2. What is Money- Laundering?
• Disguise of illegal origin of money
• Smuggling, Drug trafficking, Illegal arms
sales, Computer frauds, Embezzlement
• Regarded as ‘DIRTY- MONEY’
Conversion of the ‘dirty- money’ to a
legitimate money.
Money Laundering by Activity
Terrorist
groups
1% Drugs
26%
Other
Organized
Crime
23%
Smuggling
29%
Embezzle-
ment/
White
Collar
Crime
21%
5. Placement: Illegal funds or assets are bought
into the financial system.
Layering: Use of multiple accounts, banks,
intermediaries, corporations, countries etc. to
disguise the origin.
Integration: Funds are made available as
apparently legitimate.
6. Continuity and Evolution
Early 1990s
Bank-centered
techniques: collection
accounts, loan back
arrangements bank drafts,
money orders and
cashier’s cheques
smurfing
Cash smuggling
Accounts in relatives’
names, shell companies
Hawala, hundi or other
“underground banking”
systems
2010
Wire transfers
New electronic payment
systems
Remittance services and
money exchange services
Assistance from
“Gatekeepers”
Terrorist financing
through non-profit
organizations
Insurance industry,
particularly through
independent insurance
agents
Politically Exposed
Persons (PEPs)
7. PMLA, 2002
Came into force with effect from 01st July, 2005
The Act extend to whole of India except J&K
Object:
To prevent money- laundering, seize the property
with authority, involved in money laundering
Administration:
Directorate of Enforcement of the Department of
Revenue, Ministry of Finance
8. • 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
9. According to Section 12
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. “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
11. “Financial Institution” under PMLA includes:
Financial Institutions as defined in Section 45-I
of the RBI Act namely EXIM
Bank, NABARD, NHB, SIDBI, IFCI Ltd., IDFC
Ltd., IIBI Ltd. and TFCI Ltd.
Insurance companies
Hire Purchase companies
Chit fund companies as defined in the Chit
Funds Act.
12. “Intermediary” under PMLA includes:
Persons registered under Section 12 of the Securities
and Exchange Board of India (SEBI) Act, 1992:
• Stock brokers
• Sub-brokers
• Share transfer agents
• Registrars to issue
• Merchant bankers
• Underwriters
• Portfolio Managers
13. • Appointment of Principal Officer:
– Every reporting entity shall communicate the
name, designation and address of the Principal
Officer to the Director, FIU-IND
• Furnishing of information by the Principal
Officer:
– furnish the information referred to in the Rules to
the authorities
– retain copy of such information for the purposes
of official record
Obligations of reporting entities
14. Requirements
Under the Act
Every Broker shall—
(a) maintain a record of all transactions, the nature and
value of which may be prescribed, whether such
transactions comprise of a single transaction or a
series of transactions integrally connected to each
other, and where such series of transactions take
place within a month;
(b) furnish information of transactions referred to in
clause (a) to the Director within such time as may be
prescribed; (i.e. every month)
(c) verify and maintain the records of the identity of all
its clients, in such manner as may be prescribed
(i.e. KYC)
15. Every broker has to maintain the record of-
• All cash transactions of the value of more than Rs 10
lakh or its equivalent in foreign currency.
• All series of cash transactions integrally connected to
each other which have been valued below Rs 10 lakh
or its equivalent in foreign currency where such
series of transactions take place within one calendar
month.
• All suspicious transactions whether or not made in
cash and including, inter-alia, credits or debits into
from any non monetary account such as DEMAT
account, security account maintained by the
registered intermediary
16. Suspicion
Transactions
• Funds derived from illegal activities
• Conducted to disguise such funds
• No apparent purpose
• Not the sort of transaction the customer would enter
into
• No reasonable explanation considering the
background and purpose
17. EXAMPLES:
• Large transactions or patterns
• Clients with links to criminals
• False ID documents or not face to face
• Multiple accounts
• Sudden activity in dormant accounts
• Use of different accounts alternately
18. Client Identity
• Verify identity of clients:
– Identity of clients
– Current and permanent address
– Nature of business
– Financial status
• Maintain records of the identity of clients for a
period of 10 years from the date of cessation
of the transactions with the client. (Rule 10)
19. Changes in
Subordinate Legislation
• Reporting entity to maintain records of all
transaction which contain all necessary information
to permit reconstruction of individual transaction …
• Record of receipt by NPOs of value more than Rs 10
lakh to be maintained and reported
• Record of cash transaction to be maintained where
forged or counterfeit currency notes tendered
• No specific mode of maintaining the information
• Period of ten years for retention of records - from
the date of transaction and not from the date of
cessation of the transaction
20. Legal Obligations &
Guidelines imply
CUSTOMER DUE DILIGENCE
Customer Acceptance -
• Ensure acceptance of only legitimate and bona fide
customers
– Issue of mechanism to verify ID
– Issue of Multiple IDs
– Issue of list of suspects/criminals/unwanted elements
– Awareness and training of staff
Customer Identification-
• Ensure that the customers are properly identified to
understand the risks they may pose.
– Background check of new customer
– Background check of existing clients
– Issue of List of suspects/criminals/unwanted elements
– Awareness and training of staff
21. Transactions Monitoring-
• Monitor customers accounts and transactions to prevent or
detect illegal activities.
– Issue of Mechanism to verify financial details
– Transactions inconsistent with customers profile (business)
– Unexplained transfers between multiple accounts with no
rationale
– Sudden activity in dormant accounts
Risk Management-
• Implement processes to effectively manage the risks posed by
customers trying to misuse facilities.
– Categorization of customers: high/medium/low risk : a
dynamic concept
– Constant interaction between front desk and the
compliance team required
– Awareness and training of staff
22. • Set up processes and technology to identify and
report suspicious transactions
– Capture customer details
– Generate alerts
– Collect and analyze additional information
– Decide whether transactions are suspicious
– Ensuring reporting of quality data electronically
• Alignment of people, process and technology
• Confidentiality and Privacy
