KYC, AML and Compliance: CDD, Beneficial Ownership and Reporting
KYC and AML questions test whether you can spot a laundering risk in a routine account-opening file and whether you know the reporting thresholds - a section where precision, not general awareness, earns marks.
The framework
PMLA 2002 and its rules, the RBI Master Direction on KYC, FATF recommendations, and screening against UNSC 1267 and UAPA sanctions lists.
Customer due diligence
- Identify the customer, verify through Officially Valid Documents, identify the beneficial owner, and understand the purpose of the relationship.
- Beneficial-owner thresholds are broadly 10% for companies and 15% for partnership firms and unincorporated bodies.
- Risk-categorise as low, medium or high, with periodic updation at least every 10, 8 and 2 years respectively.
- Enhanced due diligence for PEPs, high-risk jurisdictions and non-face-to-face customers; V-CIP and Aadhaar-based e-KYC are permitted channels.
- Small accounts: balance up to ₹1 lakh, aggregate credits up to ₹2 lakh a year, valid 12 months and extendable to 24.
Reporting
- CTR: cash transactions above ₹10 lakh in aggregate in a month, reported to FIU-IND.
- STR: no monetary threshold - file on suspicion, promptly.
- Records are retained for five years.
Worked example
A customer deposits ₹9.9 lakh cash on three consecutive days - ₹29.7 lakh in the month. The CTR threshold is breached on the monthly aggregate, and the deliberate splitting is structuring, so an STR is also warranted even though no single deposit crossed ₹10 lakh.
Traps
- Waiting for proof of a predicate offence before filing an STR.
- Assuming STRs carry a monetary threshold.
- Overlooking the beneficial owner behind a company or trust.