In its constant endeavour to combat money laundering, terrorist financing, and financing of other illegal activities, the Reserve Bank of India (“RBI”) has, vide a letter dated May 4, 2023, amended the Master Directions on Know Your Customer, 2016 and instructed all banks, financial institutions and other Regulated Entities (“REs”) to comply with the newly added KYC norms for wire transfers (“RBI Instructions”). It is a known fact that money launderers across the world have been using wire transfers for long now, as a means to facilitate illegal acts, owing to less/ no regulatory scrutiny.
A wire transfer refers to any transaction carried out on behalf of an originator through a financial institution by electronic means, to make funds available to a beneficiary at the beneficiary’s financial institution. While transactions carried out via internet banking, mobile banking, UPI, etc., are covered under the RBI Instructions, transactions carried out using a credit card/ debit card/ Prepaid Payment Instrument (“PPI”) that specifically mention and indicate the debit/ credit card number or PPI reference number are excluded from the ambit of RBI Instructions.
KYC norms for cross border wire transactions
The RBI Instructions mandate that all cross-border wire transactions be accompanied by accurate, complete, comprehensive and meaningful information of the originator and the beneficiary, including the following:
- name and account number of the originator,
- address of the originator, or national identification number or customer identification number or date and place of birth,
- name and account number of the beneficiary.
In the absence of an account number, the ordering RE shall assign a unique reference number to each transaction that permits its traceability.
This is a significant step forward in deterring instances of cross-border wire stripping. Wire stripping is a deliberate act of removing material information from wire transfers, thus making it difficult to identify and restrict payments to and from sanctioned individuals, entities, or countries. Wire stripping has been used notoriously by businesses of sanctioned countries, such as North Korea, to purchase goods from other countries. Typically, businesses of sanctioned countries transfer funds to an intermediary bank, usually based out of a non-sanctioned country, which in turn, transfers the money to the beneficiary’s bank account with details stripped off, to escape regulatory scrutiny and avoid any filter detection. With the addition of these Instructions, such activities involving illegal cross-border transfer of funds will be further curtailed.
KYC norms for domestic wire transactions
Domestic wire transfer transactions shall also be accompanied by information of the originator and the beneficiary, as indicated for cross-border transactions. However, for domestic wire transfers in which the originator is not an account holder of the ordering RE, transactions of INR 50,000 and above are only required to be accompanied by KYC information. Further, the RBI Instructions add to the responsibilities of the REs involved to ensure that all information on wire transfers is immediately made available to appropriate law enforcement and/ or prosecutorial authorities as well as Financial Intelligence Unit -India (“FIU-IND”) upon receiving such requests.
Responsibilities of REs
The RBI Instructions have added significant responsibilities on all REs involved in wire transfer transactions.
The ordering RE, which is the RBI regulated institution that initiates wire transfer and transfers funds on behalf of the originator, is responsible for ensuring that all cross-border and qualifying domestic wire transfers are accompanied by the required and accurate originator and beneficiary information.
Intermediary RE, which is also a RBI regulated institution that receives a wire transfer from an ordering financial institution and transmits it to a beneficiary financial institution, is responsible for ensuring:
- that all originator and beneficiary information accompanying a wire transfer is retained with the transfer.
- that reasonable measures are taken to identify and report cross-border wire transfers that lack the required originator information or beneficiary information.
- that effective risk-based policies and procedures are implemented to execute, suspend or reject a wire transfer and take appropriate follow up action.
Beneficiary RE, which is also a RBI regulated institution that receives wire transfers from ordering financial institutions directly or through an intermediary RE and makes the funds available to the beneficiary, is responsible for ensuring:
- that reasonable measures are taken, including post-event monitoring or real-time monitoring, where feasible, to identify cross-border wire transfers and qualifying domestic wire transfers that lack required originator or beneficiary information.
- implementation of effective risk-based policies and procedures to execute, suspend or reject a wire transfer and take appropriate follow up action.
The RBI Instructions are a welcome step in the pursuit of effective oversight of such wire transactions. These regulations also align India’s financial-legal regime with the relevant recommendations of the Financial Action Task Force (“FATF”). Overall, the RBI Instructions seem comprehensive, but leave room for someone to intentionally structure domestic wire transfers below rupees fifty thousand to avoid reporting or monitoring. However, these RBI Instructions are geared towards effectively curbing illegal activities financed through wire transfers across the country.