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  1. 1. BASICS OF AML & KYC Presentation by *** Rohit Girdhar Rishu Yadav Aman kashyab Sumit Malik Abishake bansal ***
  2. 2. What is Money Laundering? <ul><li>It is a process of making dirty money clean. </li></ul><ul><li>Money is moved around the financial system again and again in such manner that its origin gets hidden. </li></ul><ul><li>Money generated from illegitimate source is converted into that derived from legitimate source </li></ul>
  3. 3. Money Laundering Process <ul><li>PLACEMENT- </li></ul><ul><li>entry of funds in banking system </li></ul><ul><li>LAYERING </li></ul><ul><li>distancing of funds from point of entry </li></ul><ul><li>INTEGRATION </li></ul><ul><li>usage of funds </li></ul>
  4. 4. some ways of ML <ul><li>Number of cash deposits in same a/c / numerous accounts </li></ul><ul><li>Increase in turnover in dormant a/c </li></ul><ul><li>Receipt & payment of cash from/to unrelated to business/relationship </li></ul><ul><li>Reluctance in providing fictitious/ minimal /normal information </li></ul><ul><li>Deposit of third party cheques </li></ul><ul><li>Sudden increase in cash deposit in a/c from abroad </li></ul>
  5. 5. Financial Institution used as conduit <ul><li>By Offshore shell corporations </li></ul><ul><li>By Trusts located at multiple jurisdiction with “banking secrecy” and “corporate secrecy clauses </li></ul><ul><li>By Directors, shareholders, authorized signatories </li></ul><ul><li>Banking secrecy- delay in investigation –no direct information </li></ul><ul><li>corporate secrecy- ownership information is not easily revealed- (FATF- 40 -2003 ?) </li></ul>
  6. 6. AML & CFT PRACTICES <ul><ul><li>POLICIES </li></ul></ul><ul><ul><li>PROCEDURES </li></ul></ul><ul><ul><li>CONTROLS </li></ul></ul><ul><ul><li>COMPLIANCES </li></ul></ul><ul><ul><li>TRAINING </li></ul></ul><ul><ul><li>INTERNAL AUDIT </li></ul></ul>
  7. 7. RISK BASED PROCESSES <ul><li>Use of AML SOFTWARE </li></ul><ul><li>Identification of high risk areas such as: </li></ul><ul><li>cash intensive businesses, </li></ul><ul><li>import Export businesses, </li></ul><ul><li>Politically exposed persons (PEPs), </li></ul><ul><li>correspondent banking, </li></ul><ul><li>non face to face businesses, </li></ul><ul><li>charitable institutions </li></ul><ul><li>Aim: identification of beneficial ownership of various accounts </li></ul>
  8. 8. Monitoring of accounts <ul><li>Linking of multiple accounts in multiple jurisdictions with number of people. </li></ul><ul><li>Comparing account activity against transaction history and comparison with peer accounts </li></ul><ul><li><<<Tools>>> </li></ul><ul><li>AML transaction trend monitoring software + Link Analysis software + good data base & name recognition software </li></ul>
  9. 9. AML skills development <ul><li>Customer information- building up to date KYC design </li></ul><ul><li>Training & Awareness </li></ul><ul><li>Flagging high risk accounts </li></ul><ul><li>Transaction monitoring </li></ul>
  10. 10. WAYS AVAILABLE FOR EXCHANGE OF INFORAMTION <ul><li>1. Access of information from countries where Mutual Legal Assistance Treaty is signed </li></ul><ul><li>Financial Intelligence Unit( FIU) MOU </li></ul><ul><li>Supervisory gateway </li></ul>
  11. 11. Critical view of AML Programme <ul><li>Compliance overhead </li></ul><ul><li>No value addition </li></ul><ul><li>Delivers little </li></ul><ul><li>Contributes little to bottom line </li></ul><ul><li>Increased compliance cost </li></ul><ul><li>Excessive regulation </li></ul><ul><li>Competitive disadvantage </li></ul><ul><li>Case of misplaced energies </li></ul>
  12. 12. Bank officers- do’s & don’ts <ul><li>Exercise constant vigilance right from opening of new accounts </li></ul><ul><li>Know your customer & know your colleagues </li></ul><ul><li>Separate legitimate business & illegitimate /irregular/ suspicious business </li></ul><ul><li>Always think of bank’s reputation/clean image </li></ul><ul><li>Develop risk aware culture- – a good customer today may not be good tomorrow </li></ul><ul><li>Do not exercise willful blindness </li></ul><ul><li>Involve in public awareness of KYC issues </li></ul>
  13. 13. What KYC means? <ul><li>Customer ? </li></ul><ul><li>One who maintains an account, establishes business relationship, on who’s behalf account is maintained, beneficiary of accounts maintained by intermediaries, and one who carries potential risk through one off transaction </li></ul><ul><li>Your ? Who should know? </li></ul><ul><li>Branch manager, audit officer, monitoring officials, PO </li></ul><ul><li>Know ? What you should know? </li></ul><ul><li>True identity and beneficial ownership of the accounts </li></ul><ul><li>Permanent address, registered & administrative address </li></ul>
  14. 14. What KYC means? <ul><li>Making reasonable efforts to determine the true identity and beneficial ownership of accounts; </li></ul><ul><li>Sources of funds </li></ul><ul><li>Nature of customers’ business </li></ul><ul><li>What constitutes reasonable account activity? </li></ul><ul><li>Who your customer’s customer are? </li></ul>
  15. 15. KYC DOES NOT MEAN <ul><li>Denial of Service to the Common Person </li></ul><ul><li>Intrusive Behaviour </li></ul><ul><li>Use of information for cross selling </li></ul><ul><li>Harassment of customers- threatening to close down the accounts arbitrarily </li></ul>
  16. 16. Advantages of KYC norms <ul><li>Sound KYC procedures have particular relevance to the safety and soundness of banks, in that: </li></ul><ul><li>They help to protect banks’ reputation and the integrity of banking systems by reducing the likelyhood of banks becoming a vehicle for or a victim of financial crime and suffering consequential reputational damage; </li></ul><ul><li>They provide an essential part of sound risk management system (basis for identifying, limiting and controlling risk exposures in assets & liabilities) </li></ul>
  17. 17. Core elements of KYC <ul><li>Customer Acceptance Policy </li></ul><ul><li>Customer Identification Procedure- Customer Profile </li></ul><ul><li>Risk classification of accounts- risk based approach </li></ul><ul><li>Risk Management </li></ul><ul><li>Ongoing monitoring of account activity </li></ul><ul><li>Reporting of cash and suspicious transactions </li></ul>
  18. 18. Measures to deter money laundering <ul><li>Board and management oversight of AML risks </li></ul><ul><li>Appointment a senior executive as principal officer with adequate authority and resources at his command </li></ul><ul><li>Systems and controls to identify, assess & manage the money laundering risks </li></ul><ul><li>Make a report to the Board on the operation and effectiveness of systems and control </li></ul><ul><li>Appropriate documentation of risk management policies, their application and risk profiles </li></ul>
  19. 19. Measures to deter money laundering <ul><li>Appropriate measures to ensure that ML risks are taken into account in daily operations, development of new financial products, establishing new business relationships and changes in the customer profile </li></ul><ul><li>Screening of employees before hiring and of those who have access to sensitive information </li></ul><ul><li>Appropriate quality training to staff </li></ul><ul><li>Quick and timely reporting of suspicious transactions </li></ul>
  20. 20. SUSPICIOUS TRANACTION <ul><li>Suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith – </li></ul><ul><ul><li>gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or </li></ul></ul><ul><ul><li>appears to be made in circumstances of unusual or unjustified complexity; or </li></ul></ul><ul><ul><li>appears to have no economic rationale or bonafide purpose; </li></ul></ul>
  21. 21. Suspicious Transactions <ul><li>Providing misleading information / information not easily verifiable while opening an Account </li></ul><ul><li>Large cash withdrawals from: a dormant or inactive account or account with unexpected large credit from abroad </li></ul><ul><li>Sudden increase in cash deposits of an individual with no justification </li></ul><ul><li>Employees leading lavish lifestyles that do not match their known income sources </li></ul>
  22. 22. Suspicious Transactions <ul><li>Large cash deposits into same account </li></ul><ul><li>Substantial increase in turnover in a dormant account </li></ul><ul><li>Receipt or payment of large cash sums with no obvious purpose or relationship to Account holder / his business </li></ul><ul><li>Reluctance to provide normal information when opening an Account or providing minimal or fictitious information </li></ul>
  23. 23. Role of cash in money laundering <ul><li>Disguise the audit trail </li></ul><ul><li>Provide anonymity </li></ul><ul><li>Concealing true ownership and origin of money </li></ul><ul><li>Control over money </li></ul><ul><li>Changing the form of money </li></ul>
  24. 24. DUE DATES <ul><li>Cash Transaction Report </li></ul><ul><ul><li>by 15th of the succeeding month. </li></ul></ul><ul><li>Suspicious Transaction Report </li></ul><ul><ul><li>within 7 days of arriving at a conclusion that any transaction is of suspicious nature. </li></ul></ul>
  25. 25. DUE DATES <ul><li>Cash Transaction Report </li></ul><ul><ul><li>by 15th of the succeeding month. </li></ul></ul><ul><li>Suspicious Transaction Report </li></ul><ul><ul><li>within 7 days of arriving at a conclusion that any transaction is of suspicious nature. </li></ul></ul>
  26. 26. Summary: Prevention of Money Laundering Money Laundering Prevention Observing Rules for Bankers Compliance with Laws Identifying Irregular / Suspicious Transactions Customer due Diligence
  27. 27. <ul><li>Thank You </li></ul>