Confidential

Red Flag Indicators for Relevant Persons as notified vide Central Govt. Notification
F.No. P-12011/12/2022-ES Cell-DOR dated May 03, 2023

(Along with Principles for Implementation)

Objectives of Document

 To provide indicative guidance to Relevant Persons as notified vide Central Govt.

Notification F.No. P-12011/12/2022-ES Cell-DOR dated May 03, 2023 on various
scenarios for generation of alerts and identification of suspicious transactions.

Relevant Legal Provisions

 Chapter IV of the Prevention of Money Laundering Act, 2002 [as amended] (“PMLA”)
provides the statutory basis for obligations relating to customer due diligence
(onboarding as well as ongoing), record maintenance, transaction monitoring, and
reporting of prescribed transactions.

 Provisions of PMLA have been supplemented by the Prevention of Money Laundering

(Maintenance of Records) Rules, 2005 [as amended] (“PML Rules”) which inter alia
prescribe specific obligations relating to topics such as transaction monitoring and
reporting of certain transactions.

 Under Rule 7(3) of the PML Rules, REs are required to evolve internal mechanisms to
detect and reporting prescribed transactions including suspicious transactions.

 Failure to comply with any obligation under Chapter IV of the PMLA or the PML Rules
would be inquired into under Section 13 of PMLA under which the powers of the
Director, FIU-IND may extend to warning, specific directions, enhanced reporting, or
monetary penalty on a RE or its designated director or any of its employees not less
than ten thousand rupees but which may extend to one lakh rupees for each such
failure.

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Principles for Implementation of RFIs

 RFIs are indicative in nature: The RFIs provided herein are indicative in nature only.
Each RE is expected to profile its own risk exposure and implement appropriate RFIs.
Nothing contained within this document should be interpreted to mean that
implementation of all RFIs contained herein will result in an RE having implemented
an effective mechanism to detect and report transactions.

 RFIs must be contextualised before implementation: Each RFI must be closely

studied by REs to ensure it is customised / adapted to the risks faced by their business
model / products / services. Merely implementing RFI without application of mind may
result in failure to properly implement an effective system to detect and report
prescribed transactions.

 REs to review and revise RFIs on ongoing basis: RFIs contained in this document
are indicative only. REs are expected to review and revise RFIs deployed by them to
account for new trends, threats, typologies, technologies or other developments.

 RFIs to be kept confidential: This list and RFIs deployed by an RE are to be

maintained confidentially and is to be shared within each organisation on need-to-know
basis only.

General Disclaimer: This guidance document is illustrative and indicative in nature

only. Implementation of RFIs contained within this document will not, by itself, lead to
an RE fulfilling relevant requirements under the PMLA and PML Rules. Nothing
contained within the same will affect the ability of FIU-IND to take action against REs
under Section 13 of PMLA in accordance with law.

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Sl. No. Red Flag Indicators

Client receives unusual payments from unlikely sources which is inconsistent

1
with sales.
Company records consistently reflect sales at less than cost, thus putting the
2 company into a loss position, but the company continues without reasonable
explanation of the continued loss.
3 Company / Shareholder loans are not consistent with business activity.

Company makes large payments to subsidiaries or other entities within the group
4
that do not appear within normal course of business.
Company is invoiced/ financed by organizations located in a country (including
countries in Grey & Blacklist as designated by FATF) that does not have
5
adequate money laundering laws and is known as a highly secretive banking and
corporate tax haven.
6 Client appears to be living beyond declared income/ turnover.

7 Client has unusual rise in net worth arising from gambling and lottery gains.

Client has unusual rise in net worth arising from inheritance from a criminal family
8
member.

9 Client owns assets located abroad, not declared in the tax return.

10 Client obtains loan from unidentified parties.

11 Client obtains loans on a relatively low income.

12 Complex corporate structure where complexity does not seem to be warranted.

13 Complex or unusual transactions, possibly with related parties.

Transactions with little commercial logic taking place in the normal course of
14
business.

15 Transactions not in the normal course of business.

Transactions where there is a lack of information or explanations, or where

16
explanations are unsatisfactory.

17 Transactions which are undervalued.

Transactions with companies whose identity is difficult to establish as they are

18
registered in countries identified as tax havens, secrecy laws

19 Extensive or unusual related party transactions.

20 Many large cash transactions when not expected.

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Sl. No. Red Flag Indicators

Payments for unspecified services, or payments for services that appear

21
excessive in relation to the services provided.
The forming of companies or trusts with no apparent commercial or other
22
purpose.
Long delays in the production of company or commencement of activities in the
23
case of trusts accounts.

24 Frequent extensive foreign travel which is apparently unnecessary & unusual.

25 Apparent use of personal account for business purposes.

26 Opening accounts when the client’s address is outside the local service area.

27 Opening accounts with names very similar to other established business entities.

Opening an account that is credited exclusively with cash deposits in foreign

28
currencies (IFSCA located companies/ clients)
Use of nominees who act as holders of, or who hold power of attorney over, bank
29
accounts.
Account with a large number of small cash deposits and a small number of large
30
cash withdrawals.
Funds being deposited into several accounts, consolidated into one and
31
transferred outside the country.
Use of wire transfers and the Internet to move funds to/from high-risk countries
32
and geographic locations.
Accounts receiving frequent deposits of bearer instruments (e.g. bearer cheques,
33
money orders, bearer bonds) followed by wire transactions.

34 Deposit at a variety of geographical locations and times for no logical reason.

Multiple transactions are carried out on the same day at the same branch but
35
with an apparent attempt to use different tellers.
Establishment of multiple accounts, some of which appear to remain dormant for
36
extended periods.
Account that was reactivated from inactive or dormant status suddenly sees
37
significant activity.
Cash advances from credit card accounts to purchase cashier’s checks or to wire
38
funds to foreign destinations.
Large cash payments on small or zero-balance credit card accounts followed by
39
“credit balance refund checks” sent to account holders.
Attempting to open accounts for the sole purpose of obtaining online banking
40
capabilities.

41 Loans secured by obligations from offshore banks.

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Sl. No. Red Flag Indicators

42 Loans to or from offshore companies.

Offers of deposits from a confidential source to be sent from an offshore bank or

44
somehow guaranteed by an offshore bank.
Transactions involving an offshore “shell” bank whose name may be very similar
45
to the name of a major legitimate institution.
Client match with UN Lists.
46

Client match with list of individuals designated as ‘terrorist’ under Section

47
35(1)(a) of the UAPA, 1967

48 Client match with other criminal or TF list

49 Client match with FIU-Alerts list (up to specified time period for 2 years)

Unusual & sudden distribution of cash by way of expenditure below threshold

50
limit in disturbed areas (Naxal affected or highly active insurgent areas)
Registration of offence against the client by Law Enforcement Agencies (LEAs)
51
such as Police, CBI, ED, NIA, NCB, Anti-Corruption Bureau, etc.
Requisition of information about the activities of the clients by Law Enforcement
52 Agencies (LEAs) such as Police, CBI, ED, NIA, NCB, Anti-Corruption Bureau,
etc.
Unusual transactions initiated & routed through non-reporting entities such as
53 Co-Operative Societies other than Multi-State Co-Operative Societies &
subsequent transfers outside India through Regular Banking Channels.

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