The Financial Intelligence Unit (FIU), the government agency responsible for monitoring possible money laundering transactions, is concerned over stock brokers not submitting enough suspicious transaction reports.
The Prevention of Money Laundering Act, 2002, requires all financial institutions, banks and intermediaries like merchant bankers, foreign institutional investors and stock brokers to submit reports on suspicious transactions above Rs 10 lakh in Indian or foreign currency.
According to FIU’s annual report for 2007-8 (the latest available), while the agency received 2.2 million such cash transaction reports from banks, other financial intermediaries put together have submitted only 2,500 suspicious transaction reports.
FIU has already raised the issue with the Securities and Exchange Board of India.
A top FIU official said brokers and other intermediaries are not submitting these reports even though there has been a sharp increase in money laundering cases over the last couple of years.
There have been several money laundering instances involving commodity brokers too, he said.
Brokers and other financial entities have to submit such reports directly to the director of FIU within seven working days after they are noticed. The reports are to be filed in cases of suspicious identity and background of clients, multiple accounts, nature and value of transactions and any other dubious activity by clients.
Sources familiar with the developments said multiple accounts are the main reason for the increase in suspicious transactions as far as brokerages are concerned. Sebi has been probing stockbrokers and depository participants (DPs) for not maintaining proper records of transactions and agreements with clients.
The regulator has also found that certain brokerages had not entered into proper agreements with clients for margin funding business and the forms filled were incomplete and did not give proper identification of clients, which is mandatory under the 'know-your-customer’ norms. It’s possible, sources said that some brokers are receiving money from clients who are essentially hawala operators.
Also, the National Stock Exchange (NSE) has received over 1,000 complaints regarding trading in the derivatives segment after the recent market meltdown. This is apart from about 1,700 pending complaints.
Intermediaries who have to submit the reports include stock brokers, bankers and registrars to an issue, merchant bankers, underwriters, portfolio managers, depositories and participants, custodians, foreign institutional investors, credit rating agencies, mutual funds etc.
