India is fully geared up to meet Know Your Customer ( KYC) requirements and comply with Financial Action Task Force ( FATF) regulations on AML/CFT (Anti Money Laundering/Combating Financing of Terrorism). Financial Institutions while opening accounts for their customers must implement rigorous checking of documents such as identity proof and Address for a common customer.
However, of late, we observe that for high-risk customers like High Net Worth Individuals(HNIs) and Politically Exposed Persons (PEP) and their related entities, KYC guidelines are not adequately followed at the time of opening the account as well as during the conduct of transactions in the account, be it Depository account (or) investment account, because we come across multiple failures in fraud prevention measures.
Government and tax authorities have put in place several statements on suspicious transactions and cross-country transactions. Some of the Statements such as FATCA-CRS ( 61B ) and Reports on High-Value Transactions (61A) introduced by the Central Board of Direct Taxes (CBDT) can be effectively used by Financial Institutions. FATCA-CRS reporting aka 61B data can be a source of information for ascertaining the individuals/entities about the nature of transactions, whether legal or otherwise. SFT reporting or 61A data can be another source of information for verifying all the high-value transactions done.
While, we may not know from the 61B statement only whether the balances held in the accounts are from legal sources or through money laundering measures by the account holders, however, by triaging 61B AND 61A data received from different Financial Institutions and by harmonizing the TIN/PAN elements through analysis using AI/ML/Data Analytics tools, it is possible to get consolidated/additional details on Account Holders, Accounts and Transactions from Financial Institutions such as Banks/AMCs/Brokerage Houses/Custodial Organizations to identify disproportionate wealth holders and suspicious transactions for enforcing stringent KYC implementation and to arrest financial crimes.
When a Fund collects information from an individual/entity such Self Certification details, those must be validated for accuracy and should be filed in CRS reporting – otherwise in cases where questions arise regulator would start by scrutinizing the details given during onboarding as the source of truth holding both the account holder and RFI responsible.
61B filing made by the RFI which manages the fund, which should have reported the investment account of all individuals when they were tax residents outside India, is an important indicia (indicator) of Fatca-CRS-61B reporting. Again linking the 61B reports (61B) made by banks at the relevant points in time with those made by investment / custodial entities like Mutual/offshore funds, brokers, etc. could normally unearth a lot of details automatically.
It will take a long time for institutions to think and apply this basic logic and try to search for such information through all types of RFIs (banks, MFs, stock brokers, investment entities, custodial institutions, insurance companies).
I can simply suggest that Fatca-CRS-61B-61A reporting can be used efficiently to track/link investment accounts maintained by persons who are tax residents abroad, whether the investment/custodial entities are reporting such accounts correctly, and from there how the source of funds could be tracked.