The document discusses money laundering, including defining it, describing the process, and providing case studies. Money laundering is defined as disguising illegally obtained money to make it appear legitimate. The process typically involves three stages: placement, layering, and integration. Placement involves putting dirty money into the financial system. Layering involves separating the money from its source through transactions. Integration makes the money appear clean. Case studies show how professionals like lawyers and accountants can be used to launder money through techniques like shell companies and structured transactions. Estimates suggest $600 billion to $2 trillion may be laundered annually, impacting economies and banking systems.

2. Content
• Concepts
• Process how it happens
• Basis for the requirement to have a Compliance Officer
Case
• Case Studies -Abroad
• Initiatives taken
Scenario-
India
• KYC (Know your customer)
• Case Studies

3. PML(Prevention of Money Laundering) Act, Sec.3
of 2002 defines ‘money laundering’ as:
“Anyone who, directly or indirectly, tries to deliver or
knowingly aid or knowingly is part or is actually
involved in any process or activity connected with the
products of the crime and its projection as pure
property must be guilty of the offense of laundering
the money”

4. Is to conceal criminal activities related to it, including the
crimes that it has generated as the traffic of narcotics, tax
evasion, corruption, extortion, circumvent the regulations
etc
The process by which criminals seek to conceal the origin
and ownership of the products of criminal activities, in order
to avoid prosecution, conviction and confiscation of funds of
criminal origin(IBA definition)
The process by which the dirty money appear clean or
profits of criminal activities are made to the appearance of
legitimacy.
Concepts of Money laundering

5. Organized criminal groups use the money
laundering as a means to reinvest the money.
The main objective is to get the illegal funds back to
the individual or group of individuals who has
generated.
Financial intermediaries (banks, financial
institutions) are used to change the money
acquired from illegal businesses in acceptable and
transferable units, running illicit gain in legal course
Concepts - contd..

6. Concepts - contd..
AML
generally
refers to
‘washing’ of
the proceeds
or profits
generated
from:-
Drug
trafficking
smuggling
Financial
frauds
Arms,
Antique and
gold
smuggling
Illegal sale
of wild life
products
and others.
Prostitution
rings
Corruption

7. Concepts of Money laundering
For the “average” criminal: money laundering is the
process by which the proceeds of criminal activity are
made to appear legitimate
For the “average” Terrorist: money laundering is the
process by which money used to fund terrorist activity is
moved without revealing its true source, destination or
purpose
For “average” tax evader: money laundering is the
process of spending money without leaving a trail showing
who owns it

8. Concepts - contd..
2%-5% of Global GDP is laundered every year
$800 Billion to $2 Trillion.
Financial powers
Most wanted criminals
Use the nexus pool of professionals to create
legal structure/ entities which act as a front

9. Money laundering is diversified and a complicated
process that involves three stages independent who
often occur simultaneously
Money Laundering Process

10. Step 1 - Placement
Physically the elimination of species from illegal
activities.
Funds are placed near the underlying activity in
the countries where the funds come from.
One of the ways to do this is by placing the
proceeds of criminal activities in traditional
financial institutions or non financial institutions
such as the offices of exchange, casinos.

11. Money Launderer inserts the
dirty money in a financial
institution is legitimate.
In the form of cash deposits.
To report high transactions.
This step is the most risky of the process of money laundering because
large quantities of species are fairly visible and banks are required
The placement

12. Step 2 - Layering
Separate the product of a criminal
activity of their source through the use
of layers of financial transactions.
These layers are designed to impede
the audit trail, disguise the origin of
funds and provide the anonymity
They use of shell corporations, offshore
banks or countries without or with less
regulation, a large business center.

13. Involves the sending of money through various financial operations
to change its form and make it difficult to follow.
The Layering can be comprised of several transfers from bank to
bank
Electronic funds transfers between different accounts in different
names in different countries
Make the deposits and withdrawals of continually vary the amount
of money in the accounts
Change the currency of the money
The purchase of high value items (cars, boats, houses diamonds) to
change the form of the money-making it difficult to trace.
Step 2 - Layering

14. Place the laundered proceeds in the economy
in such a way that they return to the financial
system as a fund apparently legitimate.
The launderer may choose to invest in other
centers.
Eg. False invoices for the goods exported,
ready against a deposit abroad, the purchase
of properties, etc.
Step 3 - Integration

15. At the integration stage the money returned to mainstream economy in legitimate form it
appears as a legal operation. This may involve the bank transfer final on an account of a
local company in which the launderer invests in exchange for a reduction of profits., the
sale of a yacht purchased during the phase of the stacking. At this stage, the criminal can
use of the money without be taken. It is difficult to catch a launderer during the phase of
integration is there is no documentation during the previous steps
Banks abroad
Money launderers often send money through various offshore accounts in the countries
which have laws protecting the Banking Secrecy -These countries allow anonymous
transactions. A complex scheme can involve hundreds of bank transfers and offshore banks
.according to the International Monetary Fund ,"offshore centers important iclude
Bahamas, Bahrain, Hong Kong, the Cayman Islands, the Netherlands Antilles, Panama and
Singapore (IMF)
Step 3 - Integration

16. Types/Techniques
Debit/Credit Cards
Deposit structuring (or
smurfing)
Connected accounts –
Connected to each other
Alternative Remittance
services –the hawala
route
Loan back arrangements
Forex money changers
Investment banking
and the securities
sectors
Insurance and personal
investment products
Correspondent banking
Lawyers, Accountants and
other intermediaries
Mis-use of non-profit
organizations
Use of “Payable through
accounts” by international
launderers

17. Money laundering through electronic
systems/cross-border activities
• Organized criminals can break in the
electronic security systems more
easily and at lower costs by forcing
the employees who have a legitimate
access to the system to provide them
with passwords.
Computers/electronic
systems can be used as
a tool to commit illegal
or criminal activities .
• Money launderers seek the countries
where there are highly educated and
trained of Bank staff on a low salary
of the corrupt.
Easier to corrupt an
individual in a country
where the average
salary is low.

18. Legal Sources of financing of terrorist activities:
Collection of union dues
Sale of publications
Social cultural events
The solicitation of door to door, within the community
Appeal to the wealthiest members of the community
Donation of a part of the personal savings

19. Illegal sources
Kidnapping and extortion
The Smuggling
Of fraud, including fraud by credit card
Misuse of non-profit organizations and charities
Fraud, theft and burglary and
The drug trafficking

20. The use of shell corporations by the lawyers
Involvement of distinguished attorney and personalities
Responsible for the fixed costs for the money laundering of funds
The funds of customers have been transferred to his son offshore accounts
Moved to the destinations of the Caribbean and USA
Credit cards issued in false names to help customers remove the money through ATMS

21. The small banks and NBFCs
The Private Banking assistance provided by the structure of assistance to
employees and the smurfs to recycle funds in the bank accounts, usually
by deposits and of withdrawal heavily from the accounting. A few months
before the audit of the activity would stop with a small balance.
Done To avoid the suspicion and the Disclosure
Arrangements of ready a technical- the launderer usually transfers the
product of illegal activities to another country- removal then the product
as security Or g'tee for a bank loan- and then returned to original country -
gives the appearance of a genuine loan.

22. The accounts of transit
• They are deposits to view the accounts required to
the SIF by foreign banks. The foreign banks channel
all of the deposits and checks of its customers in an
account at the local bank. The foreign customers
have signing authority on the account as the holders
of a secondary account and could conduct
international banking transactions-normal defeats
KYC standards.

23. Case Study-Accounting splits
Services provided by many professionals such as accountants, lawyers, real estate agents are also
used as potential mechanisms to launder money.
Purchase of truck parts, has reduced the parts in countries sold for a profit. Has also purchased
real property.
The purchase of assets
Transferred the product abroad. Structured transactions
Wire Transfer
Stored in the office of the Accountant. Accountant of deposits split. Open Trust/personal
accounts
Accounting Firm
Regular Deposit of criminal proceeds of the sale of the drug receipts issued.
Two drug traffickers

24. Case Study-Insurance policies and real estate
Two European nationals
Purchase of Life insurance policies (Total value Rs 1,60,80,000)
Payment of premium
Policies put up as collateral (provided by a leasing company)
The offenders were brothers who were involved in the illegal
export/import of classic cars
Non banking institutions could also become conduits for money
laundering.

25. Reports/facts on the Laundering of Money
Approximate estimate - 2 to 5 % of GDP (1996) $600 billion to 2
trillion dollars each year.
The main sources of income of illicit drugs -only more important
generator of illegal funds
The banking sector- smurfing common
The shell companies-tool commonly used by lawyers and
accountants
The small banks and NBFCs used as assistance channels private
banking to the assistance given in the restructuring of the accounts-

26. Impact - on the economy
Unpredictable changes in the demand for currency
The risks to the banking system - the risk of harm to the reputation, legal risk,
operational risk, the risk of concentration.
The increase in the volatility of international capital flows
The increase in the volatility of exchange rates due to unforeseen circumstances
of transfers of property. transversal
Economic and political influence of criminals may modify the social systems, the
ethical standards
Crime can infiltrate financial organizations, officials/ Governments
Macro-economic situations
Money laundering poses a serious threat to the international community and
financial systems of the countries of the world

27. AML – Knowledge Check

28. KYC – Know your Customer
Know Your
Customer Policy:
to screen Customers and
Suppliers
establish and enforce standards and steps to verify and document
Customer and Supplier information, including
identity and verify address of both
documentation verifying personal identity
documentation verifying corporate identity
check the OFAC (“Terrorist”) List

29. RBI KYC standards
Appointment of a chief agent
In order to assess, monitor and control the risks of money
laundering.
Receive information from branches and analyze information
The highest confidentiality to be maintained during the deposit
Reports for all branches are filed in a mode -manual and electronic
A summary report of cash transaction for the Bank as a whole are
met by the bank

30. Benefits of standards KYC
Sound KYC procedures have a particular relevance to the safety and
soundness of banks, in that:
- They help to protect the reputation of the banks and the integrity of the
banking systems in reducing the likelihood of banks for becoming an
instrument or a victim of financial crime and the suffering; the damage to
the correlative reputation
- They provide an essential part of the system of sound risk management
(base of identification, to limit and control the exposures to risks of assets
and liabilities)

31. KYC - Direction
Customer?
The one who maintains an account, establishes the business
relationship, on who's name account is maintained, the
recipient of accounts held by intermediaries, and the one
who carries potential risk through a transaction.
Your? Who should know?
- Director of Branch,
Audit Officer, official
surveillance, PO
Know?
What you
need to
know?
- true identity and
the effective
property of
accounts
- Permanent address,
registered and
Administrative address

32. KYC - Direction
Make reasonable efforts to determine the true identity and actual
ownership of the accounts;
Sources of Funds
Nature of the customers
What constitutes the activity of reasonable account?
Who is the client of your customer?

33. Elements of KYC
Policy on the acceptance by the customer
Procedure for client identification- Profile of the customer
Risk Classification of Accounts -- approach based on risk
The management of the risks
The continuous monitoring of the activity of the account
The Declaration of species and suspicious transactions

34. High risk clients
Non-bank financial institutions ( money transmitters, check the cashiers, changers
with whole share, sellers of stored value cards, brokers in Security & Resellers, etc. )
Travel Agencies / Property Dealers/ builders
And companies of expert professional advice
The exporters or importers of goods and services
Activity requiring a lot of liquidity e.g., retail stores, restaurants, casinos, second
hand car dealers, etc.
Off-shore companies
Non-profit organizations eg. Charities

35. High risk products
EFTs:
Both national and cross-border wire transfers carry
the potential risks of money laundering
Payment Gateways facilitate electronic transfers for the
customers of the banks located anywhere in the world
Check if it is regulated on the place of incorporation
Insist on the complete information on the payer with wire
Make the payment to the beneficiary through Account or DD
Keep a record of the transaction
Electronic banking services, which includes the services
offered by the Internet, credit cards.
The relations of private bank
The correspondent banking relationships

36. KYC – Know you Customer!

37. Measures to discourage the ML
Council and the monitoring of the management of the risks AML
An appointment a member of the senior management as main agent with
appropriate powers and resources at his command
Systems, Orders & Documentation - identify, assess and manage the risks of
money laundering
Make a report to the Council on the operation and effectiveness of the systems
and the control
Creating client profiles
Screening of employees before hiring and of those who have access to sensitive
information
The quality of the appropriate training to staff
Fast and timely reports of suspicious transactions

38. Suspicious Transactions – FIU (financial Intelligence Unit)-IND
A transaction if yes or no made in cash to a person acting in good faith.
Gives birth to a reasonable ground to suspect that he may be the
proceeds of crime
No economic justification or bonafide Purpose
The identity of the customer
False Identification of Documents
Exhibit of identity cannot be verified in a reasonable period of time
The accounts opened with names very close to those of other companies
already established
Customer History
Links with the known criminals

39. Suspicious Transactions - FIU-IND
Multiple Accounts
The transfer between the accounts of unexplained no justification
Unusual activity compared with past operations
Sudden activity in the Inactive Accounts
Activity incompatible with what he must wait for activity declared
Frequent purchase of drafts in cash
Categories of financial intermediaries -financial brokers. Merchant
bankers, Portfolio Manager
Large sums of money to be transferred abroad for Payment
Reports to the market rate.

40. FIU Directions
Only the banks and other financial institutions are required to report
suspicious transactions regularly to the financial intelligence unit
established under the authority of the Department of Finance.
Such transactions are transmitted by the FIU to the law enforcement
agencies of action after a careful review.
Financial intermediaries as real money changer, suppliers of money
transfer services, such as Western Union and payment gateways
International, including VISA and MasterCard cards are brought under
the amended version of the MLPA.
The India of its international obligations and empower the direction of
application of the Act to search for the premises immediately after
that the offenses are committed and the police have filed a report

41. IPO scam - India
Manipulation of primary market by donors and actors in the market by using
fictitious names.
The only person authorized to operate all of the accounts. The person was
also director in all societies
Current accounts opened in different companies on the same day in the same
bank branch
The failure to identify the identity and address of all directors of corporations
Identity using different spellings of disguised for the same name in different
businesses.
The presentations, nor obtained
Risk profiles not performed
Objective for the opening of a large number of accounts opened in the name
of a large number of holders of joint account not interrogated
Transfer of huge funds from companies account for individuals which account
was used to invest in the IPO
Poor monitoring and reporting system

42. Operational deficiencies
Factors that have facilitated the IPO scam are -
The presentations not obtained
Photographs not obtained
Failure to independently verify the identity and address of all the holders
of a joint account
Signatures not taken in the presence of BANK REPRESENTATIVE
Identity Administration/ Address Not Verified
Customer due diligence carried out by a subsidiary

43. Take Away till now…

44. SATYAM - number
The direction of application of the Act has registered a complaint against
Satyam Computer and its president-founder contaminated Ramalinga Raju
for alleged B the laundering of money.
The ED sources alleged that Raju had misappropriated funds from Satyam
in the purchase of nearly 50 plots in Qutbullahpur Medchal and near
Hyderabad
The ED has alleged that several hundreds of crores rupees had been
diverted from the Satyam Computer Accounts and had been invested in
the purchase of the land and other infrastructure Maytas.
The Directorate will go through the offers of the computer society and
check their authenticity including payments made to acquire companies
abroad.
The ED will also send a team to a few countries to investigate and obtain
documents of bank accounts opened In violation of the Indian laws

45. The high risk areas of AML
High-risk countries
The drug-producing
countries
Countries with high
levels of corruption
Countries linked to
the financing of
terrorism
High risk clients
The private money
transmitters
The money changers
Real Estate Brokers
The casinos,
gambling held
Non-profit
organizations -
Charities
Services to High
Risk
Wire Transfers
The Private Banking
Correspondent
banking
Electronic banking
services-internet,
Credit/Debit Cards

46. Risk Factors
Vulnerabilities
• The Entities may not be regulated
• The anonymity of the client(Secret)
• No relationship of face to face
• Anonymous funding(in the form of
promissory notes)
• Cross-border transfers
• Access to cash on a global scale through
ATMS
Possible mitigation measures
• The verification of the identity of
clients
• Limit the options of funding
• Limit the value of the card
• Monitor transactions
• Reporting of Suspicious Activity
• No direct cash by the ATM

47. Advise customers
• The Bank - Legislative Audit (Long Form Audit
Report)
• Concurrent audit
• KYC and AML checks
• DP (depository Participant) audits as by SEBI
Guidelines
• Audit of the broker in stock by SEBI Guidelines
Audits -

48. Thank you
Have a Safe and Secured Financial
Transaction.