Anti-Money Laundering (AML) and Know Your Customer (KYC) Obligations: Understanding Corporate Compliance in Practice under the Indian Regulatory Framework
This article is written by Aditi Kulkarni, pursuing a BBA.LL.B from Brainware University.
Money laundering is one of the most serious threats to the integrity of India's financial system and its broader global standing. Every year, vast sums of illegally obtained money are moved through banks, businesses, shell companies, and hawala networks to make them appear legitimate. To combat this, India has built a comprehensive framework of laws and regulations requiring financial institutions, law firms, real estate professionals, and other regulated businesses to know exactly who their customers are and to report anything suspicious. These obligations are broadly referred to as Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements.
This article explores what AML and KYC obligations mean in practice under Indian law, who they apply to, and what happens when they are not followed. It examines the key legislations in particular the Prevention of Money Laundering Act 2002 (PMLA), the Foreign Exchange Management Act 1999 (FEMA), and the rules and directions issued by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Financial Intelligence Unit India (FIU-IND) as well as the international standards set by the Financial Action Task Force (FATF). It also looks at real enforcement cases, including proceedings against major Indian financial institutions, and considers emerging challenges such as cryptocurrency regulation, beneficial ownership under the Companies Act 2013, and the problem of hawala and informal value transfer. The article argues that AML compliance in India is no longer just a legal formality; it is a genuine risk management and governance responsibility that sits at the heart of how modern Indian businesses must operate.
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