Cross-border wire transfers have become increasingly common in today’s global economy, driven by the rise of digital financial transactions. However, this trend has also brought with it an increased risk of financial crime, as criminals seek to exploit these transfers to move illicit funds across borders.
Defining Cross-Border Wire Transfers
A cross-border wire transfer is a financial transaction in which money is electronically transferred from one country to another. This type of transfer is typically conducted through the banking system or other financial institutions and involves the movement of funds across international borders.
Cross-border wire transfers are commonly used for various purposes, such as:
- Sending money to family members or friends living in another country.
- Paying for goods or services purchased from overseas vendors.
- Making investments or payments related to international business transactions.
Regulations around Cross Border Wire Transfers (CBWT)
These transfers are often subject to regulations and may require the completion of certain documentation, such as providing information about the sender and recipient of the funds. Additionally, fees and exchange rates may apply to cross-border wire transfers, depending on the financial institution and the countries involved in the transaction.
To combat this threat, India’s Prevention of Money Laundering Act, 2002 (PMLA) mandates specific anti-money laundering (AML) measures for cross-border wire transfers. Financial Institutions report these transactions to the FIU-Ind in a separate report.
AML compliance is crucial in the case of cross-border wire transfers due to the heightened risk of financial crime. Failure to comply with AML checks can lead to severe consequences, including hefty fines, reputational damage, and operational challenges. To maintain the integrity of the global financial system, financial institutions must prioritize AML checks when processing international wire transfers.
CBWT Compliance
Under the PMLA and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, reporting entities (financial institutions) must adhere to several AML compliance requirements when conducting cross-border wire transfers.
Customer Due Diligence (CDD) is a critical component of the AML program. It involves measures to identify customers, and beneficial owners, and assess the potential financial crime risk they pose. Financial institutions must obtain and verify information about the cross-border transaction. It includes the originator and beneficiary names, contact details, unique identification number, address, nationality, and purpose of the transfer. They must also screen the parties against sanctions lists and assess the risk involved in the transaction.
When there’s a high risk, we need to carry out Enhanced Due Diligence (EDD). Also, inquiries into the source of funds and wealth of the originator are necessary. Senior management approval is required for high-risk cross-border wire transfer transactions.
Reporting CBWT
In India, any cross-border wire transfer exceeding five lakh rupees or its equivalent in foreign currency, involving either the origin or destination in India, must be reported by the 15th of the following month.
These regulations cover all types of transactions, including those for trade, non-trade, or merchant purposes. Even transactions between banks using SWIFT Message type 202, which do not pertain to any specific customer, must be reported. However, the relevant fields in the report are blank in such cases.
Foreign currency purchases and sales through branches are not included in the report. However, transactions using Credit/Debit/Prepaid/Travel cards in foreign countries must be reported if they exceed five lakh rupees. It can originate in India or its destination is India.
Individual transactions, rather than the aggregate monthly transactions for a customer, are to be reported if they involve a value above five lakh rupees. The reporting requirement came into effect from a specific date, and reports from that date need to be submitted.
