1. The Background

The Prevention Of Money-Laundering Act, 2002 (as amended) was notified on July 1, 2005. Subsequent to this, the Securities and Exchange Board of India (SEBI) has, on 18th January 2006, required market intermediaries to adopt a policy framework with respect to anti-money laundering measures to be followed by the intermediaries. Khandwala Securities Limited (KSL) is inter alia, a stockbroker and a portfolio manager and needs to adhere to the same.

2. The Objective

a. Money laundering has now become one of the major concerns of the international financial community. Money Laundering is not just an attempt to disguise money derived from illegal activities. Rather, money laundering is involvement in any transaction or series of transactions that seek to conceal or disguise the nature or source of proceeds derived from illegal activities, including drug trafficking, terrorism, organized crime, fraud, and many other crimes.

b. Know Your Customer “(KYC) is the guiding principle behind the Anti-Money Laundering (AML) measures. It incorporates the “Know Your Customer ” Standards & ” Anti Money Laundering ” Measures, hereinafter to be referred as ” KYC Standards ” and ” AML Measures “. The objective is to “have in place adequate policies, practices, and procedures that promote high ethical and professional standards and prevent the Company from being used, intentionally or unintentionally, by criminal elements “. KYC Standards and AML Measures would enable the Company to know/ understand its customers, the beneficial owners in case of non-individual entities, the principles behind customers who are acting as agents, and their financial dealings better which in turn will help the Company to manage its risks prudently.

3. SEBI Mandate

SEBI has mandated that KYC policy should be designed to combat Money Laundering which covers Customer acceptance policy and customer due diligence measures, including requirements for proper identification of the customers. KHANDWALA SECURITIES LIMITED has framed comprehensive KYC and AML policy. According to the policy,

a. No account should be opened in anonymous or fictitious/Benami name(s) i.e. to say that anonymous or fictitious/benami customers shall not be accepted.

b. No account should be opened or transactions conducted in the name of or on behalf of banned/suspended individuals, organizations, entities, etc. For this purpose, necessary cross checks must be made to ensure that the identity of a customer does not match with any person with a known criminal background or with banned/ suspended entities.

c. No account should be opened if appropriate due diligence measures cannot be applied to a customer for want of verifiable documents on account of non-cooperation of the customer or nonreliability of the data/information furnished to KSL.No account should be opened if appropriate due diligence measures cannot be applied to a customer for want of verifiable documents on account of non-cooperation of the customer or nonreliability of the data/information furnished to KSL.

4. Customer Identification procedure

Customer identification for each customer, whether existing, new, regular, or occasional is an essential element of an effective customer due to the diligence program. CIP at the minimum includes CP and ISA documents, where CP relates to “Customer Profile “, and ISA relates to “Identification “, “Signature ” and “Address ” (ISA) documentation. Clients need to provide ISA documents as required in the account opening document and required under SEBI and PMLA regulations. Clients need to also provide details of their Income/Net worth in order to ascertain their financial profile. Clients are expected to update the same frequency and at least an annual basis.