The Indian layer
For an IFSCA-regulated entity, the binding framework is the Prevention of Money-laundering Act, 2002 and its Rules, applied through the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022. Chapter XI of the Guidelines deals with sanctions:
- UN Security Council lists. Under section 51A of the Unlawful Activities (Prevention) Act, 1967, an entity must not hold accounts for individuals or entities on the UNSC lists circulated for that purpose (the ISIL (Da'esh) and Al-Qaida Sanctions List and the 1988 Sanctions List). It must check the lists daily for changes, report any resembling accounts to FIU-IND and advise the Ministry of Home Affairs, and follow the freezing procedure in the Ministry's order of 2 February 2021.
- Weapons of mass destruction. Entities must comply with the procedure for implementing section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005, laid down by order of 1 September 2023.
- Other UNSC resolutions and countermeasures. Entities must take note of other UNSC resolutions IFSCA circulates, and apply countermeasures called for by intergovernmental bodies of which India is a member, when accepted by the Central Government.
- FATF statements. Risks from jurisdictions in FATF statements must be built into risk assessment, and the background and purpose of transactions with persons from those jurisdictions examined, with written findings retained.
Exchange control adds its own gates. The Liberalised Remittance Scheme is not available for capital account remittances to countries the FATF identifies as non-co-operative. Overseas investment in a jurisdiction the Central Government specifies needs its prior approval, or is barred (rule 9 of the Overseas Investment Rules, 2022). For the wider AML duties, see AML, CFT and KYC obligations.
Foreign regimes that reach IFSC business
US, EU and UK sanctions are not part of the IFSCA Guidelines, but IFSC business is conducted in foreign currency, mostly through correspondent banks abroad, and with counterparties who are themselves bound by those regimes. In practice they cannot be ignored. The main differences, as our Publication Series Vol. I explains:
| Regime | Who is bound | Ownership and control |
|---|---|---|
| United Nations | Member states, which implement the measures in national law; in India through the provisions above | As implemented nationally |
| United States (OFAC) | US persons wherever located; non-US persons exposed through secondary sanctions and US dollar clearing | Entities owned 50 per cent or more, in aggregate, by blocked persons are themselves blocked even if not listed. Control alone does not trigger the rule, but can lead to designation |
| European Union | EU persons and business done in the EU | Applies to listed persons and entities owned or controlled by them; control is assessed on substance |
| United Kingdom (OFSI) | UK persons and conduct in the UK | Owned or controlled test under regulations made under the Sanctions and Anti-Money Laundering Act 2018, covering majority holdings, the right to appoint a majority of the board, and situations where the designated person could be expected to direct the entity's affairs |
The practical lesson is that a structure acceptable under one regime may fail under another. Each regime connected to the transaction must be tested separately.
Our screening approach
- Map the transaction. Identify the parties, their owners and controllers down to natural persons, directors and agents; the goods, services or assets involved and their end-use; the currencies; and the banks in the payment chain, including correspondents.
- Identify the regimes. Indian law always applies. Add each foreign regime connected through the nationality or location of a party, the currency or the banks.
- Test against the lists. Screen every mapped person against the relevant UN, Indian, US, EU and UK lists, applying each regime's own ownership and control rules.
- Look for warning signs. Examples include terms that make no commercial sense, ownership changes without a clear business reason, changes made close to a designation, a former owner who stays involved, unusually complex structures in low-transparency jurisdictions, and evasive answers to ownership questions.
- Document and refresh. Record the analysis and the evidence. Re-screen at onboarding, on each customer due diligence cycle and on any trigger event, such as a new designation or a change of owner.
A structure must be genuine in its economic substance. Corporate layering does not change the answer where a designated person keeps ownership, control or benefit.
Standard of practice
The firm's position is fixed:
The Firm advises and assists clients exclusively in matters consistent with applicable U.S., European Union, United Kingdom, United Nations and Indian sanctions and anti-money-laundering regimes. The Firm does not advise on, structure or facilitate transactions whose principal purpose or principal effect is to bring a designated person into a regulated market in a manner that is foreseeably exposed to a sanctions perimeter the parties cannot lawfully discharge.
Where screening shows a sanctions connection, our advice is about compliance: whether the transaction can lawfully proceed, what authorisation the applicable law requires, or how to exit. Our Publication Series Vol. I deals with sanctions perimeter questions for asset-management and holding structures. See booklets.