities in the industry. The guidelines provide a framework that enables reporting entities to establish their own internal control systems and policies in accordance with the law. It is the responsibility of designated directors, officers, employees, and everyone within the organization to adhere to these internal controls, ensuring the prevention of any fraudulent activities at the organizational level.
Hence, your primary duty is to create the best internal control policy for your entity. The guidelines emphasize the importance of creating policies that ensure compliance with all relevant laws and are easily understandable by all staff members. It is also essential to maintain proper documentation of these systems and controls policies.
Stricter KYC and CDD
In the framework, significant attention is given to KYC (Know Your Client) and CDD (Client Due Diligence). The guidelines stress the need for strict adherence to KYC and CDD norms, leaving no room for money launderers and terror financiers. Reporting entities are required to exercise extra caution in cases where there are reasons to believe that the details provided by the client are fictitious.
Furthermore, the guidelines introduce the concept of Enhanced Due Diligence, which applies not only to Politically Exposed Persons (PEP) but also to individuals involved in high-risk businesses, relationships, or transactions. To comply with enhanced due diligence, reporting entities should:
- Frequently review clients’ profiles and transactions.
- Create a comprehensive database of publicly available information related to the client, such as official press releases and MCA documents.
- Conduct thorough reviews of documents provided by the client.
- Perform a risk assessment of the client based on various factors.
- Adopt a risk-based approach to conducting KYC and CDD procedures.
By following these guidelines and implementing a risk-based approach, reporting entities can effectively fulfill their obligations and contribute to a safer and more secure industry.
Risk-Based Approach
To assess the risk associated with a client, it is crucial to have a comprehensive understanding of their business, industry, and publicly available records. By examining these essential details, you can determine the client’s risk level and classify them as either high risk or low risk.
When it comes to reporting suspicious transactions, it is imperative to act promptly. Any transaction, whether conducted in cash or through other means, must be immediately reported to the principal officer or designated officer. They will then take the necessary actions and decisions based on the reported suspicious activity. Additionally, these suspicious transactions need to be notified to the Director of FIU-IND (Financial Intelligence Unit-India) at the following address:
Director, FIU-IND, Financial Intelligence Unit-India, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi-110021. Website: http://fiuindia.gov.in
To report such transactions, you must adhere to the defined format provided by FIU-IND. This ensures that the reported information is accurate, consistent, and in line with the required reporting standards. By following the designated reporting format, you contribute to maintaining the integrity of the reporting process and enable effective monitoring and analysis of suspicious transactions.
Final Words
After extensive research and analysis, these guidelines have been released by officials to protect and safeguard the industry. It is important to understand that these guidelines are not your enemies, but rather your allies. They are designed to ensure the security and integrity of your industry, preventing any adverse impacts caused by money launderers and terror financiers.
By adhering to these guidelines, you can create a strong defense against illicit activities, maintain the trust of your stakeholders, and contribute to a safer and more transparent business environment.
These guidelines serve as a valuable resource to help you navigate through potential risks and challenges, enabling you to establish robust compliance measures and safeguard your business operations.
Embracing these guidelines demonstrates your commitment to maintaining a strong and ethical industry, protecting the interests of your customers, and contributing to the overall well-being of the economy.
-Authored by Shivank Goswami
