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Chona`s Policy, with reference to the Guidelines for market  intermediaries on 

Anti money Laundering Standards, Issued by SEBI

 

Money laundering (converting illegal money into legal money) is recognised world over as a threat to the financial systems and to the integrity and sovereignty of the countries. In this context SEBI and NSE want intermediaries also (Share Broker, Sub Broker, Share Transfer Agent, Portfolio Manager , etc) to comply with their circulars, guidelines, Prevention of Indian Money Laundering Act 2002 and the rules issued thereunder  for prevention of money laundering and terrorist financing.

 

In terms of the Act we the intermediaries have to maintain and preserve for ten years (from the date of cessation of transactions) the records of the following transactions and to  report them to specified authorities within the prescribed time schdules.

 

* All suspicious transactions whether or not made in cash and including, inter –alia, credits or debits into from any non monetary account such as demat account, Security account maintained by the registered intermediary.

 

We have to maintain and preserve the following information in respect of the transactions refered to earlier.

 

(i)                  The nature of the transactions:

(ii)                The amount of the transaction and the currency in which it was denominated

(iii)               The date on which the transaction was conducted; and

(iv)              The parties to the transaction.

 

 

(A List of sample suspicious transactions is given in the annexure.)

 

                                       OUR POLICY

 

1. To adopt strictly the customer acceptance policies and procedures which are sensitive to the risk of money laundering and terrorist financing (following strictly the guidelines issued by SEBI | NSE|  GOVT of INDIA). 

 

2. To undertake customer due deligence measures to an extent that is sensitive to money laundering.

 

3. To develop staff members` awareness and vigilance to guard against money laundering and terrorist financing.

 

4. To regularly review the policies and procedures followed in this regard and change or add that is required depending upon the needs.

 

 

                                   PROCEDURES

 

With regard to the policy for acceptance of clients we shall ensure that

 

A)    No account is opened ina fictious | benami name on an anonymous basis.

 

B)     Details such as registered office address,corrspondence address, other address, name of bussines activity, trading trunover,  manner of making payment etc or thoroughly checked on an going basis.

 

C)    Clients are classified as low, medium and high risk clients.

 

D)     Higher degree of due deligence and regular update of KYC profile is excercised and done.

 

E)     We  collect all documents, informations from clients as per guidelines received from SEBI | NSE.

 

F)     No account is opened when we are not able to identify the client or there is no co-operation from the client in proving full information or information provided is suspected to be non genuine.

 

G) Evaluation is done to find out whether there is any suspicious trading and to                    

      decide whether to freeze or close the account.

 

H) No securities of money are returned if they are from suspected suspicious  

     trading

 

I)       No client having criminal background or banned in any other manner in terms of criminal or civil proceedings by any enforcement agency worldwide opens an account with us.

 

J)       We collect full informations about clients from the date of opening the account till the account is continued, periodically.

 

K)    We adopt enhanced due deligence process for higher risk categories of customers, such as special categories of customers as under.

 

1.      Non resident clients.

2.      High networth clients.

3.      Trust, charties,  NGO`s and orgainsations receiving donations.

4.      Companies having close family share holdings or beneficail ownership

5.      Politically exposed persons of foreign orgin.

6.      Current | Former Head of state, current or Former senior high profile politicians and connected persons ( immediate family, close advisors and companies in which such individuals have interest or siginificant influence).

7.      Clients in high risk countries ( for example – Countries active in narcoitics production, off shore financial centres)

8.      Non face to face clients

9.      Clients with dubious reputation .

 

 

 We exercise customer due intelligence as under.

 

(A)          By obtaining suficient information to identify and verify who beneficially own or control securities account | control the client.

(B)                   By verifying the customer`s identity using reliable independent source,

               data document etc.

(C)                  By conducting an on going due intelligence and scrutiny throughout the course of business  relationship to ensure that the transactions conducted are genuine.

 

 

REPORTING

 

All Suspicious transactions identified by any one in branch or in head office are to be reported immediately to the Principal officer at head office, By means of a private and confidential letter for  his scrutiny and for taking  appropriate action.

 

Under no circumstances the matter under investigation process  is to be revealed to the clients concerned.

 

Principal officer will give appropriate directions depending upon the nature and background of transactions to the branch officials concerned.

 

In short all staff should be alert and vigilant enough to identify if there are any abnormal transactions taking place in their area of operations and to  report the same to  Principal officer, ANTI-Money Laundering cell at the Head office and seek his guidence.

 

                                        ------------

 

 

For detailed information, We have to refer to

 

1.      NSE investigation Department circular no. NSE/INVG/2006/09 dated 25-01-06

2.      SEBI circular no. ISD/CIR/RR/AML/1/06 dated 18-01-06

3.      NSE circular no. NSE/INVG/2006/33 dated 24-03-06

4.      The Prevention of money Laundering ACT 2002.

 

We should also refer to the circular issued by NSE from time to time in respect of this subject.

 

                                        

                                                   ANNEXURE

 

SUSPICIOUS TRANSACTIONS :

 

    It means a transaction whether or not made in cash which to a person acting in good faith

 

A)                      Gives rise to a resonable ground of suspicion that it may involve the proceeds of crime or

B)                      appears to be made in circumstances of unusal or unjustifed complexity or

C)                      appears to have no economic rationale or bonafide purpose.

 

                                             ----------

 

List of circumstances which may be in the nature of suspicious transactions is given below. This list is only illustrative.

 

1.      When clients do not co-operate in giving documents etc.

2.      Where source of the funds is not clear or not in keeping with clients apparent standing or business activity.

3.      Substantial increase in business without apparent cause.

4.      Transfer of funds to apparently unreleated third parties | other accounts.

5.      Buying and Selling of illilquid shares | Securites

6.      When false documents are given

7.      When one introducs large number of clients.

8.      Accounts opened by others. ( for different persons)

9.      Insider buying | selling of shares.

10.  Those who make  money by being extremely sumart or lose the mony regularly

11.   Trading patterns of the client indicates adverse futures.

 

                                                CIRCULAR LETTER

                                                                                                                       Date: 01-08-2009

 

Subject: - Obligations of Securities Market Intermediaries under Prevention of Money Laundering Act 2002 and rules framed thereunder.

                                                     ------------------             

 

We trust that, you are aware the various provisions under Anti money Laundering Act and our obligations as security market intermediaries under that Act.  Please note that we have issued detailed circulars on this matter on 21.06.2006 and on 14.12.2006. (Our group companies policy framed thereto, is also available in our website (www.chona.com))

 

In order to make ourselves more familiar with Anti money Laundering Act provisions we give below, in brief, the procedures we have to follow in dealing with client accounts with relation to Money laundering and what we are expected to do, in case, we come to know abnormal Trade transactions, taking place in our clients accounts.

 

 

What is Money Laundering in general?

 

Converting the proceeds of illegal / criminal activities into legal money by one or many transactions through financial system.

(Examples- Routing stolen money / ransom received for holding a person captive, through financial system)

 

 Who is a Money launderer?

 

Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a

Party or is actually involved in any process or activity connected with the proceeds of crime and is projecting it as untainted (legitimate) property.

 

Need for the Anti Money Laundering Measures:

 

International initiatives taken to combat drug trafficking, terrorism and other organized and serious crimes have concluded that financial institutions including share broking firms / depository participants must establish procedures of internal control to prevent and impede money laundering and terrorist financing.

                  

Our basic requirements under the Law:

 

1.       We should have a system in place for identifying, monitoring and reporting suspected      

            money laundering or terrorist financing transactions to the law enforcement

            authorities.

2.       In Terms of the Act, we, the intermediaries have to maintain and preserve for Ten years (from the date of cessation of transactions) the records of the following transactions and report them to specified authorities, within prescribed time schedules:

 

All suspicious transactions whether or not made in cash and including inter-alia credits or debits into, from any non-monetary account such as demat account, security account maintained by the registered intermediary. For this purpose, we have to maintain and preserve the following information, in respect of the transactions referred to earlier.

 

a)      The nature of transaction

b)      The amount of the transaction and the currency in which it was denominated

c)      The date on which the transaction was conducted and

d)      The party to the transaction

 

Important guidelines to be followed by us:

 

1.      To identity and verify the beneficial ownership and control (i.e.) determine which individuals ultimately own or control the customer and or the person on whose behalf a transaction is conducted.

2.      To conduct on going due diligence and scrutiny  (monitor the accounts, their transactions throughout the course of business relationship) to ensure that the transactions conducted are normal and as per our assessment of the customer.

3.      To follow  “know your customer” procedures and open customers accounts accordingly. Then we have to classify clients, as low /medium / high risk and special category of customers taking into risk factors and handle the different category of clients by adopting suitable risk based approach. (Increasing / Decreasing Frequency of follow up according to the level of risk)

 

Classification of Clients

Low risk clients:

 

 Their wealth can easily be identified.          For example:  Salaried class people Government

                                                                                             Companies.

Medium risk clients:

 Based on their nature of business,                For example:  Real Estate business firms               

 Turnover and business, source of funds,                               Automobile    workshops/

 Their profits, and market reports,                                         Consultants’ interior decorators

 Their worth can be ascertained.

High-risk clients:                         

 Whose source of income                               For example:  Non-resident clients Trusts Non                                     cannot be identified / obtained easily                                     Face-to-face customers

 

Exceptional  (Very high risk) clients:        For example:  Persons and entities having cases

                                                                                                filed against them by police, IT                      

authorities enforcement   directorate etc.

In respect of high risk / very high-risk clients opening and monitoring of accounts requires special attention and systematic scrutiny of account transactions very frequently or even hour to hour basis

 

 

 

What are Suspicious Transactions?

 

 It means a 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 the proceeds of crime or

B)      Appears to be made in circumstances of unusual or unjustified complexity or

C)     Appears to have no economic rationale or bonafide purpose.

  

Broad categories of reason for suspicion and examples of suspicious transactions for an intermediary are indicated as under:

 

Identity of client

 

·          False identification documents

·          Identification documents which could not be verified within reasonable time

·          Non-face to face client

·          Doubt over the real beneficiary of the account

·          Accounts opened with names very close to other established business entities

 

Suspicious Background

 

·          Suspicious background or links with known criminals

 

Multiple Accounts

 

·          Large number of accounts having a common account holder, introducer or authorized signatory with no rationale

·          Unexplained transfers between multiple accounts with no rationale

 

Activity in Accounts

 

·          Unusual activity compared to past transactions

·          Use of different accounts by client alternatively

·          Sudden activity in dormant accounts

·          Activity inconsistent with what would be expected from declared business

·          Account used for circular trading  

 *******The Circular Trading System (CTS) is a market-neutral "personal hedge fund" trading system that is always in the market. It automatically gets you long when a stock is going up, and short when a stock is going down. Stops are reversal points, so that if you are long and a stop is hit, you exit the long and then go short. If you are short and a stop is hit, you cover the short and then go long. 

 

Nature of Transactions

 

·          Unusual or unjustified complexity

·          No economic rationale or bonafide purpose

·          Source of funds are doubtful

·          Appears to be case of insider trading

·          Investment proceeds transferred to a third party

·          Transactions reflect likely market manipulations

·          Suspicious off market transactions

 

Value of Transactions

 

·          Value just under the reporting threshold amount in an apparent attempt to avoid reporting

·          Large sums being transferred from overseas for making payments

·          Inconsistent with the clients apparent financial standing

·          Inconsistency in the payment pattern by client

·          Block deal which is not at market price or prices appear to be artificially inflated/deflated

 

 

 

 

What is to be done in case Broker / sub-broker or Staff at Head office find a transaction prima facie suspicious:

 

To be reported to principal officer (AML) at Head office in the manual / electronic format without causing any inconvenience or embarrassment, without delay (format to be obtained from systems Dept at c.o.)

 

Conclusion: -  

 

                   Money Laundering in any form is an offence under the law.  As such, it is our duty, as securities market intermediaries, to be familiar with AML Act and follow it strictly. Further, we have been given guidelines by SEBI / NSE and KYC procedures and instructions given by the Head office, with regards to opening, operations and closure of accounts which we need to strictly follow. If clients / accounts, throw any suspicion with regards to the transactions, carried out by them we have to become vigilant, enquire discreetly (prudently / tactfully), and report the same to Principal officer (AML) at c.o. confidentially without disclosing to client concerned.

 

 

 

                                                                                                                        DIRECTOR

 

 

Reference: -

                 

                     For full details of SEBI / NSE guidelines, Please refer to the following

 

1.       NSE circular no NSE/INVG/2006/33 date 24.03.06  (download NSE/INVG No2006/7307)

2.       NSE circular no NSE/ INVG/2008/223 date 22.12.08 (download NSE/INVG No/2008/11798)

3.       Our policy document in our website.

 

 

For any clarification / doubt, please write / Email to principal officer (AML) at

Head office Email to vpl@chona.com

 

 

 

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