The FBI warns financial markets to new terror funding reporting warnings
These new regulations, which were revealed in a recently released report, were adopted in accordance with the terms of the Prevention of Money Laundering Act (PMLA) during the fiscal year 2022–2023.
As part of the anti-money laundering and counterterrorism financing regime, India's Financial Intelligence Unit (FIU) has released a new set of "alert indicators" for capital markets, insurance companies, online payment gateway intermediaries, and cryptocurrency service providers to effectively check of suspicious transactions in their channels.
These new regulations were published in a recently released report that PTI was able to see, and they were issued in accordance with the terms of the Prevention of Money Laundering Act (PMLA) during the 2022–2023 fiscal year.
This is a part of the nation's anti-money laundering (AML) and countering the financing of terrorism (CFT) framework, which requires financial institutions and intermediaries to report suspicious transactions to the Federal Investigations Unit (FIU). The FIU then reviews the reports and shares them with other intelligence and investigative agencies so they can take appropriate action.
According to the Federal Financial Data Mining Agency's mandate, FIU aggressively collaborates with reporting companies and authorities in the financial industry to identify new risks and take prompt action to mitigate them.
These additional criteria have resulted in "a strategic shift in the manner in which FIU received information alongside respect to securities market transactions" in the capital markets, according to the study.
These "alert indicators" will cover "emerging risks" such as synchronized and manipulative trade practices, order spoofing, stock brokers misusing client funds, suspicious off-market transactions, etc. in the market infrastructure institutions (MIIs), which include depositories and stock exchanges.
It said that the MIIs' involvement becomes "cardinal" in strengthening the AML/CFT infrastructure because to the rising trade volumes.
Despite the fact that the MIIs had been providing the FBI suspicious transaction reports (STRs) for years, the study said that there was a dearth of alarm indications that were "specific to them" and that this left a great deal of room for improvement in the quality of their reporting.
It stated that the supplemental guidelines have clearly defined the areas of focus for the MIIs and that this should result in a "marked improvement" in the quality of the reports. This will enable FIU to produce valuable intelligence for law enforcement agencies such as the Income-tax department, ED, CBI, DRI, and so on.
The agencies that decided to "comprehensively" revise these guidelines and change the system of only possess brokers and depository participants reporting STRs to the FIU—since they were the first point of contact for a client to access the capital markets—issued the new alert indicators. These agencies included the markets regulator SEBI, the FIU, stock exchanges, and depositories.
According to the report, stock exchanges must take into account cases where there is suspicion of stockbrokers misusing client funds, such as frauds, and analyze cases where "serious anomalies" according to the viewpoint of money laundering and terrorism financing are noticed during inspections and audits of stock brokers.
Depositories must deal with the detection of suspicious off-market transfers—a method of moving shares directly between two accounts without the use of an exchange platform—in order to comply with the new alert indicators for producing STRs.
The insurance industry was the focus of a similar working group that included the insurance regulator IRDAI during the 2022–2023 fiscal year. The report stated that the revised guidelines placed "special stress" on alerting insurance firms to frauds, analyzing them from an AML/CFT perspective, and providing reports to the FBI in appropriate cases.
A working group that included the National Payments Corporation of India (NPCI) and the banking regulator Reserve Bank of India (RBI) "extensively" examined the business model of these technologically advanced financial services companies in the case of online payment gateways because these "new-age" players present issues with regard to the parties' transparency in transactions they facilitate and the speed at which those transactions are completed, which can result in the emergence of AML/CFT risks.
Additionally, the agency released alert indications for service providers of virtual digital assets (VDAs) or cryptocurrency, which included instructions on how to register with the FIU and how to conduct "enhanced due diligence to implementation of travel rule."
The trip rule mandates that during transactions, cryptocurrency service providers exchange sender and receiver data.
The new guidelines, with regard to credit rating agencies (CRAs), will guarantee that they promptly report suspicious transaction reports (STRs) to the FBI. They will also assist in the early detection of serious corporate frauds with implications for AML/CFT and ensure that law enforcement agencies take prompt action based on this financial intelligence to stop delinquent issuers from siphoning off funds.
Similar alert indicators were sent to debenture trustees, instructing them to request "periodic reports" from debenture issuers and take appropriate action on behalf of debenture holders as soon as they become aware of any breach of law or trust deed, even though the FIU stated that these violations may have implications from an AML/CFT standpoint.
The FIU has also provided real estate agents classified as designated non-financial companies and professions (DNFBP) under PMLA with the updated warning indication rules for STR reporting.
