1. Anti Money Laundering (AML) Learnings from Banks
Compliance Group-AML
July 16, 2010

2. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

3. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

4. Know Your Customer (KYC)
Reserve Bank of India (RBI) circular on AML/ KYC states:
“The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently”
Banks should frame their KYC policies incorporating the following four key elements:
a) Customer Acceptance Policy;
b) Customer Identification Procedures;
c) Monitoring of Transactions; and
d) Risk Management.

5. What is Money Laundering?
Section 3 of the Prevention of Money Laundering Act (PMLA), 2002 defines the offence of money laundering as under:
“ 3. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering”.
'Money Laundering' is the process by which illegal funds and assets are converted into legitimate funds and assets
The International monetary fund in 1996 estimated per year laundering volume between USD 600 bn and USD 1.5 tn.
Illegal/ Dirty
money
Legal/Clean Money

6. Stages of Money Laundering
A/c 3
A/c 6
A/c 1
A/c 4
A/c 7
A/c 9
A/c 2
A/c 5
Investment
A/c 8
Placement
Layering
Integration
Placement Stage - easy to detect start of ML
Layering Stage - Relatively Difficult to detect
Integration Stage - Almost impossible to detect

7. What is Terrorist Financing?
The United Nations International Convention for the Suppression of the Financing of Terrorism broadly defines an act of terror as:
a) An act which constitutes an offence within the scope of and as defined in one of the treaties listed by the United Nations (UN); or
b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organisation to do or to abstain from doing any act.
The act of financing such an act of terror can be termed as Terrorist Financing.

8. Money Laundering V/s Terrorist Financing

9. The AML Transition in India for Banks
August 16, The Reserve Bank of India (RBI) released its first circular on “Guidelines on "Know Your Customer" norms and “Cash transactions”
January 17, – Prevention of Money Laundering Act (PMLA) published in the Gazette
November 24, The first set of comprehensive guidelines on 'Know Your Customer' (KYC) Guidelines – Anti Money Laundering Standards issued
July 1, 2005 – PMLA Rules
November 27, 2006 – India becomes an 'observer' at the Financial Action Task Force (FATF)
March 6, 2009 – Amendment to PMLA, 2002
November 12, 2009 – Amendment to PMLA Rules, 2005
June 25, 2010 – India becomes a member of the FATF

10. AML framework in India FIU-IND
Prevention of Money Laundering Act,2002 (PMLA)‏
Prevention of Money Laundering Rules
Reporting Agencies
Regulatory Agencies
RBI Master Circular on KYC/AML/CFT/
Obligation of Banks under PMLA, 2002
Banking Company
RBI
Financial Institutions
IRDA
Intermediaries
SEBI
Regulatory Agencies
RBI
SEBI
FIU-IND
Enforcement Agencies
IRDA IB
Enforcement Agencies
RAW
REIC IB
CBDT-DGIT/CCIT
RAW
CBEC-DGDRI/DGCEI
REIC ED
CBDT-DGIT/CCIT
EOW of Police
CBEC-DGDRI/DGCEI
EOW of CBI ED
EOW of Police
Foreign FIUs
EOW of CBI
Foreign FIUs

11. Scheduled Offences included in PMLA 2009
Kidnapping
Drug
Trafficking
Extortion
Bribery
& Corruption
Smuggling
(arms, people,
goods)‏
Criminal
Activities
Gambling,
Robbery,
Cheating
Prostitution
Part A of Schedule to PMLA covers more serious offences such as Offences under Unlawful Activities Act, Offences under Narcotic Drugs and Psychotropic substances Act etc. No minimum monetary limit is required is required to be charged for Schedule Part A Offence under PMLA. Other offences under Indian Penal Code, Wild Life Protection Act etc are listed under Schedule Part B. However Rs 30 Lakhs is the minimum threshold limit set for charging any person for Schedule Part B Offence under PMLA. PMLA Amendment Act 2009 has added Part C to the schedule which covers offences of Cross border implication without any threshold limit.
Counterfeiting
& Forgery
Terrorist Act

12. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

13. Transaction Monitoring Reporting transactions
AML approach-3D Concept
Deterring
Adherence to KYC Norms
Detecting
Activity Indicators
Transaction Monitoring
Disrupting
Reporting transactions 13

14. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

15. Risk Comparison between Insurance & Banking
0-1: Low Risk
1-2: Medium Risk
2-3: High Risk

16. Risk Comparison between Banking & Others
Figures in percentage for the FY (Source: FIU Annual Report)

17. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

18. Elements of AML Framework in Banks
Enterprise -
Wide AML
Framework
Enterprise -
Wide AML
Framework
Know Your
Customer
(KYC)‏
Due diligence measures
Basic
Enhanced
Centralised Account Opening Centers
Name Screening
Account opening stage
Legacy customers
Screening of Cross Border Transactions
Training
FIU Reporting*
Regulatory Interface
Updates to Senior Mgmt
Audit
Performed on the basis of pre defined rules based on product , customer and transaction risk
Identification of unusual transactions
Confirmation of Suspicion
Transaction Monitoring
* Includes STR, CTR, CCR, NPOR

19. Typologies observed
Large value and volume of cash deposits followed by immediate RTGS payment or transfer.
Large value of RTGS or transfer followed by immediate withdrawal/ transfers.
Issuing large number of cheques.
Cash deposits across various branches followed by withdrawals, transfer.
Frequent closure and subsequent opening of accounts.
Sudden activity in a dormant account.

20. Typologies observed ...contd
High number of debit and credits by way of small value cheques.
Large value inward remittance followed by cash withdrawals.
Inward remittance to one account followed by small value transfers to multiple accounts
Inward remittance from a high risk country followed by cash withdrawal from a third party bank ATM located in a sensitive area
Deposit and withdrawal of cash from multiple locations in one account all being non base branches/ ATMs

21. Agenda KYC/ AML/ CFT Overview The 3D approach
Banks V/s Insurance Companies
Elements of AML Framework in Banks
Controls & Checks
Summary

22. Summary Appointment of Principal Officer
Creation of KYC/ AML/ CFT framework
Understanding the industry & product vulnerabilities to ML/ TF
Awareness about the various typologies related to the products
Timely & effective reporting to FIU-IND

23. Thank you 23