There is an act called the Prevention of Money Laundering Act, 2002 (PMLA). The purpose of this act is to prevent the financing of terrorism and the laundering of money—i.e., the process of legalizing, formalizing, or channeling money generated from illegal activities such as drug trafficking, organized crime, hawala rackets, and other serious offenses. This act is part of the global measures undertaken by countries under the initiatives of UN agencies.

It applies to all SEBI-registered brokers, sub-brokers, and other financial institutions dealing in financial assets. Entities to which this act applies are obligated to report certain types of transactions to the Financial Intelligence Unit (FIU), a department established under the Ministry of Finance to administer the act.

The transactions that must be reported include:

• Cash transactions exceeding ₹10 lakh, or a series of cash transactions below ₹10 lakh that aggregate to more than ₹10 lakh in a month, or the equivalent amount in any foreign currency.
• Non-cash transactions that are suspicious in nature must also be reported.

SEBI has issued Master Circular No. ISD/AML/CIR-1/2010, dated February 12, 2010. You are encouraged to review this circular for further details.