1. Applicability under Prevention of Money Laundering Act (PMLA), 2002

• Public Companies engaged in certain regulated financial activities, such as stock broking, fund management, real estate, or securities trading, are subject to the Prevention of Money Laundering Act (PMLA), 2002.
  
• These companies must ensure that their operations do not facilitate money laundering, i.e., the process of disguising the origin of illegally obtained funds.
  
• Obligations apply particularly to listed companies, financial intermediaries, and entities covered under SEBI, RBI, and IRDAI frameworks.
  

2. Know Your Customer (KYC) and Due Diligence

• Companies must establish robust KYC procedures to verify the identity of customers, investors, and counterparties.
  
• This includes a collection of PAN, Aadhaar, address proof, source of funds, and verification through government-authorized systems.
  
• Enhanced due diligence is required for high-risk transactions or politically exposed persons (PEPs).
  
• The goal is to prevent the company from being used as a channel for illegal fund transfers or layering activities.
  

3. Monitoring and Reporting of Suspicious Transactions

• Companies are required to monitor financial activities for unusual or suspicious patterns, such as:
  
  • Large cash transactions
    
  • Round-tripping of funds
    
  • Transactions lacking business rationale
    
• Any such activity must be reported to the Financial Intelligence Unit – India (FIU-IND) via Suspicious Transaction Reports (STRs) or Cash Transaction Reports (CTRs).
  
• Timely and accurate reporting is critical to comply with AML regulations.
  

4. Internal Controls and Governance Framework

• Public Companies must implement a comprehensive Anti-Money Laundering (AML) policy, approved by the board or audit committee.
  
• This includes:
  
  • Appointment of a Principal Officer to oversee AML compliance
    
  • Employee training programs on AML awareness
    
  • Systematic record keeping of transactions and client data for at least 5 years
    
• Companies must ensure that third-party service providers and agents also adhere to AML norms.
  

5. Regulatory Compliance and Penalties

• SEBI-regulated companies must follow the SEBI Master Circular on AML Standards, updated regularly.
  
• Non-compliance with AML obligations may lead to:
  
  • Heavy financial penalties
    
  • Freezing of accounts or transactions
    
  • Blacklisting or revocation of licenses
    
  • Criminal prosecution of directors or officers under the PMLA
    
• Reputational damage can also affect investor trust and market standing.