Understand How the Finance Industry is Combating Fraud

Posted On Thursday, Oct 29, 2015


Ever wondered why there is so much paperwork (or an online form if you come to Quantum, no paperwork here ☺) when it comes to a first time investment? Sometimes you wonder what the fund house does with the mountain of paperwork and why the same is required?

In this article we will elaborate on one of the most important reasons for the amount of identification proofs any financial entity asks you for - and that is the prevention of Money Laundering.

Finance Industry is today growing exponentially. But with growth comes the drastically increasing volume of frauds. The volatile economic scenario has, unknowingly, created a conducive environment to commit frauds. Criminal activity such as smuggling, drugs / arms trafficking, terrorism, extortion etc. and even business houses making substantial profit but showing huge losses in their books, brings in its share of the money. That ‘illegitimate’ money needs to be made ‘legitimate’. Hence those with ‘illegitimate’ money seek ways to invest in mutual funds and other financial instruments in an attempt to make it ‘legitimate’. They ‘clean’ or launder’ the money. Hence, the term - Money Laundering.

Simply put, it is washing (laundering) illegal illegitimate money by showing it as legitimate gains by moving it into financial system to make the money legitimate. This is a global menace and not just restricted to India and financial authorities globally are battling this problem.

Three steps of Money laundering –

1.Placement: Placement refers to the physical disposal of cash proceeds/income derived from illegal activity.
2.Layering: Layering refers to the separation of illicit proceeds from their source by creating complex layers of financial transactions. Layering disguises the origin and provides anonymity to its owners.
3.Integration: Integration refers to the re-injection of the laundered proceeds back into the economy in such a way that they re-enter the financial system as normal business funds.

Anti-Money Laundering Framework

Adopt investor acceptance policies and procedures
Undertake Investor Due Diligence and Enhanced Due Diligence
Have a system in place for identifying, monitoring and reporting suspected money laundering transactions
Develop staff members’ awareness and vigilance to guard against money laundering.

Therefore, while there is paperwork involved (and you will need the following documents to make an investment). The background for the paperwork is to ensure that no ‘illegitimate’ money enters the system.

To comply with the PMLA / KYC requirements, the Mutual Funds are required to obtain proof of identity and address, occupation, legal status, annual income / net worth and identify Ultimate Beneficial Owners in case of non-individual investors at the time of investing in the Mutual Funds.

The list of documents along -with application to be submitted as follows:

Documents Individual HUFCompanies / LLP Societies Partnership Firms Investment through POA TrustsNRIFIIs* PIO FPI#
Resolution/ Authorisation to invest     
List of authorised signatories with specimen signatures    
Memorandum & Articles of Association         
Trust Deed          
Declaration of Ultimate Beneficial Ownership    
Partnership Deed         
Certificate of Registration        
Notarised POA         
Copy of PAN Card 
KYC Compliance
PIO Card          
Foreign Inward Remittance          
* For FII’s copy of SEBI registration certificate should be provided.
# Certificate of registration granted by designated depository participants on behalf of SEBI.

SEBI has simplified KYC norms and introduce a common KYC form to be followed by SEBI Registered Intermediaries i.e. Mutual Funds, Depository Participants and Stock Brokers. Investors need to complete their KYC with KYC Registration Agency (KRA) by submitting KYC form with supporting documents and complete their In Person Verification or IPV. Once the investor receives his/her KYC acknowledgement it can be used for investments in securities markets including Mutual Funds across all SEBI Registered Intermediaries.

Once the investor has invested, the AMC will categorize investor in the Risk Categories based on the following grounds :

Type of the investors and nature of business
Type of product/service availed by the investor
Country where the investor is domiciled
Transaction Pattern (both financial and non-financial) and Value of Investments
Mode of Investments

The Suspicious Transaction is identified on the basis of the following criteria:

Gives rise to a reasonable ground of suspicion that it may involve money laundering or
Appears to be made in circumstances of unusual or unjustified complexity; or
Appears to have no economic rationale or bonafide purpose; or
Gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.

As per the Prevention of Money Laundering Act 2002, if the investor’s transaction is found suspicious the mutual fund house in India report the suspicious transactions to the Financial Intelligence Unit - India (FIU-IND) .

FIU-IND is the central national agency of India responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in pursuing the global efforts against money laundering, related crimes and terrorist financing.

As a responsible fund house we adhere to all the government acts to ensure any illegal money entering into the system through money laundering. At Quantum, we believe that it is very important as an asset manager to make sure we are not supporting any illegitimate proceeds by managing them and help them grow further.

The safety of your money and the cleanliness of the same is the responsibility of all financial entities in India – we owe this to the Government and most importantly to you, our investor.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

View All

  • Balancing Act: The Coalition Government and Markets in India
    Balancing Act: The Coalition Government and Markets in India

    Posted On Tuesday, Jun 11, 2024

    Let's explore how the current coalition government may impact your investments. The Indian stock market is a barometer of the country's economic health and is shaped by the prevailing political environment.

    Read More
  • Gold Monthly View for May 2024
    Gold Monthly View for May 2024

    Posted On Thursday, Jun 06, 2024

    Starting the month of May near the $2286 per ounce level, gold saw a $150 movement during the month touching a fresh all-time peak of $2420 largely buoyed by rising geopolitical tensions.

    Read More
  • Polls to Portfolios: A Robust Portfolio with Quantum in Post-Election India
    Polls to Portfolios: A Robust Portfolio with Quantum in Post-Election India

    Posted On Wednesday, Jun 05, 2024

    The election season may be over, but the journey for your investments is ongoing.

    Read More

Add To Cart

Add To Cart

Your cart is empty
Total of Lumpsum

Get In Touch

Take small steps in your financial planning to achieve big dreams! Start your investment journey today!

@@tlcomstart@@ @@tlcomend@@