Background

• The Prevention of Money Laundering Act, 2002 has come into effect from 1st July 2005. Necessary Notifications / Rules under the said Act have been published in the Gazette of India on 1st July 2005 by the Department of Review, Ministry of Finance, Government of India.
• Securities and Exchange Board of India have issued a Circular No. ISD / QR / RR / AML / I/ 06 on January 18, 2006 to all intermediaries registered with SEBI u/s 12 of the SEBI Act providing Guidelines on Anti money Laundering Standards (Guidelines)
• BHH Securities Pvt. Ltd. being a registered intermediary shall have to maintain a record of all the transaction; the nature & value of which has been prescribed under the Prevention of Money Laundering Act. Such transactions include:
• All cash transactions of the value more than Rs. 10 lacs or its equivalent in foreign currency
• All series of cash transactions integrally connected to each other which have been valued below Rs. 10 lacs or its equivalent in foreign currency where such series of transactions take place within one calendar month.
• All suspicious transactions whether or not made in cash and including inter-alia, credits or debits into from any non monetary account such as d-mat account, security account maintained by us.
• For the purpose of suspicious transactions reporting, apart from transactions integrally connected, transactions remotely connected or related are also to be considered.

Obligation to establish Policies and Procedures

• In order to fulfill these requirements under the said PMLA Act and the said SEBI Guidelines, there is a need for us to have a system in place for identifying, monitoring and reporting suspected money laundering or terrorist financing transactions to the law enforcement authorities.
• In light of the above, we are fully committed to establishing appropriate policies and procedures for the prevention of money laundering and terrorist financing and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements.
• It is obligatory on our part to :
  • issue a statement of policies and procedures for dealing with money laundering and terrorist financing reflecting the current statutory and regulatory requirements;
  • ensure that the content of these Guidelines are understood by all our staff members, sub-brokers, authorised persons and remisiers;
  • regularly review the policies and procedures on prevention of money laundering and terrorist financing to ensure their effectiveness. Further in order to ensure effectiveness of policies and procedures, the person doing such a review should be different from the one who has framed such policies and procedures;
  • adopt customer acceptance policies and procedures which are sensitive to the risk of money laundering and terrorist financing;
  • undertake customer due diligence (“CDD”) measures to an extent that is sensitive to the risk of money laundering and terrorist financing depending on the type of customer, business relationship or transaction; and
  • develop our associates / staff members’ awareness and vigilance to guard against money laundering and terrorist financing.

Scope of Policies and procedures

Policies and procedures to combat Money Laundering should cover:

• Communication of our policies/procedures relating to prevention of money laundering and terrorist financing to all associates, management and relevant staff that handle account information, securities transactions, money and customer records etc.
• Customer acceptance policy and customer due diligence measures, including requirements for proper identification;
• Maintenance of records;
• Compliance with relevant statutory and regulatory requirements;
• Co-operation with the relevant law enforcement authorities, including the timely disclosure of information; and
• Role of internal audit or compliance function to ensure compliance with policies, procedures, and controls relating to prevention of money laundering and terrorist financing, including the testing of the system for detecting suspected money laundering transactions, evaluating and checking the adequacy of exception reports generated on large and/or irregular transactions, the quality of reporting of suspicious transactions and the level of awareness of front line staff of their responsibilities in this regard.
  

Written Anti Money Laundering Procedures

• BHH Securities Pvt. Ltd. hereby has adopted the written procedures given herein below to implement the anti money laundering provisions envisaged under the said PMLA Act and the said SEBI Guidelines.
• 2 These procedures include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process’:
  • Policy for acceptance of clients
  • Procedure for identifying the clients
  • Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR)

Customer Due Diligence

• The customer due diligence (“CDD”) measures comprise the following:
  • Obtaining sufficient information in order to identify persons who beneficially own or control securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party should be identified using client identification and verification procedures. The beneficial owner is the natural person or persons who ultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.
  • Verify the customer’s identity using reliable, independent source documents, data or information;
  • Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted;
  • Verify the identity of the beneficial owner of the customer and/or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c); and
  • Conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with our knowledge of the customer, its business and risk profile, taking into account, where necessary, the customer’s source of funds.

Acceptance of clients:

• The following safeguards are to be followed while accepting the clients:
  • No account is opened in a fictitious / benami name or on an anonymous basis.
  • Factors of risk perception (in terms of monitoring suspicious transactions) of the client are clearly defined having regard to clients’ location (registered office address, correspondence addresses and other addresses if applicable), nature of business activity, trading turnover etc . and manner of making payment for transactions undertaken. The parameters should enable classification of clients into low, medium and high risk. Clients of special category (as given below) require higher degree of due diligence and regular update of KYC profile.
  • Documentation requirements and other information are to be collected in respect of different classes of clients depending on perceived risk and having regard to the requirement to the Prevention of Money Laundering Act 2002, guidelines issued by RBI and SEBI from time to time. A detailed check list for each class of clients is given in the KYC form.
  • We should ensure that an account is not opened where we are unable to apply appropriate clients due diligence measures / KYC policies. This may be applicable in cases where it is not possible to ascertain the identity of the client, information provided to us is suspected to be non genuine, perceived non cooperation of the client in providing full and complete information. Such cases should be reported to the Principal Officer.
  • We should be cautious to ensure that we do not return securities or money that may be from suspicious trades. However, we should consult the relevant authorities in determining what action it should take when we suspects suspicious trading.
  • With respect to the accounts being operated under a Power of Attorney, adequate verification of a person’s authority to act on behalf the customer should also be carried out.
  • Before opening an account we have to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency. Any such case should be brought to the notice of the Principal Officer.

Clients of special category (CSC):

Such clients include the following:

• Non resident clients
• High networth clients,
• Trust, Charities, NGOs and organizations receiving donations
• Companies having close family shareholdings or beneficial ownership
• Politically exposed persons (PEP) of foreign origin
• 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 significant influence)
• Companies offering foreign exchange offerings
• Clients in high risk countries.
• Non face to face clients
• Clients with dubious reputation as per public information available etc.

The above mentioned list is only illustrative and we should exercise, independent judgment to ascertain whether new clients should be classified as CSC or not.

Client identification procedure :

• Our ‘Know your Client’ (KYC) policy clearly spells out the client identification procedure to be carried out at different stages i.e. while establishing our relationship with the client , while carrying out transactions for the client or when we have doubts regarding the veracity or the adequacy of previously obtained client identification data.
• The client should be identified by using reliable sources including documents / information. We should obtain adequate information to satisfactorily establish the identity of each new client and the purpose of the intended nature of the relationship.
• Each original document should be seen prior to acceptance of a copy.
• Failure by prospective client to provide satisfactory evidence of identity should be noted and reported to the Principal Officer.
• Further, we should also maintain continuous familiarity and follow-up where we notice inconsistencies in the information provided..

Record Keeping

• We should maintain such records as are sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved, if any)
• To enable this reconstruction, we should retain the following information for the accounts of our customers in order to maintain a satisfactory audit trail:
  • the beneficial owner of the account;
  • the volume of the funds flowing through the account; and
  • for selected transactions,
  • the origin of the funds;
  • the form in which the funds were offered or withdrawn, e.g. cash, cheques, etc.;
  • the identity of the person undertaking the transaction;
  • the destination of the funds;
  • the form of instruction and authority.

Retention of Records

• All necessary records on transactions, both domestic and international, should be maintained at least for a period of 10 years from the date of cessation of the transactions.
• Records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence should also be kept for the same period. We are in the process of maintaining scanned copies of all KYC related documents.
• In situations where the records relate to on-going investigations or transactions which have been the subject of a suspicious transaction reporting, they should be retained until it is confirmed that the case has been closed.

Monitoring of transactions

• As a policy, we will not accept cash and third party cheques from any of our clients. Where a client brings a DD/PO, we have to insist on a covering letter duly signed by the client, stating that the DD/PO mentioned therein has been issued from his bank account at his instance. A draft of the covering letter is annexed herewith.
• Regular monitoring of transactions is vital for ensuring effectiveness of the Anti Money Laundering procedures.
• We should pay special attention to all complex, unusually large transactions / patterns which appear to have no economic purpose.
• We should pay special attention to the transaction which exceeds the threshold limits if any, for each class of client accounts .
• We should ensure that records of all transactions are preserved and maintained.
• Suspicious transactions should be regularly reported to the Principal Officer.
• Further, our Principal Officer, either by himself or through an internal audit mechanism, shall randomly examine a selection of transactions undertaken by clients to comment on their nature i.e. whether they are suspicious or not.

Suspicious Transaction Monitoring & Reporting

• A list of circumstances which may be in the nature of suspicious transactions is given below. This list is only illustrative and whether a particular transaction is suspicious or not will depend upon the background, details of the transactions and other facts and circumstances:
  • Clients whose identity verification seems difficult or clients appears not to cooperate
  • Portfolio Management Services for clients where the source of the funds is not clear or not in keeping with clients apparent standing /business activity;
  • Clients in high-risk jurisdictions or clients introduced by banks or affiliates or other clients based in high risk jurisdictions;
  • Substantial increases in business without apparent cause ;
  • Unusually large cash deposits made by an individual or business;
  • Transfer of investment proceeds to apparently unrelated third parties;
• Any suspicious transaction should be immediately notified to the Principal Officer. The notification may be done in the form of a detailed report with specific reference to the clients, transactions and the nature /reason of suspicion. However, it should be ensured that there is continuity in dealing with the client as normal until told otherwise and the client should not be told of the report/suspicion. In exceptional circumstances, consent may not be given to continue to operate the account, and transactions may be suspended.

Appointment of Principal Officer

• Mr. Sharad Harlalka has been appointed as the Principal Officer to report suspicious transactions to the relevant authorities.
• The Principal Officer ‘s responsibilities are given hereunder:
  • Communicating the Policy and Procedures on Prevention of Money Laundering to all our employees, sub-brokers and associates.
  • Receiving reports from our employees, sub-brokers and associates for any suspicious dealings noticed by them.
  • Clarifying any queries from them on this matter
  • Ensuring that the employees dealing with the clients / prospective clients are aware of the KYC guidelines of the Company and are advised to follow the same strictly
  • Conducting a sample test of client dealings, by himself or through an internal audit process, to satisfy himself that no suspicious activities exist
  • Reporting any suspicious transactions to appropriate authorities

High standards in hiring policies and training with respect to anti-money laundering

• We have adequate screening procedures in place to ensure high standards when hiring employees.
• It is also planned to provide proper anti money laundering and anti-terrorist financing training to all our sub-brokers, authorised persons remisiers and staff members.

Date :

From
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To
BHH Securities Pvt. Ltd.,
634-Rotunda,B.S.Marg,
Fort, Mumbai - 400023.

Dear Sir,

Re: Declaration & Reason for Issuing DD/PO

I hereby declare that I am having a Trading a/c with BHH Securities Pvt. Ltd. in name of _____________ & my Client Code is ____________ with _______________ Branch/Sub-Broker.

I enclose herewith a DD/PO No. ---------- dated ---------------- for Rs.-------------- (Rupees.-------------------------------------------------------------------------), which has been issued at my instance from my own Bank Account No. ____________ with --------------------------------------------------------------------------------------(Name of the Bank/Branch).

Reason for issuing DD/PO : _________________________________________________

Thanking You,

Yours Truly

(Signature)
Encl.: As above