Money transaction rules from India made stringent to prevent terror financing



Every international transaction above ₹50,000 will now be subject to scrutiny. A reporting entity will identify clients, verify their identity and also ascertain the purpose of the business if not well defined.

The Indian central government on October 17, notified an amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, further tightening the record. Thus, international transactions above ₹50,000 will be controlled to prevent terror financing.

The rule also mandates reporting entities, which are part of a group, to have adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off. “Every reporting entity shall … identify its clients, verify their identity using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship where applicable, and take reasonable steps to understand the nature of the customer’s business, and its ownership and control,” the notification says.

The reporting entity also has to “determine whether a client is acting on behalf of a beneficial owner, and identify the beneficial owner and take all steps to verify the identity of the beneficial owner, using reliable and independent sources of identification.”

India’s Foreign Exchange Management Act, (FEMA) of 1999, was created to amend policies related to foreign exchange and improve systems and structures to develop and maintain India’s forex market. And it is the responsibility of the Reserve Bank of India to police the laws set by FEMA. The RBI has to control India’s rupee flow out of the nation and maintain the local currency market.

The Liberalised Remittance Scheme (LRS) introduced by the RBI on February 4, 2004, aimed at enabling people to transfer money internationally liberally and easily. Over the years, the scheme evolved and an annual remittance limit of $25000 reached $250,000. The only requirement was that remittances must be made through an authorised dealer bank in India and all necessary documents should be provided for verification.

India sees growth in different sectors and this growth involves monetary transactions from various countries, especially the Gulf region. The new amendment, which will scrutinse transactions, could be a controlling factor as far as liberalised transactions are concerned.


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