1. Anti Money Laundering and Combating Terrorist Financing: Indian Initiative and Global Backdrop Presentation at Risk and Compliance Summit 2007 Mumbai, 9 th March 2007 Arun Goyal Director Financial Intelligence Unit-India (FIU-IND)

2. FIU-IND Need for Money Laundering Every year, huge amounts of funds are generated from illegal activities. These funds are mostly in the form of cash. The criminals who generate these funds need to bring them into the legitimate financial system. Hide Wealth Avoid ProsecutionEvade Taxes Increase Profits Become Legitimate Over $1.5 trillion of illegal funds are laundered each year

3. FIU-IND Consequences of Money Laundering Finances Terrorism: Money laundering provides terrorists with funds to carry out their activities. Undermines rule of law and governance: Rule of Law is a precondition for economic development – Clear and certain rules applicable for all Affects macro economy Money launderers put money into unproductive assets to avoid detection. Affects the integrity of the financial system: Financial system advancing criminal purposes undermines the function and integrity of the financial system. Reduces Revenue and Control: Money laundering diminishes government tax revenue and weakens government control over the economy.

4. FIU-IND Global Framework - Financial Action Task Force Established by the G-7 Summit in Paris in 1989 in response to mounting concern over money laundering. A policy making body, having secretariat at Organisation for Economic Co-operation and Development (OECD). Works to generate the necessary political will to bring about national legislative and regulatory reforms to combat money laundering and terrorist financing. Members: 31 countries, European Commission and Gulf Co-operation Council India has been accorded ‘Observer’ status

5. FIU-IND FATF Mandate Sets Standards Assesses compliance against standards Researches money laundering and terrorist financing threats

6. FIU-IND FATF Recommendations 1990 - Forty Recommendations - Complete set of counter-measures against money laundering covering: Criminal justice system and law enforcement Financial system and its regulation National and international co-operation 1996 - Recommendations Revised Nine Special Recommendations on Terrorist Financing 2003: Eight Special Recommendations 2004: 9th Special Recommendation

7. FIU-IND Global Framework -Asia/Pacific Group The Asia/Pacific Group on money laundering (APG) is a FATF styled regional body Established in February 1997 at Bangkok, Thailand. Facilitates adoption of internationally accepted anti- money laundering and anti-terrorist financing standards set out in the recommendations of the Financial Action Task Force (FATF). Similar FATF styled regional bodies for other regions

8. FIU-IND The Global Framework - Egmont Group The Egmont Group serves as an international network fostering improved communication and interaction among FIUs. Egmont Group is named after the venue in Brussels where the first such meeting of FIUs was held in June of 1995. FIUs provide support to their respective governments in the fight against money laundering, terrorist financing and other financial crimes Best Practices for exchange of information Members- 101 FIUs (13 from Asia) MembersAsia

9. FIU-IND Why AML/KYC?  Reduces reputational, operational, regulatory risk  Reduces risk of adverse impact on business  Share price impact  Suspension, downgrade or revocation of licence  Loss of consumer confidence: bank run  they make good business sense.

10. FIU-IND FATF Recommendations: Criminal Justice System Criminalisation of Money Laundering (R.1 & 2) Criminalisation of Terrorist Financing (SR.II) Confiscation, freezing and seizing of proceeds of crime (R.3) Freezing of funds used for terrorist financing (SR.III) The Financial Intelligence Unit and its functions (R.26, 30 & 32) Law enforcement, prosecution and other competent authorities (R.27, 28, 30 & 32)

11. FIU-IND Indian Context Prevention of Money Laundering Act brought into force form 1 st July 2005 to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering.  Offence of money laundering (section 3 of PMLA)  Proceeds of crime (section 2(1)(u) of PMLA)  Scheduled offences FIU-IND established in Nov 2004. Enforcement Directorate  Powers to investigate

12. FIU-IND FATF Recommendations : Financial System & Regulation Customer due diligence, including enhanced or reduced measures (R.5 to 8) Third parties and introduced business (R.9) Financial institution secrecy or confidentiality (R.4) Record keeping and wire transfer rules (R.10 & SR.VII) Monitoring of transactions and relationships (R.11 & 21) Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) Internal controls, compliance, audit and foreign branches (R.15 & 22) Shell banks (R.18) The supervisory and oversight system - competent authorities and SROs (R. 17, 23, 29 & 30) Financial institutions - market entry and ownership/control (R.23) AML/CFT Guidelines (R.25) Ongoing supervision and monitoring (R.23, 29 & 32) Money value transfer services (SR.VI and SR. IX)

13. FIU-IND Indian Context Obligations under PMLA on Banking companies, financial institutions and intermediaries to Appoint of Principal Officer Verify identity, address, nature of business and financial status of the client  at the time of opening an account  and while executing transactions.

14. FIU-IND Indian Context  To furnish information  Cash transactions of more than Rs.10 lakhs  Integrally connected cash transactions adding to Rs. 10 lakhs in a month,  Cash transactions where forged or counterfeit currency or bank notes have been used,  Suspicious transactions  whether or not made in cash.  Need not involve proceeds of crime  maintain records

15. FIU-IND FATF Recommendations: National and International Cooperation National co-operation and coordination (R.31) Mutual Legal Assistance (R.32, 36-38, SR.V) Extradition (R.32, 37 & 39, & SR.V) Other Forms of Co-operation (R.32 & 40, & SR.V)

16. FIU-IND Indian Context Dissemination of STRs to Enforcement Agencies Sharing information with Foreign FIUs  Egmont Group Membership  Establish clear mechanism for the exchange of information  Case to case on reciprocal basis  MOU  Egmont Group’s best practices for information exchange

17. FIU-IND AML/CFT Timeline 198919901991199219931994199519961997199819992000200120022003200420052006 FATF Established at Paris Egmont Group Established at Brussels FATF Recommendations Special FATF Recommendations FIU-IND set up by GOI RBI KYC/ AML Guidelines IRDA KYC/AML Guidelines Prevention of Money Laundering Act, 2002 enacted APG Set up US Patriot Act, 2001 Revised FATF Recommendations 9/11 Terrorist Attack PMLA brought into force RBI KYC/AML Circular RBI KYC Guidelines SEBI KYC/AML Guidelines

18. FIU-IND Compliance under PMLA Detailed guidelines on AML/KYC by regulators viz RBI, SEBI, IRDA, NHB Principal officers have been appointed More than 15 lakh CTRs have been received More than 500 STRs have been received After analysis and value addition more than 300 STRs have already been disseminated to enforcement and intelligence agencies

19. FIU-IND Expectations from the Financial Sector Senior officers to be appointed Principal Officers KYC norms to be followed uniformly CTRs to be submitted regularly, where applicable Capacity of the financial institution to habitually detect and report suspicious– not merely reactive filing Increase awareness and training of staff – new roles and responsibilities Evaluate and ensure adherence to AML/KYC policies

20. FIU-IND The way forward  Manual filing to Electronic filing  User driven searches to system driven alerts  Analysis - Report driven to intelligence led  Feedback  Enforcement Agency to FIU  FIU to Reporting Entity  Money Laundering Typology Report  Trends in STRs received  Sanitised money laundering cases  Indicators for detection of suspicious transactions

21. Thank You arun.goyal@fiuindia.gov.in www.fiuindia.gov.in