What Is AML?

Money laundering is the process of hiding the criminal source of money and presenting it as clean. Section 3 of the PMLA makes it an offence to be directly or indirectly involved in any process or activity connected with the proceeds of crime and to project it as untainted property. To prevent this, the law puts duties on banks and other reporting entities. They identify clients, keep transaction records and furnish information to FIU-IND. For an exporter, AML shows up as questions from your bank about who your client is, what the payment is for, and whether it matches your invoice.

For example, a freelancer receives a large payment from a client the bank has not seen before, and the invoice is missing. The bank asks for the contract, invoice and a description of the services before it treats the credit as a normal export receipt.

• Bank compliance: Banks must maintain records and furnish information to the Director of FIU-IND under Section 12 of the PMLA. That is why an AD bank may ask for supporting papers on foreign credits.
• Delays: A query can hold up a credit until you answer it. Keep invoices, contracts and client details ready. See AML checks on export receipts for what triggers them.
• Income tax: AML rules do not set how your income is taxed. Good records of invoices and remittance advices help you reconcile receipts when you file your return.
• GST: AML rules have no GST effect. Zero-rating of export of services depends on the conditions in the IGST Act.

AML works through duties placed on banks and other reporting entities. They identify clients, record transactions, monitor activity and report as required.

1. The bank identifies and verifies the customer under the KYC Master Direction.
2. The bank records transactions in a way that lets it reconstruct individual transactions (PMLA section 12).
3. The bank monitors the account against what it knows about the customer's business.
4. The bank furnishes information on prescribed transactions to the Director of FIU-IND.
5. The bank may ask the customer for explanations or documents when a transaction does not fit the profile.

You keep a clean paper trail for every foreign receipt. Match each payment to an invoice, a client record and a correct purpose description before your bank asks.

1. Issue a proper invoice for each job and keep the contract or order that supports it.
2. Keep the client's legal name and country on record and use the same name on the invoice and payment instruction.
3. Give the correct RBI purpose code when asked, using the descriptions in the FETERS purpose code list.
4. Keep the bank's foreign inward remittance advice with the invoice.
5. Reply to bank queries quickly and in writing, and keep copies of what you send.

AML is the wider framework to prevent money laundering. KYC is the identity check on a customer and is one part of AML.

• Only criminals: AML checks apply to ordinary customers as routine. A question from the bank does not mean an accusation.
• Banks only: The PMLA places duties on banking companies, financial institutions, intermediaries and persons carrying on a designated business or profession, as FIU-IND describes.
• Penalty: The offence in section 3 is punishable under section 4 with rigorous imprisonment of three to seven years and a fine, and up to ten years in some cases. That penalty is for money laundering, not for answering a bank query.
• Small amounts: Banks record all transactions, whatever the size. Reporting thresholds are set by rules, so ask your bank rather than assume.

• KYC: Know Your Customer is the identity check a bank performs on a customer.
• AML checks on export receipts: A guide to what triggers anti-money laundering questions on foreign credits.
• AD bank monitoring: How authorised dealer banks monitor export transactions.
• RBI purpose code: A code that describes the reason for a cross-border payment.

Every rule and definition on this page is linked to its official source, checked on the dates below.

1. Prevention of Money-laundering Act, 2002, FIU-India, Sections 3, 4 and 12; FIU-India overview of obligations (checked 9 Oct 2026)
2. RBI Master Direction - Know Your Customer (KYC) Direction, 2016 (updated as on August 14, 2025), Customer Due Diligence (checked 9 Oct 2026)
3. FETERS purpose code list, A.P. (DIR Series) Circular No. 84, Purpose code list (checked 9 Oct 2026)
4. Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, Notification FEMA 23(R)/2026-RB, Regulation 5 (checked 9 Oct 2026)