Resident Foreign Currency (Domestic) Account - Facility for Resident Individuals

 

AP (DIR Series) (2002-2003) Circular No. 37, dated 1-11-2002

Resident Foreign Currency (Domestic) Account - Facility for Resident Individuals

Authorised Dealers are aware that in terms of Regulation 3(iii) of RBI Notification No.FEMA.11/2000-RB dated 3rd May, 2000, residents are allowed to retain up to US $ 2000 or its equivalent in aggregate, provided that such foreign exchange in the form of currency notes, bank notes and travellers cheques :

(a)       was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or

(b)       was acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or

(c)        was acquired by him by way of honorarium or gift while on a visit to any place outside India; or

(d)       represents the unspent amount of foreign exchange acquired by him from an authorised person for travel abroad.

 

2.         As a step towards further liberalisation, it has been decided to allow a person resident in India to open, hold and maintain with an Authorised Dealer in India a Foreign Currency Account to be known as Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, bank notes and travellers cheques from the sources specified at items (a) to (d) above. Debits to the account shall be for payment towards current/capital account transactions in accordance with the existing foreign exchange regulations. The account will be maintained in the form of current account and shall not bear any interest. Cheque facility will be available. There will be no ceiling on the balances held in the account.

 

3.         It is clarified that the facility of opening of RFC (Domestic) Account is in addition to the existing facility of (i) RFC facility provided under Regulation 5 of Notification No. FEMA 10/2000-RB dated 3rd May, 2000 and (ii) retention of foreign exchange in cash and/or travellers cheques up to US $ 2000 or its equivalent available in terms of Regulation 3(iii) of Notification No. FEMA 11/RB-2000 dated 3rd May, 2000.

 

4.         A Notification amending the relevant provisions of RBI Notification No. FEMA 10/RB-2000 dated 3rd May, 2000 is being issued separately.

 

5.         Pending publication of the Notification by the Government of India, requests received by Authorised Dealers for opening of Resident Foreign Currency (Domestic) Accounts may be forwarded       with recommendations to the concerned Regional Office of the Reserve Bank. While opening these accounts the Authorised Dealers should however, follow the same procedures, including ‘Know Your Customer’ guidelines (Annex) as applicable for opening any other domestic account.

 

6.         Authorised Dealers may bring the contents of the circular to the notice of their constituents concerned.

 

7.         The directions contained in this circular have been issued under section 10(4) and section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

  Annex

Circular No. DBOD. AML.BC.18/14-1-2001/2002-03, dated 16th August, 2002

Guidelines on “know your customer” norms and “cash transactions”

As part of “Know Your Customer” (KYC) principle, the RBI has issued several guidelines relating to identification of deposi­tors and advised the banks to put in place systems and procedures to help control financial frauds, identify money laundering and suspicious activities, and for scrutiny/monitoring of large value cash transactions. Instructions have also been issued by the RBI from time to time advising banks to be vigilant while opening accounts for new customers to prevent misuse of the banking system for perpetration of frauds. A gist of the past circulars issued on the subjects under reference are listed in the annex­ure. Taking into account recent developments, both domestic and international, it has been decided to reiterate and consolidate the extant instructions on KYC norms and cash transactions. The following guidelines reinforce our earlier instructions on the subject with a view to safeguarding banks from being unwittingly used for the transfer or deposit of funds derived from criminal activity (both in respect of deposit and borrowal accounts), or for financing of terrorism. The guidelines are also applicable to foreign currency accounts/transactions.

 

2.         “Know your customer” (KYC) guidelines for new accounts:

The following KYC guidelines will be applicable to all new ac­counts with immediate effect.

2.1       KYC policy:

(i)         “Know your customer” (KYC) procedure should be the key principle for identification of an individual/corporate opening an account. The customer identification should entail verifica­tion through an introductory reference from an existing account holder/a person known to the bank or on the basis of documents provided by the customer.

(ii)        The board of directors of the banks should have in place adequate policies that establish procedures to verify the bona fide identification of individual/corporates opening an account. The Board should also have in place policies that estab­lish processes and procedures to monitor transactions of suspi­cious nature in accounts and have systems of conducting due diligence and reporting of such transactions.

2.2       Customer identification:

(i)         The objectives of the KYC framework should be twofold, (i) to ensure appropriate customer identification; and (ii) to monitor transactions of a suspicious nature. Banks should obtain all information necessary to establish the identity/legal existence of each new customer, based preferably on disclosures by customers themselves. Typically easy means of establishing identity would be documents such as passport, driving licence, etc. However where such documents are not available, verification by exiting account holders or introduction by a person known to the bank may suffice. It should be ensured that the procedure adopted does not lead to denial of access to the general public for banking services.

(ii)        In this connection, we also invite a reference to a report on Anti Money Laundering Guidelines for Banks in India prepared by a Working Group, set up by IBA, for your guidance. It may be seen that the IBA Working Group has made several recommen­dations for strengthening KYC norms with antimoney laundering focus and has also suggested formats for customer profile, ac­count opening procedures, establishing relationship with specific categories of customers, as well as an illustrative list of suspicious activities.

 

3.         “Know your customer” procedures for existing customers:

Banks are expected to have adopted due diligence and appropriate KYC norms at the time of opening of accounts in respect of exist­ing customers in terms of our extant instructions referred to in the annexure. However, in the case of any omission, the requisite KYC procedures for customer identification should be got complet­ed at the earliest.

 

4.         Ceiling and monitoring of cash transactions:

The extant RBI guidelines on the subject are as under:

(i)         Banks are required to issue travellers cheques, demand drafts, mail transfers, and telegraphic transfers for Rs. 50,000 and above only by debit to customers’ accounts or against cheques and not against cash (Circular No. DBOD.BP.BC.114/C469 (81)-91, dated 19th April, 1991). Further, the applicants (whether customers or not) for the above transaction for amount exceeding Rs. 10,000 should affix permanent (Income-tax) account number on the appli­cations (Circular No. DBOD.BP.BC.92/C469-76, dated 12th August, 1976). Since KYC is now expected to establish the identify of the customer and as the issue of demand draft, etc. for Rs. 50,000 and above is by debit to account, the requirement for furnishing PAN stands increased uniformly to Rs. 50,000.

(ii)        The banks are required to keep a close watch of cash withdrawals and deposits for Rs. 10 lakhs and above in deposit, cash credit or overdraft accounts and keep record of details of these large cash transactions in a separate register. (Circular No. DBOD.BP.BC.57/21.1.2001/95, dated 4th May, 1995)

(iii)       Branches of banks are required to report all cash deposits and withdrawals of Rs. 10 lakhs and above as well as transactions of suspicious nature with full details in fortnightly statements to their controlling offices. Besides, controlling offices are also required to apprise their head offices regarding transactions of suspicious nature. (Circular No. DBOD.BP.BC.101/21.1.2001/95, dated 20th September, 1995). Early computerization of branch reporting will facilitate prompt gener­ation of such reports.

 

5.         Risk management and monitoring procedures:

In order to check possible abuse of banking channels for illegal and antinational activities, the Board should clearly lay down a policy for adherence to the above requirements comprising the following:

 

5.1       Internal control systems:

Duties and responsibilities should be explicitly allocated for ensuring that policies and procedures are managed effectively and that there is full commitment and compliance with an effective KYC programme in respect of both existing and prospective deposit accounts. Controlling offices of banks should periodically moni­tor strict adherence to the laid down policies and procedures by the officials at the branch level.

5.2       Terrorism finance:

RBI has been circulating lists of terrorist entities notified by the Government of India to banks so that banks may exercise caution if any transaction is detected with such entities. There should be a system at the branch level to ensure that such lists are consulted in order to determine whether a person/organization involved in a prospective or existing business relationship appears on such a list. The authority to whom banks may report accounts suspected to belong to terrorist entities will be ad­vised in consultation with Government.

5.3       Internal audit/inspection:

(i)         An independent evaluation of the controls for identify­ing high value transactions should be carried out on a regular basis by the internal audit function in the banks.

(ii)        Concurrent/internal auditors must specifically scruti­nize and comment on the effectiveness of the measures taken by branches in adoption of KYC norms and steps towards prevention of money laundering. Such compliance report should be placed before the audit committee of the board of banks at quarterly intervals. This may be included in the calendar of reviews advised in our Circular No. DBOD.No.BP.BC.3/21.03.038/2000, dated 14th July, 2000.

5.4       Identification and reporting of suspicious transactions:

Banks should ensure that the branches and controlling offices report transactions of suspicious nature to the appropriate law enforcement authorities designated under the relevant laws gov­erning such activities. There should be well laid down systems for freezing of accounts as directed by such authority and reporting thereof to the controlling office and head office. Being matters of sensitive nature, there must be a quarterly reporting of such aspects to the audit committee of the board or the board of directors.

5.5       Adherence to Foreign Contribution Regulation Act, (FCRA) 1976:

(i)         Banks should also ad here to the instructions on the provisions of the Foreign Contribution Regulation Act, 1976, cautioning them to open accounts or collect cheques only in favour of associations which are registered under the Act ibid., by Government of India. A certificate to the effect that the associ­ation is registered with the Government of India should be ob­tained from the concerned associations at the time of opening of the account or collection of cheques.

(ii)        Branches of the banks should be advised to exercise due care to ensure compliance and desist from opening accounts in the name of banned organizations and those without requisite regis­tration.

 

6.         Record keeping:

Financial intermediaries should prepare and maintain documenta­tion on their customer relationships and transactions to meet the requirements of relevant laws and regulations, to enable any transaction effected through them to be reconstructed. In the case of wire transfer transactions, the records of electronic payments and messages must be treated in the same way as other records in support of entries in the account. All financial transactions records should be retained for at least five years after the transaction has taken place and should be available for perusal and scrutiny of audit functionaries as well as regulators as and when required.

 

7.         Training of staff and management:

It is crucial that all the operating and management staff fully understand the need for strict adherence to KYC norms. All insti­tutions must, therefore, have an ongoing training programme so that staff are adequately trained for their roles and responsi­bilities as appropriate to their hierarchical level in complying with anti-money laundering guidelines and for implementing KYC policies consistently.

8.         These guidelines are issued under section 35(A) of the Banking Regulation Act, 1949, and any contravention of the same will attract penalties under the relevant provisions of the Act Banks are advised to bring the guidelines to the notice of their branches and controlling offices.

9.         The steps initiated in compliance with the various guidelines contained in the circular may be advised to The Chief General Manager, Anti-Money Laundering Cell, Department of Banking Opera­tions & Development, Reserve Bank of India, Central Office, Centre 1, World Trade Centre, Cuffe Parade, Mumbai-400 005 within a month from the date of receipt of this circular. The implemen­tation of the instructions contained in the circular will be re­viewed by the RBI in a meeting with bankers after a period of six month and issuance of a master circular will be considered there­after.