Aml cft training programme


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Aml cft training programme

  1. 1. <logo> Anti Money Laundering / Combating Financing of Terrorism An overview on Money laundering and how to identify the suspicious transactions By Girish Iyer AML Cell IDBI Bank
  2. 2. Topics Anti Money Laundering and The Acme Corporation Combating Financing of supplies products and Terrorism-International services to people world- Scenario and Indian Response wide. Role and Function of FIU-IND This presentation provides Suspicious Transactions an overview of our financial Reporting Under PMLA performance. Implementing AML/CFT System Unless marked as Company Identifying Suspicious Confidential, all information Transactions has been made public. Videos
  3. 3. What is Money Laundering (ML) The criminals who generate these funds need to bring them into the legitimate financial system Every year, huge amount of funds are generated from illegal activities. These funds are mostly in the form of cash Money Laundering is the process by which illegal funds and assets are converted into legitimate funds and assets Mr. A is a drug trafficker who has a drug-trading business with a daily turnover of $100,000 in cash. One day Mr. A took $120,000 to a casino and opened an account. He stayed several days without gambling. On leaving the casino he withdrew his money in cheques payable to third parties, which were then deposited in a securities firm. The money was later withdrawn and invested in a number of legitimate grocery shops owned by the trafficker •Over $1.5 trillion of illegal funds are laundered each year
  4. 4. Stages of Money Laundering Money Laundering is the process by which illegal funds and assets are converted into legitimate funds and assets. Investments Purchases Placement Layering Integration All money laundering transactions need not go through layering process
  5. 5. Placement Illicit funds are separated from their illegal source It involves the initial injection of the illegal funds into the financial system The launderer could deposit the cash into a regulated financial institution such as a bank or securities company.
  6. 6. Layering Creating multiple layers of transactions that further separate the funds from their illegal source The purpose of this stage is to make it more difficult to trace these funds to the illegal source The launderer may buy or sell securities or wire the funds across the world through various accounts held in different banks, probably by several shell companies
  7. 7. Integration Involves reintroducing the illegal funds into the legitimate economy so that the funds appear as clean The purpose of the integration of the funds is to allow the criminal to use the funds without raising suspicion that might trigger investigation The launderer may set up a web of front companies with fictitious import /export businesses and use false invoicing and fictitious transactions to integrate the funds as normal earnings from trade
  8. 8. How Money Laundering Works
  9. 9. Terrorist Financing • Terrorist Financing means providing financial support to terrorists or terrorist organizations to enable them to carry out terrorist acts ( as defined in FATF Special Recommendation) • Unlike criminal organizations, the primary aim of terrorist groups is non financial. Yet, as with all organizations, terrorist groups require funds in order to carry out their primary activities • The simple fact—the need for funds—is key in fighting terrorism. Follow the money, follow the financial trail. This is the core objective of all measures that aim to identify, trace, and curb terrorist financing
  10. 10. Nature of ML/FT Offences Money laundering and terrorist financing are global crimes Money launderers and financiers of terrorism internationalize their operations to achieve various objectives  To take advantage of the constraints of communication and cooperation between regulators and law enforcement officers across national borders;  To exploit regulatory and law enforcement weaknesses that characterize certain jurisdictions; and  To add layers to the transactions to make it difficult to follow the trail of the
  11. 11. Effects of ML/FT • Affect efficiency and productivity- Money invested in less-productive activities providing opportunities of avoiding detection. • Destabilize economy- Rapid movement of large amounts of money in and out of a country to obscure the audit trail greater • Volatility of exchange rates- Unanticipated cross border asset transfers • Undermine the function and integrity of the financial system- Use of the financial system to advance criminal purposes • Undermine liberalization of a country‘s economy and its integration into the global economy • Affect Government revenues- Criminals do not pay taxes • Social and political dimensions- Suffering of the victims and overall weakening of the social fabric and collective ethical standards.
  12. 12. International Efforts in AML/CFT • 1985- The United Nations- Started efforts with the recognition that drug trafficking—and associated money laundering—were truly international problems and could be addressed effectively only on a multinational basis • 1989 – Financial Action Taskforce (FATF)- Set up to ensure global action to combat money laundering ( subsequently terrorist financing also) • 1995 - Egmont Group- Set up to stimulate international cooperation and develop best Practices for exchange of information amongst FIUs • 1997- Asia/Pacific Group on money laundering (APG)- Set up to create awareness and encourage adoption of AML measures.
  13. 13. What is a Financial Intelligence Unit • FIUs are agencies created for the sole purpose of receiving and analyzing information from financial institutions concerning suspicious or unusual financial transactions, and then disclosing that information to competent authorities. Their work is central to the fight against money laundering and terrorist financing • Need for FIUs arose for following reasons: – Law enforcement agencies had limited access to relevant financial information – Need to engage the financial system in the efforts to combat laundering – Need to report suspect financial transactions by financial institutions to a central agency for assessing and processing reported transactions
  14. 14. Definition of an FIU A central, national agency responsible for receiving, (and as permitted, requesting) analysing and disseminating to the competent authorities, disclosures of financial information: (i) Concerning suspected proceeds of crime and potential financing of terrorism, or (ii) Required by national legislation or regulation, in order to combat money laundering and terrorist financing. - Definition formalised by Egmont Group
  15. 15. Anti- Money Laundering Legislation in 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 1st July, 2005 • As per Section 3 of PMLA, ―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‖
  16. 16. Proceeds of Crime • As per Section 2(1)(u) of PMLA, “proceeds of crime” means any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property. • As per Section 2(1)(y) of PMLA, “Scheduled offence” means – a) the offences specified under part A of the Schedule, or b) the offences specified under part B of the Schedule, if the total value involved in such offences is Rs.30 lakhs or more.
  17. 17. Scheduled offences Following offences are specified under the two schedules: Part A (i) Certain offences under Sections 121 and 121A of the IPC, relating to waging war against the State (ii) Certain offences under the NDPS Act 1985 relating to drug trafficking Part B (i) Certain offences under the IPC relating to murder, extortion, robbery, kidnapping for ransom, forgery and counterfeiting currency notes (ii) Certain offences under the Arms Act, 1959 relating to illegal manufacture, trading and possession of fire arms (iii) Certain offences under the Wild Life (Protection) Act, 1972 relating to illegal trade in flora and fauna (iv) Certain offences under the Immoral Traffic (Prevention )Act, 1956 relating to prostitution (v) Certain offences under the Prevention of Corruption Act, 1988 relating to corruption by public servants
  18. 18. Punishment for Money Laundering • Rigorous imprisonment for not less than three and upto seven (ten in case of offences under NDPS Act, 1985 relating to drug trafficking) years, and Fine upto Rs. Five lakh • Attachment/ Seizure and Confiscation of property involved in Money Laundering – Attachment/Seizure of property (proceeds of crime) in possession of a person charged of having committed a scheduled offence
  19. 19. Authorities for enforcement of PMLA • Financial Intelligence Unit-India: For matters relating to obligations of Reporting Entities – Financial Intelligence Unit – India (FIU-IND) was set by the Government India vide O.M. dated 18th November 2004 to collect, analyse and disseminate actionable suspicious information to intelligence/ enforcement agencies. • Directorate of Enforcement: For matters relating to investigation and prosecution of money laundering offences
  20. 20. CFT Legislation • 2004- Amendment to the Unlawful Activities ( Prevention) Act,1967 to deal with terrorist activities • Main Provisions- – Terms like terrorist act, terrorist gang, terrorist organisation and proceeds of terrorism defined to make coverage comprehensive – Offences liable for Punishment- • Terrorist activities like terrorist acts, raising funds for terrorist acts, conspiracy, harbouring, holding proceeds of terrorism etc • Association with and support to terrorist organisation, • Raising or providing funds for terrorism – Provisions for forfeiture of proceeds of terrorism – Power to the Central Government to notify an organisation as Terrorist Organisation – Offences committed beyond India also liable for punishment
  21. 21. FIU-IND • Financial Intelligence Unit – India (FIU-IND) was set by the Government of India‘s O.M. dated 18th November 2004 to: “coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes” • An officer oriented, technology intensive organisation
  22. 22. Functions of FIU-IND Collection of Information: Act as the central reception point for receiving Cash Transaction Reports (CTRs) and Suspicious Transaction Reports (STRs) from the banking companies, financial institutions and intermediaries of securities market. Analysis of Data: Analyse received information to uncover patterns of transactions suggesting suspicion of money laundering. Information Sharing: Share information with regulatory agencies (RBI, SEBI etc.), intelligence/enforcement agencies and foreign FIUs. Relationship Management: Coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes. Research and Analysis: Monitor and identify strategic key areas on money laundering trends, typologies and developments.
  23. 23. Framework of FIU-IND Reporting Agencies Banking Company Financial Institutions Regulatory Agencies Intermediaries RBI SEBI Regulatory Agencies IRDA 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 - Government of India O.M. dated 18th November 2004
  24. 24. Website (
  25. 25. Obligations under PMLA The PMLA 2002 and the Rules notified thereunder impose obligation on • banking companies • financial institutions • intermediaries of the securities market to • Appoint principal officer • verify identity of clients • maintain records • furnish information (Section 12 PMLA)
  26. 26. Banking Company under PMLA ―Banking Company‖ under PMLA includes: • All nationalized banks, private Indian banks and private foreign banks. • All co-operative banks viz. primary co-operative banks, state co-operative banks and central (district level) co-operative banks. • State Bank of India and its associates and subsidiaries. • Regional Rural Banks. • Local Area Banks
  27. 27. Appointment of Principal Officer • A Principal Officer to be appointed by every intermediary to comply with the provisions of PMLA. • Name, designation and address of the Principal Officer to be communicated to the Director (FIU). (Rule 7 & 8)
  28. 28. Verification of Identity of Clients • Verify and maintain the record of: • Identity of client • Address - current and permanent • Nature of business • Financial Status – At the time of opening an account or executing any transaction • Maintain records of the identity of clients for a period of ten years from the date of cessation of the transactions with the client. • Review of Risk profile of customer to be carried periodically
  29. 29. Transactions to be reported  Cash transactions of the value of more than Rs.10 lakh or its equivalent in foreign currency,  Integrally connected cash transactions adding to Rs. 10 lakh or its equivalent in foreign currency in a month,  Cash transactions where forged or counterfeit currency or bank notes have been used or where forgery of a valuable security has taken place,  Suspicious transactions whether or not made in cash. (Rule 3)
  30. 30. Reports to be furnished – Reports of cash, suspicious and transactions involving forgery etc. to be furnished to FIU-IND to be furnished in formats prescribed – Both manual and electronic formats prescribed – Time limit- • by the 15th day of the succeeding month in respect of cash transactions • within 7 working days of coming to conclusion in respect of suspicious transactions
  31. 31. Powers of Director, FIU - IND • Power to call for records maintained under Section 12 of PMLA • Power to make or cause to make any enquiry • Power to levy fine (not less than Rs.10,000 and may extend to Rs.1 lakh for each failure) on a banking company or FI which fails to comply with the provisions of Section 12. • Power to recover fine as Tax Recovery Officer under the Income Tax Act. (Section 13 & 69 of PMLA)
  32. 32. Expectations from the banks • Senior officers to be appointed Principal Officers • KYC norms to be followed uniformly • CTRs to be submitted in electronic format regularly, where applicable • Capacity of the financial institution to habitually detect and report suspicious transactions • Increase awareness and training of staff – new roles and responsibilities • Evaluate and ensure adherence to AML/KYC policies
  33. 33. Suspicious Transactions Suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith – (a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or (b) appears to be made in circumstances of unusual or unjustified complexity; or (c) appears to have no economic rationale or bonafide purpose; or (d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.
  34. 34. Definition of Transaction • ‗Transaction‘ includes deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means.
  35. 35. Submission of STRs to FIU- IND • Suspicious transactions whether or not made in cash • No threshold limit for STRs • To be reported within 7 days of confirmation of suspicion
  36. 36. Indicative parameters: • General Indicators • Knowledge indicators • Identity indicators • Transactions indicators • Activity in account • Account Indicators
  37. 37. General Indicators • Customer indirectly states of his/her involvement in criminal activities. • Customer having relation with many F.I. in the same locality for no reason. • Customer is regularly kept a watch on. • Customer not aware/vaguely aware about the amount of funds in account. • Inconsistencies appear in the Customers‘ presentation of the transaction. • Customer shows extra curiosity about internal checks & balances, reporting system, guidelines on STRs. • Customer getting close with staff. • Customer offers bribe or other incentives for irregular activity. • Customer over cautious in explaining genuineness of the transaction.
  38. 38. Knowledge indicators • Customer tries to convince staff not to complete the formalities • Customer thoroughly aware of legal position on suspicious transaction reporting. • Customer seems very conversant with money laundering or terrorist activity financing issues. • Customer is quick to volunteer that funds are clean or not being laundered.
  39. 39. Identity indicators • Customer doubtful or vague information given. • Customer gives false identification or identification that appears to be counterfeited, altered or inaccurate. • Instead of his own some other identification is submitted by Customer. • All Identity documents presented are not verifiable i.e. Foreign documents etc. • All identification documents appear to be recently acquired. • Identity matches with known ‗hot/watch lists‘
  40. 40. Transactions indicators • Frequent cash transactions in large amounts which is not normally done by the customer. • Small denominations frequently changed for large ones. • Dirty/smelly notes deposited. • Customer consistently makes cash transactions that are just under the reporting threshold amount in an apparent attempt to avoid the reporting threshold . • Frequent purchase of travellers cheques, DDs, etc. with cash when this appears to be outside of normal activity for the
  41. 41. Activity in account • Account activity inconsistent with nature of business. • Transaction involves NGOs or charitable organization for which there appears to be no logical economic purpose or where there appears to be no link between the stated activity of the NGO or charitable organization and the other parties in the transaction. • Transaction is unnecessarily complex.
  42. 42. Accounts Indicators • A long distance customer opening an account/s. • Account/s opened with names closer to established industrial houses/groups. • Intra bank transfer of funds - accumulated into one account for foreign remittance. • Opening of several accounts simultaneously, some of which remain dormant for long periods. • A third party appears to be using the account of customer. • Customer frequently using different locations other than the place of account opening to deposit funds.
  43. 43. Examples of Suspicious Transactions • False Identification Documents – Welcome pack returned – No person found/Address found to be false • Identity Matching- Match with watch-lists – Name and DOB of account holder matched with INTERPOL most wanted list • Transactions inconsistent with customers profile (business) – Number of transactions in a period – Value of transaction(s) (Retired employee) – Turnover in Account
  44. 44. Examples of Suspicious Transactions • Multiple cash deposits at various cities all over India – Nigerian student • Outward remittance of cash deposits – 7 related entities deposited cash in their accounts – Claimed it to be sale proceeds of mobile phones – Entire amount remitted outwards for claimed import • Non Financial Indicators – Usage of Lockers
  45. 45. Steps in submission of STR • Identify suspicious transaction or an activity • Identify key players & related entities in the suspicious transaction or activity – Identify factual information available at your end – Express the suspicion on transaction or activity correctly under the grounds of suspicion • Fill up the STR form carefully • Report within 7 days of confirmation of suspicion
  46. 46. Reasons for Suspicion • Identity of client – False identification documents – Identification documents which could not be verified within reasonable time – Accounts opened with names very close to other established business entities • Background of client – Suspicious background or links with known criminals • Multiple accounts – Large number of accounts having a common account holder, introducer or authorized signatory with no rationale – Unexplained transfers between multiple accounts with no rationale • Activity in accounts – Unusual activity compared with past transactions – Sudden activity in dormant accounts – Activity inconsistent with what would be expected from declared business • Nature of transactions – Unusual or unjustified complexity – No economic rationale or bonafide purpose – Frequent purchases of drafts or other negotiable instruments with cash – Nature of transactions inconsistent with what would be expected from declared business • Value of transactions – Value just under the reporting threshold amount in an apparent attempt to avoid reporting – Value inconsistent with the client‘s apparent financial standing
  47. 47. Cases on AML/CFT
  48. 48. Customer profile mismatch An individual opened a account for low value transaction. After few days from opening of accounts huge cash where deposited and the cheques where received for withdrawal on next day for the whole amount. On inquiring with customer he was not able to provide source of funds and purpose of transaction. On the next day he brought a consultant who gave the details of the transaction as the money was give by some of his friends to purchase the shares. Key Message: *Mismatch in customer profile submitted. *Sudden spurt in transactions by depositing huge cash and withdrawal by cheques. *Customer not able to give a proper explanation for the source of funds *Utilisation of account by other individual
  49. 49. Loan case • JK is one of our customer. He runs a proprietary firm JK Enterprises. This firm is in transport business, hiring of cars and small trucks. He had taken loans from your bank for purchase of some cars and trucks. Within the last two months, he had pre- closed all the loan accounts, one by one. • Key Message: – Fast payment of pre closure – How he is closed the loan (cash, cheque) – If loan is closed by cheque, has the loan been taken over by other banks or financing institution
  50. 50. Stock Market
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