banking knowledge

2. Contents:
 Anti Money Laundering – Background and India’s AML framework
 Legal bodies / Regulatory Organizations / Legislations governing
Anti Money Laundering (AML)
 Key elements of KYC / AML
 Need for AML Compliance
 What is Money Laundering ?
 Anti-Money Laundering Legislation in India
 Subordinate legislations: Rules under PMLA India
 Legal Obligation under PMLA India
 Reporting entities under PMLA
 Obligations of reporting entities , Reporting obligations
 Global AML Penalties 2021
 India AML fines 2021-22
 Concluding remarks

3. Legal bodies / Regulatory Organisations / Legislations governing
Anti Money Laundering (AML)

4. Key elements of KYC / AML
a. Well defined Customer Acceptance Policy
No account should be opened where the bank is unable to apply
appropriate CDD measures.
The CDD procedure should be applied at UCIC level.
CDD procedure to be followed for all the joint account holders
To ensure that the identify of the customer does not match with
any person or entity, whose names appear in sanctions list.
b.Customer Identification Procedures (CIP)
CIP at the commencement of the account based relationship
CIP to be done while selling third party products as agents, as
well.
c. Monitoring of Transactions
To ensure that the transactions are consistent with the
customer’s profile and source of funds.
d. Risk Management
Customers should be categorized as low, medium and high risk
category, based on the assessment and risk perception.
Risk Categorization shall be undertaken based on parameters.
Customer Acceptance - Ensure that only
legitimate and bona fide customers are
accepted.
Customer Identification- Ensure that
customers are properly identified to
understand the risks they may pose.
Transactions Monitoring- Monitor
customers accounts and transactions to
prevent or detect illegal activities.
Risk Management- Implement processes
to effectively manage the risks posed by
customers trying to misuse facilities.

5. Need for AML Compliance:

6. What is Money Laundering ?
Important: All money laundering transactions need not go through this three-stage process.
Money Laundering is the process by which illegal funds and
assets are converted into legitimate funds and assets.
Placement: Illegal funds or assets
are first brought into the financial
system
Layering: Use of multiple
accounts, banks, intermediaries,
corporations, trusts, countries to
disguise the origin.
Integration: Laundered funds are
made available as apparently
legitimate funds.
Investments
Purchases

7. Anti-Money Laundering Legislation in India
• The Prevention of Money Laundering Act, 2002 (PMLA) enacted to prevent money
laundering and provide for confiscation of property derived from, or involved in, money
laundering
• Enacted on 17th Jan, 2003
• Brought into force from 1st July, 2005
• Administered by:
• Financial Intelligence Unit for verification of identity of clients, maintenance of records
and reporting
• Enforcement Directorate for investigation of and prosecution for money-laundering
offences

8. Subordinate legislations: Rules under PMLA India
• Various Rules came into effect from July 2005
• Rules detailing Powers of Director FIU & ED
• Rules detailing the method of attachment of property, period of retention etc.
• Rules detailing the receipt & management of confiscated assets
• Rules relating to legal obligations of reporting entities
• Rules detailing the legal obligations of reporting entities:
• Prevention of Money Laundering (Maintenance of Records of the Nature and Value of
Transactions, the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the Identity of the Clients
of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

9. Legal Obligation under PMLA India
PMLA and the Rules impose obligations on
• Banking companies
• Financial institutions
• Intermediaries of the securities market to
 Maintain records
 Furnish information
 Verify identity of clients

10. Reporting obligations
• Reporting of Cash Transactions:
• “All cash transactions of the value of more than rupees ten lakhs or its equivalent
in foreign currency
• All series of cash transactions integrally connected to each other which have been
valued below rupees ten lakhs or its equivalent in foreign currency where such
series of transactions have taken place within a month”
• CTR should be filed by the 15th day of the succeeding month
• Reporting of Suspicious Transactions:
• All suspicious transactions whether or not made in cash
• STR should be filed with FIU within seven working days of establishment of
suspicion at the level of Principal Officer.

11. Reporting obligations
 Suspicious transaction means a transaction whether or not made in
cash which, to a person acting in good faith –
• gives rise to a reasonable ground of suspicion that it may involve the
proceeds of crime; or
• appears to be made in circumstances of unusual or unjustified
complexity; or
• appears to have no economic rationale or bonafide purpose;

12. Related obligations
 Records containing information for reporting purposes:
• Nature of transaction
• Amount & currency of transaction
• Date of transaction
• Parties to transaction
• Manner as prescribed by the regulators (RBI/SEBI/IRDA)
• Maintain & retain reported records for 10 years from cessation of transaction
between client & reporting entities (Rule 6)

13. Top Global AML Penalties in
2021
AmBank :Fine: $700,000,000
Summary: Malaysian Bank AmBank reached a $700 million dollar settlement with the government of Malaysia for its role in the 1MDB
scandal that rocked Malaysian politics. The bank held former prime minister Najib Razak’s bank accounts including one which received a
$681 million payment from the Saudi royal family. Razak was found guilty of money laundering and corruption over the transfer of millions
of dollars linked to the 1MDB embezzlement scheme. The hefty fine is expected to have a material impact on AmBank’s earnings.
Key Takeaway: PEP transactions and suspicious activity reports should be reported to the local financial intelligence unit.
AmBank :Fine: $700,000,000
Summary: Malaysian Bank AmBank reached a $700 million dollar settlement with the government of Malaysia for its role in the 1MDB
scandal that rocked Malaysian politics. The bank held former prime minister Najib Razak’s bank accounts including one which received a
$681 million payment from the Saudi royal family. Razak was found guilty of money laundering and corruption over the transfer of millions
of dollars linked to the 1MDB embezzlement scheme. The hefty fine is expected to have a material impact on AmBank’s earnings.
Capital One : Fine: $390,000,000
Summary: The US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) fined credit card firm Capital One for willful
and negligent violations of the Bank Secrecy Act. FinCEN found Capital One failed to file thousands of suspicious activity reports (SARS)
and suspicious transactions. Millions of dollars in suspicious transactions went unreported for six years from 2008 to 2014 in a unit that
served cash-checking businesses. Over 50,000 transactions totaling more than $16 billion were not reported.
Key Takeaway: Cash intensive businesses and suspicious transactions subject to payment thresholds must be reported to regulatory and law enforcement
agencies to stop criminals abusing the financial system.
Deutsche Bank:Fine: $130,000,000
Summary: Deutsche Bank agreed to pay more than $130 million for violations of the Foreign Corrupt Practices Act (FCPA). An investigation by
the US Securities and Exchange Commission (SEC) into a bribery and commodities fraud scheme found the German bank funneled more than
a million dollars in outright bribes and millions more in consultants to bolster the bank’s business around the world. The scheme included senior
executive leaders, who knowingly and willfully conspired to falsify payments to corrupt consultants.
Key Takeaway: Banks must enforce an anti-bribery & corruption policy and have procedures to detect red flags and payments relating to `Gifts &
Entertainment`. Senior executives must set a tone from the top to combat crime.

14. India AML Fines 2021-22
AML and KYC Penalties Increase Seven-fold in FY 2021-22
 The RBI and FIU-IND collectively penalized 41 banks and financial institutions in Financial Year (FY) 2021-22
 The number of institutions penalized almost doubled from 21 in the previous year to 41 in FY 2021-22
 The average penalty amount levied on cooperative banks has also increased significantly from INR 1,06,429 in FY 2020-21 to INR 10,38,235 in FY
2021-22.