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AML/CFT Regime The Indian Response FIU-IND Financial Intelligence Unit-India Ministry of Finance, Government of India.

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Presentation on theme: "AML/CFT Regime The Indian Response FIU-IND Financial Intelligence Unit-India Ministry of Finance, Government of India."— Presentation transcript:

1 AML/CFT Regime The Indian Response FIU-IND Financial Intelligence Unit-India Ministry of Finance, Government of India

2 Presentation Summary FIU-IND Financial Intelligence Unit-India Spotlight on Money Laundering : Some facts Indian Response Legal Framework Institutional Framework Common Trends observed in STRs Key Issues emerging from Mutual Evaluation

3 FIU-IND Financial Intelligence Unit-India Spotlight on Money Laundering

4 Spotlight Money Laundering FIU-IND Financial Intelligence Unit-India Tighter AML regulation in the US and Europe is pushing money laundering activity into Asia Pacific… Source: Celent

5 Spotlight Money Laundering FIU-IND Financial Intelligence Unit-India The perpetrators: money laundering by criminal sector… Source: Celent Drugs, smuggling, organized crime―account for over ¾ of all money laundering Terrorist financing is a drop in the bucket in real terms. Nevertheless it is driving today’s AML and KYC regulations White collar crime, including embezzlement and internal fraud, is a significant (and growing) problem.

6 Spotlight Money Laundering FIU-IND Financial Intelligence Unit-India The victims: Money Laundering by industry sector Source: Celent The largest portion of laundered funds are processed through banks. Investment firms—including brokerages, mutual fund companies, hedge funds—also see a significant amount of activity, attracting more than 1/4 of money laundering. Schemes targeting insurance companies are a growth sector, now accounting for close to 10% of activity.

7 State of AML in Asia FIU-IND Financial Intelligence Unit-India Source: Celent Low High Industry Awareness Low Progress (Implementation of systems) High Australia Hong Kong Japan India China Taiwan Malaysia Singapore South Korea Thailand Indonesia Philippines Intensified AML policies of the US have produced a ripple effect on the international regulatory scene Asia still has very low technology adoption; most countries have only recently got serious about AML Spending on anti-money laundering solutions in Asia will grow faster than in Europe or North America…

8 Money Laundering – then and now FIU-IND Financial Intelligence Unit-India Continuity and Evolution Source: Celent Early 1990s Bank-centered techniques: collection accounts, loan back arrangements bank drafts, money orders and cashier’s cheques smurfing Cash smuggling Accounts in relatives’ names, shell companies Hawala, hundi or other “underground banking” systems 2010 Wire transfers New electronic payment systems Remittance services and money exchange services Assistance from “Gatekeepers” Terrorist financing through non- profit organizations Insurance industry, particularly through independent insurance agents Politically Exposed Persons (PEPs)

9 FIU-IND Financial Intelligence Unit-India Indian Response

10 Legal Framework FIU-IND Financial Intelligence Unit-India AML regime –NDPS Act 1985 (Section 8 A) –PMLA 2002 (Section 3) CFT regime –Unlawful Activities(Prevention) Act, 1967

11 Anti-Money Laundering Legislation FIU-IND Financial Intelligence Unit-India The Prevention of Money Laundering Act, 2002 (PMLA) enacted in 2003 to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering. PMLA and rules notified thereunder came into effect from 1 st July, 2005.

12 The Legislative Journey FIU-IND Financial Intelligence Unit-India The PML bill,1998 introduced in Lok Sabha - 4 th Aug,1998. Referred to Standing committee on finance- 5 th Aug,1998. The committee submitted report - 4 th March,1999. The bill presented in Rajya Sabha - 8 th March,1999. The PML, Bill 1999 presented in Lok Sabha -29 th Oct,1999 & passed on 2 nd Dec,1999. Rajya Sabha referred the bill to Select committee; finalised report on 24 th July, 2000. The present Act received the assent of the President of India on 17 th January, 2003. The PML Act comes into operation w.e.f 1 st July, 2005 PML(Amendment) Act 2009 comes into operation w.e.f 6 th March,2009

13 Changes in Subordinate Legislation FIU-IND Financial Intelligence Unit-India Definition of NPO Changes in the definition of Suspicious Transaction – attempted transaction ; regardless of the value involved Meaning of “transaction involving financing of the activities relating to terrorism” explained Reporting entity to maintain records of all transaction which contain all necessary information to permit reconstruction of individual transaction … Record of receipt by NPOs of value more than Rs 10 lakh to be maintained and reported Record of cash transaction to be maintained where forged or counterfeit currency notes tendered No specific mode of maintaining the information Period of ten years for retention of records - from the date of transaction and not from the date of cessation of the transaction

14 Changes in Subordinate Legislation FIU-IND Financial Intelligence Unit-India Confidentiality clause added for STR Rule 9 regarding KYC of client underwent a complete overhaul - Account based relationship and other cases - procedure for identity of “Beneficial Owner” more stringent ; meaning of BO clarified - On going due diligence to ensure that transaction is consistent with the knowledge of client, his business, risk profile and source of funds- - No anonymous account or account in fictitious names - Review CDD measures/KYC in case of doubts of ML and FT Verification of identity of person acting on behalf of juridical person Copy of CIP not to be forwarded to Director FIU-IND For purpose of Rule 10, clarification inserted as to - what would include as “record of identity of client” - what would mean “cessation of transaction”

15 Compliance Status FIU-IND Financial Intelligence Unit-India Collection of Information –More than 18 million Cash Transaction Reports (CTRs) received –More than 18000 Suspicious Transaction Reports (STRs) received Analysis and Dissemination of Information –More than 10000 STRs disseminated Collaboration with domestic Law Enforcement and Intelligence Agencies –Regular interaction and exchange of information Regional and global AML/CFT efforts –Exchanged information with 65 foreign FIUs –8 MOUs signed with foreign FIUs

16 Compliance Status FIU-IND Financial Intelligence Unit-India Increasing awareness about money laundering and terrorist financing –More than 300 seminars and training workshops covering more than 15000 participants –Train the trainer programme for AML/CFT capacity building Improving compliance to the PMLA –More than 50 review meetings with Principal officers

17 FIU-IND Financial Intelligence Unit-India Common Trends Observed in STRs

18 Common Trends FIU-IND Financial Intelligence Unit-India Large Scale fund transfer through RTGS in current accounts followed with cash withdrawal Cash withdrawals/ deposits just below threshold limit of Rs 10 lacs Multiple concerns registered on same address and share common PAN Payment of insurance premium in cash or by multiple demand drafts Rotation of funds in large number of bank accounts controlled by a group of individuals Business concerns having large number of accounts in the names of employees Muti-level marketing schemes mobilizing large amounts from investors promising high returns and siphoning off the money Use of internet for lottery and employment fraud. Sale of shares through off market transfers

19 FIU-IND Financial Intelligence Unit-India Key Issues Emerging from Mutual Evaluation

20 Concerns FIU-IND Financial Intelligence Unit-India Inadequate number of STRs compared with the volume of transaction and market size Effectiveness concern due to absence of ML conviction Threshold condition for domestic predicate offence Risk of TF through foreign NPOs Detection of FICN Few sanctions that supervisors have applied for non- compliance DNFBP sector not subjected to PMLA (except Casino) Risk based CDD obligations Improve reliability of identification document PEPs/non face to face customers and businesses India-Post

21 Address Financial Intelligence Unit - India 6th Floor, Hotel Samrat Kautilya Marg, Chanakyapuri New Delhi -110021, India Telephone 91-11-26874365 (For Queries) FAX 91-11-26874459 Website http://fiuindia.gov.in Email feedbk@fiuindia.gov.in (For feedback) query@fiuindia.gov.in (For general queries) ctrcell@fiuindia.gov.in (For CTR related queries ) THANK YOU amitav@fiuindia.gov.in


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