1.

1 INTRODUCTION TO BANKING INDUSTRY

1.1.1 EVOLUTION OF BANKING IN INDIA
Modern banking in India could be traced back to the establishment of Bank of Bengal (Jan
2, 1809), the first joint-stock bank sponsored by Government of Bengal and governed by the
royal charter of the British India Government. It was followed by establishment of Bank of
Bombay (Apr 15, 1840) and Bank of Madras (Jul 1, 1843). These three banks, known as the
presidency banks, marked the beginning of the limited liability and joint stock banking in
India and were also vested with the right of note issue.
In 1921, the three presidency banks were merged to form the Imperial Bank of India, which
had multiple roles and responsibilities and that functioned as a commercial bank, a banker to
the government and a bankers bank. Following the establishment of the Reserve Bank of
India (RBI) in 1935, the central banking responsibilities that the Imperial Bank of India was
carrying out came to an end, leading it to become more of a commercial bank. At the time of
independence of India, the capital and reserves of the Imperial Bank stood at Rs 118
MILLION, deposits at Rs 2751 MILLION and advances at Rs 723 MILLION and a network
of 172 branches and 200 sub offices spread all over the country.
In 1951, in the backdrop of central planning and the need to extend bank credit to the rural
areas, the Government constituted All India Rural Credit Survey Committee, which
recommended the creation of a state sponsored institution that will extend banking services
to the rural areas. Following this, by an act of parliament passed in May 1955, State Bank of
India was established in Jul, 1955. In 1959, State Bank of India took over the eight former
state-associated banks as its subsidiaries. To further accelerate the credit to flow to the rural
areas and the vital sections of the economy such as agriculture, small scale industry etc., that
are of national importance, Social Control over banks was announced in 1967 and a National
Credit Council was set up in 1968 to assess the demand for credit by these sectors and
determine resource allocations. The decade of 1960s also witnessed significant consolidation
in the Indian banking industry with more than 500 banks functioning in the 1950s reduced to
89 by 1969.

For the Indian banking industry, Jul 19, 1969, was a landmark day, on which nationalization
of 14 major banks was announced that each had a minimum of Rs 500 mn and above of
aggregate deposits. In 1980, eight more banks were nationalised. In 1976, the Regional
Rural Banks Act came into being, that allowed the opening of specialized regional rural
banks to exclusively cater to the credit requirements in the rural areas. These banks were set
up jointly by the central government, commercial banks and the respective local
governments of the states in which these are located.
The period following nationalisation was characterized by rapid rise in banks business and
helped in increasing national savings. Savings rate in the country leapfrogged from 10-12%
in the two decades of 1950-70 to about 25 % post nationalisation period. Aggregate deposits
which registered annual growth in the range of 10% to 12% in the 1960s rose to over 20% in
the 1980s. Growth of bank credit increased from an average annual growth of 13% in the
1960s to about 19% in the 1970s and 1980s. Branch network expanded significantly leading
to increase in the banking coverage.
Indian banking, which experienced rapid growth following the nationalization, began to face
pressures on asset quality by the 1980s. Simultaneously, the banking world everywhere was
gearing up towards new prudential norms and operational standards pertaining to capital
adequacy, accounting and risk management, transparency and disclosure etc. In the early
1990s, India embarked on an ambitious economic reform programme in which the banking
sector reforms formed a major part. The Committee on Financial System (1991) more
popularly known as the NARASIMHAM Committee prepared the blue print of the reforms.
A few of the major aspects of reform included (a) moving towards international norms in
income recognition and provisioning and other related aspects of accounting (b)
liberalization of entry and exit norms leading to the establishment of several New Private
Sector Banks and entry of a number of new Foreign Banks (c) freeing of deposit and lending
rates (except the saving deposit rate), (d) allowing Public Sector Banks access to public
equity markets for raising capital and diluting the government stake,(e) greater transparency
and disclosure standards in financial reporting (f) suitable adoption of Basel Accord on
capital adequacy (g) introduction of technology in banking operations etc. The reforms led
to major changes in the approach of the banks towards aspects such as competition,
profitability and productivity and the need and scope for harmonization of global operational
standards and adoption of best practices. Greater focus was given to deriving efficiencies by
2

improvement in performance and rationalization of resources and greater reliance on

technology including promoting in a big way computerization of banking operations and
introduction of electronic banking.
The reforms led to significant changes in the strength and sustainability of Indian banking.
In addition to significant growth in business, Indian banks experienced sharp growth in
profitability, greater emphasis on prudential norms with higher provisioning levels,
reduction in the non-performing assets and surge in capital adequacy. All bank groups
witnessed sharp growth in performance and profitability. Indian banking industry is
preparing for smooth transition towards more intense competition arising from further
liberalization of banking sector that was envisaged in the year 2009 as a part of the
adherence to liberalization of the financial services industry.

1.1.2. STRUCTURE OF THE BANKING INDUSTRY

According to the RBI definition, commercial banks which conduct the business of banking
in India and which (a) have paid up capital and reserves of an aggregate real and
exchangeable value of not less than Rs 0.5 mn and (b) satisfy the RBI that their affairs are
not being conducted in a manner detrimental to the interest of their depositors, are eligible
for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934, and when
included are known as Scheduled Commercial Banks. Scheduled Commercial Banks in
India are categorized in five different groups according to their ownership and/or nature of
operation. These bank groups are (i) State Bank of India and its associates, (ii) Nationalised
Banks, (iii) Regional Rural Banks,(iv) Foreign Banks and (v) Other Indian Scheduled
Commercial Banks (in the private sector). All Scheduled Banks comprise Schedule
Commercial and Scheduled Co-operative Banks. Scheduled Cooperative banks consist of
Scheduled State Co-operative Banks and Scheduled Urban Cooperative Banks.

1.1.3 BANKING INDUSTRY AT A GLANCE

In the reference period of this publication (FY06), the number of scheduled commercial
banks functioning in India was 222, of which 133 were regional rural banks. There are
71,177 bank XIV offices spread across the country, of which 43 % are located in rural areas,
22% in semi-urban areas, 18% in urban areas and the rest (17 %) in the metropolitan areas.
The major bank groups (as defined by RBI) functioning during the reference period of the
report are State Bank of India and its seven associate banks, 19 nationalised banks and the
IDBI Ltd, 19 Old Private Sector Banks, 8 New Private Sector Banks and 29 Foreign Banks.

1.1.4 INDUSTRY SCENERIO OF INDIAN BANKING INDUSTRY

The growth in the Indian Banking Industry has been more qualitative than quantitative and it
is expected to remain the same in the coming years. Based on the projections made in the
"India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report
forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The
total asset of all scheduled commercial banks by end-March 2010 is estimated at Rs 40, 90,
000 Cr. That will comprise about 65 per cent of GDP at current market prices as compared to
67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4
per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed
between 1994-95 and 2002-03. It is expected that there will be large additions to the capital
base and reserves on the liability side.
The Indian banking industry, which is governed by the banking regulation Act of India, 1949
can be broadly classified into two major categories, non-scheduled banks and scheduled
banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of
ownership, commercial banks can be further grouped into nationalised banks, the state bank
of India and its group banks, regional rural banks and private sector banks. These banks have
over 67000 branches spread across the country.

The public sector banks, which are the base of the Banking sector in India account for more
than 78 per cent of the total banking Industry assets. Unfortunately they are burdened with
excessive Non Performing assets, massive manpower and lack of modern technology. On the
other hand, the Private sector banks are making tremendous progress .They are leaders in
Internet banking, mobile banking, phone banking, ATMS. As far as foreign banks are
concerned they are likely to succeed in the Indian Banking Industry.
In the Indian Banking Industry some of the Private sector Banks operating are IDBI Bank,
ING VYASA Bank, SBI Commercial and International Bank ltd, Bank of Rajasthan ltd and
banks from the public sector include Punjab and Sind bank , Punjab national bank, VIJAYA
bank, UCO bank and Oriental bank, Allahabad bank among others.
As far as the present scenario is concerned the Banking Industry in India is going through a
transitional phase. The first phase of financial reforms resulted in the Nationalisation of 14
major banks in 1969 and resulted in a shift from class banking to mass banking. This in turn
resulted in a significant growth in the geographical coverage of banks. Every bank had to
earmark a minimum percentage of their loan portfolio to sectors identified as priority
sectors The manufacturing sector also grew during the 1970s in protected environs and the
banking sector was a critical source. The next wave of reforms saw the nationalisation of 6
more commercial banks in 1980. Since then the number of bank branches increased eight
fold.
After the second phase of financial sector reforms and liberalisation of the sector in the early
nineties, the public sector banks found it extremely difficult to compete with the new private
sector banks and the foreign banks. The new private sector banks first made their appearance
after the guidelines permitting them were issued in January, 1993. Eight new private sector
banks are presently in operation.

1.1.5 CURRENT SCENARIO

The industry is currently in a transition phase. On the one hand , the PSBS , which are the
mainstay of the Indian Banking system are in the process of shedding their flab in terms of
excessive governmental manpower equity, while on the other hand the private sector banks
are consolidating themselves through mergers and acquisitions.
PSBS which currently account for more than 78 per cent of total banking industry assets are
saddled with NPSS , falling revenues from traditional sources , lack of modern technology
and a massive workforce while the new private sector banks are forging ahead and rewriting
the traditional banking business model by way of their sheer innovation and service . The
PSBS are of course currently working out challenging strategies even 20 per cent of their
massive employee strength has dwindled in the wake of the successful voluntary Retirement
schemes.

1.1.6 CHALLENGES FACED BY BANKING INDUSTRY

The bank marketing is than an approach to market the services profitability. It is a device to
maintain commercial viability. The changing perception of bank marketing has made it a
social process. The significant properties of the holistic concept of management and
marketing has made bank marketing a device to establish a balance between the commercial
and social considerations , often considered to the opposite of each other . A collaboration of
two words banks and marketing thus focuses our attention on the following:

Bank marketing is a managerial approach to survive in highly competitive market as

well as reliable service delivery to target customers.

It is a social process to sub serve social interests.

It is a fair way of making profits.

It is an art to make possible performance orientation.

It is a professionally tested skill to excel competition.

Money laundering by the banks

INTRODUCTION

Money laundering is the process of transforming the proceeds of crime into

ostensibly legitimate money or other assets. However, in a number of legal and
regulatory systems the term money laundering has become conflated with other
forms of financial crime, and sometimes used more generally to include misuse
of the financial system (involving things such as securities, digital currencies,
credit cards, and traditional currency), including terrorism financing, tax
evasion and evading of international sanctions. Most anti-money laundering
laws openly conflate money laundering (which is concerned with source of
funds) with terrorism FINANCING (which is concerned with destination of
funds) when regulating the financial system.
Money obtained from certain crimes, such as extortion, insider trading, drug
trafficking, illegal gambling and tax evasion is "dirty". It needs to be cleaned to
appear to have been derived from non-criminal activities so that banks and other
financial institutions will deal with it without suspicion. Money can be
laundered by many methods, which vary in complexity and sophistication.
Different countries may or may not treat tax evasion or payments in breach of
international sanctions as money laundering. Some jurisdictions differentiate
these for definition purposes, and others do not. Some jurisdictions define
money laundering as obfuscating sources of money, either intentionally or by
merely using financial systems or services that do not identify or track sources
or destinations.
Other jurisdictions define money laundering to include money from activity that
would have been a crime in that jurisdiction, even if it were legal where the
actual conduct occurred. This broad brush of applying the term "money
laundering" to merely incidental, extraterritorial, or simply privacy-seeking
behaviors has led some to label it "financial thought crime".
7

Many regulatory and governmental authorities issue estimates each year for the
amount of money laundered, either worldwide or within their national economy.
In 1996, the International Monetary Fund estimated that two to five percent of
the worldwide global economy involved laundered money. The Financial Action
Task Force on Money Laundering (FATF), an intergovernmental body set up to
combat money laundering, stated, "Overall, it is absolutely impossible to
produce a reliable estimate of the amount of money laundered and therefore the
FATF does not publish any figures in this regard."[4] Academic commentators
have likewise been unable to estimate the volume of money with any degree of
assurance. Various estimates of the scale of global money laundering are
sometimes repeated often enough to make some people regard them as factual
but no researcher has overcome the inherent difficulty of measuring an
actively concealed practice.

Regardless of the difficulty in measurement, the amount of money laundered

each year is in the billions (US dollars) and poses a significant policy concern
for governments. As a result, governments and international bodies have
undertaken efforts to deter, prevent, and apprehend money launderers. Financial
institutions have likewise undertaken efforts to prevent and detect transactions
involving dirty money, both as a result of government requirements and to avoid
the reputational risk involved. Issues relating to money laundering have existed
as long as there have been large scale criminal enterprises. Modern anti-money
laundering laws have developed along with the modern War on Drugs. In more
recent times anti-money laundering legislation is seen as adjunct to the financial
crime of terrorist financing in that both crimes usually involve the transmission
of funds through the financial system (although money laundering relates to
where the money has come from, and terrorist FINANCING relating to where
the money is going to).

Methods
Money laundering is commonly defined as happening in three steps: the first
step involves introducing cash into the financial system by some means
("placement"); the second involves carrying out complex financial transactions
to camouflage the illegal source ("layering"); and the final step entails acquiring
wealth generated from the transactions of the illicit funds ("integration"). Some
of these steps may be omitted, depending on the circumstances; for example,
non-cash proceeds that are already in the financial system would have no need
for placement.
Money laundering takes several different forms, although most methods can be
categorized into one of a few types. These include "bank methods, smurfing
[also known as structuring], currency exchanges, and double-invoicing".

Structuring: Often known as smurfing, this is a method of placement whereby

cash is broken into smaller deposits of money, used to defeat suspicion of
money laundering and to avoid anti-money laundering reporting requirements.
A sub-component of this is to use smaller amounts of cash to purchase bearer
instruments, such as money orders, and then ultimately deposit those, again in
small amounts.
Bulk cash smuggling: This involves physically smuggling cash to another
jurisdiction and depositing it in a financial institution, such as an offshore bank,
with greater bank secrecy or less rigorous money laundering enforcement.
Cash-intensive businesses: In this method, a business typically involved in
receiving cash uses its accounts to deposit both legitimate and criminally
derived cash, claiming all of it as legitimate earnings. Service businesses are
best suited to this method, as such businesses have no variable costs, and it is
hard to detect discrepancies between revenues and costs. Examples are parking
buildings, strip clubs, tanning beds, car washes and CASINOS.
Trade-based laundering: This involves under- or overvaluing invoices to
disguise the movement of money.

Shell companies and trusts: Trusts and shell companies disguise the true
owner of money. Trusts and corporate vehicles, depending on the jurisdiction,
need not disclose their true, beneficial, owner. Sometimes referred to by the
slang term rat hole though that term usually refers to a person acting as the
fictitious owner rather a business entity.
Round-tripping: Here, money is deposited in a controlled foreign corporation
offshore, preferably in a tax haven where minimal records are kept, and then
shipped back as a foreign direct investment, exempt from taxation. A variant on
this is to transfer money to a law firm or similar organization as funds on
account of fees, then to cancel the retainer and, when the money is remitted,
represent the sums received from the lawyers as a legacy under a will or
proceeds of litigation.
Bank capture: In this case, money launderers or criminals buy a controlling
interest in a bank, preferably in a jurisdiction with weak money laundering
controls, and then move money through the bank without scrutiny.
CASINOS: In this method, an individual walks into a casino with cash and
buys chips, plays for a while, and then cashes in the chips, taking payment in a
check, or just getting a receipt, claiming it as gambling winnings.
Other gambling: Money is spent on gambling, preferably on higher odds. The
wins are shown if the source for money is asked for, while the losses are hidden.
Real estate: Someone purchases real estate with illegal proceeds and then sells
the property. To outsiders, the proceeds from the sale look like legitimate
income. Alternatively, the price of the property is manipulated: the seller agrees
to a contract that underrepresents the value of the property, and receives
criminal proceeds to make up the difference.
Black salaries: A company may have unregistered employees without a written
contract and pay them cash salaries. Dirty money might be used to pay them.
Tax amnesties: For example, those that legalize unreported assets in tax havens
and cash.

10

HISTORY

In 2002, the Parliament of India passed an act called the Prevention of Money
Laundering Act, 2002. The main objectives of this act are to prevent moneylaundering as well as to provide for confiscation of property either derived from
or involved in, money-laundering.
Section 12 (1) describes the obligations that banks, other financial institutions,
and intermediaries have to
(a) Maintain records that detail the nature and value of transactions, whether
such transactions comprise a single transaction or a series of connected
transactions, and where these transactions take place within a month.
(b) Furnish information on transactions referred to in clause (a) to the Director
within the time prescribed, including records of the identity of all its clients.
Section 12 (2) prescribes that the records referred to in sub-section (1) as
mentioned above, must be maintained for ten years after the transactions
finished. It is handled by the Indian Income Tax Department.
The provisions of the Act are frequently reviewed and various amendments
have been passed from time to time.
The recent activity in money laundering in India is through political parties,
corporate companies and the shares market. It is investigated by the
Enforcement Directorate and Indian Income Tax Department. Bank accountants
must record all transactions over Rs. 1 million. Bank accountants must maintain
this records for 10 years. Banks also must MAKE CASH transaction reports
(CTRs) and suspicious transaction reports over RS. 1 million within 7 days of
doubt. They must submit the report to the Enforcement Directorate and income
tax department.[citation needed.

The history of money laundering is, primarily, that of hiding money or assets
from the state - either from blatant confiscation or from taxation - and, indeed,
from a combination of both. And, of course from those seeking to enforce
11

judgments in civil cases or to follow the money that results from other crime. It
is interwoven with the history of trade and of banking.
No one can be really sure when money laundering first began. However, we can
be confident that it has been going on for several thousand years. In "Lords of
the Rim" Sterling Seagrave explains how, in China, merchants some 2000 years
before Christ would hide their wealth from rulers who would simply take it off
them and banish them. In addition to hiding it, they would move it and INVEST
it in businesses in remote provinces or even outside China.
In this way, the offshore industry was born, and - depending on your point of
view - so was tax evasion. And so were the principles of money laundering - to
hide, move and INVEST wealth to which someone else has a claim.
Over the next four millennia, the principles of money laundering have not
changed. But the mechanisms have. Parallel Banking is one of the most durable
techniques, or to be more precise suites of techniques.
Over a period of thousands of years, people have used money laundering
techniques to move money resulting from crime - but also often to hide and
move it out of reach of governments - including oppressive regimes and
despotic leaders. Many minorities in countries down the ages and around the
world have taken steps to preserve wealth from rulers, both unelected and
elected, who have targeted them simply because of their beliefs or color. It is
happening even today.
It was several thousand years ago that money and value were separated and
value became represented by assets, often assets with no intrinsic worth but
increasingly by assets that were recognizable and convertible. So, GOLD coins
were - literally - worth their weight in gold and it was immaterial what country
issued them - the only thing that mattered was the quality and quantity of the
gold. Once gold is melted down, it does not lose its value, only its shape. It can
be re-fashioned and having arrived in one place as one thing, it can leave there
as something else - and that need not even be the same amount of gold. Gold
remains one of the main non-currency means of holding money including
laundered money.
Diamonds are a particular favorite, too. There have been instances of "holy
men" carrying laundered funds by concealed diamonds in to California.

12

Whilst it is true that, in the USA, prohibition and a restriction on gambling

made large amounts of cash for those prepared to break the embargoes the most
important fact about that time was that it caused a dramatic increase in financial
crime - in our definition, financial crime is a crime that gives direct access to the
proceeds of the offence. Sanctions busting was a financial crime because for
every offence committed, the criminal immediately received cash in his hand.
Thus it created an immediate problem over what to do with that money.
Opening a cash business was the obvious thing to do. Laundries were a suitable
business, and so - goes rumor - the term "money laundering" was invented. This
may or may not be true.
Whatever the origins of the term, criminals moved into businesses where the
cash crop was higher - including drugs. They formed law firms, accountancy
practices, bought banks, film studios, engineering concerns, even governments.
When this page was originally written, in 2002, one person was trying to buy
control of a central bank. If they did not buy the whole organization, they
bought - or in some other way obtained the co-operation of - someone within
the company. They have always used criminal money to fund the education of
the children of the more senior members.
But money laundering also was developed in order to facilitate trade. It is often
said (generally without any evidence to support the contention) that Nigeria is
the money laundering Centre of Africa and that Nigerians around the world are
engaged in large scale crime and laundering. Insofar as that is true, the reason
for it is because the networks that are now dominated by criminals were set up
within the past twenty or so years by international traders who were unable to
operate due to exchange control measures and a system of customs inspection
that resulted in traders based in Nigeria operating their businesses entirely
offshore. Other countries have had - and in the case of some which have strict
currency transaction requirements still have - a similar development of
laundering. Money laundering techniques are restricted only by the imagination
of the criminals - and there are a lot of criminals trying to find ways to launder.

13

Chapter-2
Research Methodology

RESEARCH

Meaning of Research:

Research is composed of two syllables, a prefix re and a verb search.

Re means again, a new, over again.
14

 Search means to examine closely and carefully, to test and try, to probe.
The two words form a noun to describe a careful and systematic study in some field of
Knowledge, undertaken to establish facts or principles.
Research is an organized and systematic way of finding answers to questions.

Characteristics of Research:

Collecting, Organizing & Evaluating data.

Discovering new facts or verify or tests old facts.

Developing new scientific tools, concepts & theories, this would facilitate to take
decisions.

Logical, so producers can be developed and understood by others.

Empirical, so decisions are based on data collected.

Reductive, so it investigates a small sample which can be generalized to large

populations.

RESEARCH METHODOLOGY

The system of collecting data for research projects is known as research methodology. The
data may be collected for either theoretical or practical research for example management
research may be strategically conceptualized along with operational planning methods and
change management. Some important factors in research methodology include validity of

15

research data, ethics and the reliability of measures most of your work is finished by the time
you finish the analysis of your data.

RESEARCH DESIGN

Research design is considered as a "blueprint" for research, dealing with at least four
problems: which questions to study, which data are relevant, what data to collect, and how to
analyze the results. The best design depends on the research question as well as the
orientation of the researcher. Every design has its positive and negative sides.
The research design is a comprehensive master plan of the research study to be undertaken,
giving a general statement of the methods to be used. The function of a research design is to
ensure that requisite data in accordance with the problem at hand is collected accurately and
economically. To be effective, a research design should furnish at least the following details.
a) A statement of objectives of the study or the research output.
(b) A statement of the data inputs required on the basis of which the research problem is to be
solved.
(c) The methods of analysis which shall be used to treat and analyses the data inputs.

Types of Research Design:

There are various designs which are used in research, all with specific advantages and
disadvantages.

Action Research Design

The essentials of action research design follow a characteristic cycle whereby initially an
exploratory stance is adopted, where an understanding of a problem is developed and
16

plans are made for some form of interventionary strategy. Then the intervention is carried
out and pertinent observations are collected in various forms. The new interventional
strategies are carried out, and the cyclic process repeats, continuing until a sufficient
understanding of the problem is achieved.

Descriptive Design
Descriptive research designs help provide answers to the questions of who, what, when,
where, and how associated with a particular research problem; a descriptive study cannot
conclusively ascertain answers to why. Descriptive research is used to obtain information
concerning the current status of the phenomena and to describe "what exists" with respect
to variables or conditions in a situation.

Sequential Design
Sequential research is that which is carried out in a deliberate, staged approach where
one stage will be completed, followed by another, then another, and so on, with the aim
that each stage will build upon the previous one until enough data is gathered over an
interval of time to test your hypothesis. The sample size is not predetermined.

Experimental Design
A blueprint of the procedure that enables the researcher to maintain control over all factors
that may affect the result of an experiment. In doing this, the researcher attempts to
determine or predict what may occur. It is often used where there is time priority in a
causal relationship, there is consistency in a causal relationship, and the magnitude of the
correlation is great.

Causal Design
17

Causality studies may be thought of as understanding a phenomenon in terms of

conditional statements in the form, If X, and then Y. This type of research is used to
measure what impact a specific change will have on existing norms and assumptions.
Most social scientists seek causal explanations that reflect tests of hypotheses. Causal
effect occurs when variation in one phenomenon, an independent variable, leads to or
results, on average, in variation in another phenomenon, the dependent variable.

The type of research design for this report is:

Exploratory Research
This kind of research has the primary objective of development of insights into
problem. It studies the main area where the problem lies and also tries to evaluate some
appropriate courses of action .The results of exploratory research are not usually useful for
decision-making by themselves, but they can provide significant insight into a given
situation. Although the results of qualitative research can give some indication as to the
"why", "how" and "when" something occurs, it cannot tell us "how often" or "how many".
It may use a variety of methods such as trial studies, interviews, group discussions,
experiments, or
other tactics for the purpose of gaining information.

Sample Design
A complete interaction and enumeration of all the employees of MONEY LAUNDERING
was not possible so a sample was chosen that consisted of 30 employees.

Data Collection
Data collection is any process of preparing and collecting data, for example, as part of a
process improvement or similar project. The purpose of data collection is to obtain
18

information to keep on record, to make decisions about important issues, or to pass

information on to others. Data are primarily collected to provide information regarding a
specific topic.

I.

Types of Data:

PRIMARY DATA:

Using personal interview technique, the survey the data will collect by using
Questionnaire. The primary data collection for his purpose is supposed to be done by
judgment sampling conversation sampling.

II.

Questionnaire has been formatted with both open and close structure questions

SECONDARY DATA:

By going through various records.

By going through the magazine of the bank.

19

CHAPTER 3
(DATA PROCESSING, ANALYSIS & INTERPRETATION)

Data Processing

Analysis of the problem under study

Interpretation of the result

1. Is the AML compliance program approved by the FIs board or a

senior committee?

a) YES

b.) NO

20

100%
90%
80%
70%

NO

60%

YES

50%
40%
30%
20%
10%
0%
APPROVAL

INTERPRETATION : It was interpreted that it was NOT approved.

2. Does the FI have a legal and regulatory compliance program

that includes a designated officer that is responsible for
coordinating and overseeing the AML framework?

a.) Yes

b.) NO
21

AML FRAMEWORK

YES
NO

INTERPRETATION: The majority said FI do NOT have a compliance program.

3. Has the FI developed written policies documenting the

processes that they have in place to prevent, detect and report
suspicious transactions?

30% YES
22

70% NO

DOCUMENTATION

YES
NO

4. In addition to inspections by the government

supervisors/regulators, does the FI client have an internal audit
function or other independent third party that assesses AML
policies and practices on a regular basis?
23

20% YES
80%

NO

REGULATORS

YES
NO

5. Does the FI have a policy prohibiting accounts/relationships

with shell banks? (A shell bank is defined as a bank
incorporated in a jurisdiction in which it has no physical
presence and which is unaffiliated with a regulated financial
group.)

24

40% YES
60% NO

POLICY PROHIBITION

YES
NO

6. Does the FI have policies to reasonably ensure that they will

not conduct transactions with or on behalf of shell banks
through any of its accounts or products?

25

20% YES
80% NO

FALSE TRANSACTIONS

YES
NO

7. Does the FI have policies covering relationships with Politically

Exposed Persons (PEPs), their family and close associates?

70% YES
26

30% NO

COVER RELATIONSHIPS

YES
NO

8. Does the FI have record retention procedures that comply with

applicable law?

80% YES
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20% NO

COMPLY WITH LAW

YES
NO

9. Are the FIs AML policies and practices being applied to all
branches and subsidiaries of the FI both in the home country
and in locations outside of that jurisdiction?

28

50% YES
50% NO

APPLICABLITY

YES
NO

10. Does the FI have procedures to establish a record for each new
customer noting their respective identification documents and
Know Your Customer information?

29

90% YES
10% NO

KNOW YOUR CUSTOMER

YES
NO

FINDING
LIMITATIONS
30

 SUGGESTIONS
RECOMMENDATIONS
CONCLUSION

FINDINGS

Where third parties are relied upon, those entities do not formally consent to
being relied on for CDD checks within a documented and signed agreement
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. The banks policies and procedures do not clearly define a third party or
stipulate whether or when it is acceptable to rely on them.
The third party is not regularly monitored through assurance testing, for
example through requests for sample CDD documents to test quality and
reliability
. A third party who is being relied upon by the bank is unable to retrieve CDD
documentation within a reasonable timeline.
Training records are not maintained showing who had received training, when the
training was received, the nature of the training given and the outcome of the
training e.g. the results of any assessments.
Not all Board members completed on-going AML/CFT training.
Relevant MI e.g. AML/CFT training assessment completion rates, failure rates,
etc., is not being generated and circulated to Senior Management.

LIMITATIONS

32

 Incomplete risk assessments that do not effectively consider the inherent Money
Laundering/Terrorist Financing risks relevant to the bank.
The risk assessments undertaken are very high level and lack thorough analysis of key risks.
The risk assessments are not being reviewed and approved periodically, as required by the
banks own internal AML/CFT policies and procedures.
The risk assessment process is a one-off or ad-hoc exercise and is not proactively
undertaken to inform Senior Management of the bank and to inform the risk appetite and/or
the policies, procedures and mitigating controls.
The risk assessment does not adequately record residual risks or identified gaps and does
not document the resulting mitigating actions or controls.

SUGGESTIONS
33

 Maintain a detailed suite of AML/CFT policies, which are supplemented

by guidance and supporting procedures that are tailored by jurisdiction or
business unit.
Have a clearly defined process in place for the formal review and
approval, at least annually, of the policies and procedures at appropriate
executive and Board committee levels.
Policies and procedures are readily available to all staff.
Policies and procedures demonstrably comply with all legal and
regulatory requirements.
Policies and procedures are reviewed in response to events or emerging
risks.
Staff responsible for implementing and monitoring the policies and
procedures have adequate levels of expertise and training.
Policies and procedures are subject to independent review and testing.

RECOMMENDATIONS

34

 The truth is that no country can stop money laundering alone.

If one country is hostile to laundering, criminals simply look away to
some other place to clean their money, therefore global cooperation is
required.
Identify and do background checks on depositors
Report all suspicious activity.
The Board and Senior Management can demonstrate active engagement in the monitoring
and management of Money Laundering/Terrorist Financing risk, including involvement in
completion of the Money Laundering/Terrorist Financing risk assessment, effective flows of
good quality MI and resulting proactive mitigating actions, timely closure and resolution of
issues, regular assessment and evaluation of regulatory changes as well as consideration of
industry developments that may impact the business.
All relevant parties have formally acknowledged their responsibilities, fully understand
their role and are sufficiently senior to have adequate knowledge of the bank, its products,
services and systems.

CONCLUSIONS

35

The Central Bank acknowledges that satisfactory processes and

controls were found in place in some areas. However, the
number and nature of issues identified suggests that more work
is required by banks in INDIA to effectively manage Money
Laundering and Terrorist Financing risk. While the banking
sector in INDIA is the specific focus of the Report, many of the
issues raised are relevant to the broader financial services
sector in Ireland. The Central Bank expects all financial and
credit institutions to carefully consider the issues raised in the
Report, and to use the Report to inform the development of
AML/CFT and FS frameworks.

BIBLIOGRAPHY

36

 Peter lilley,Dirty Dealing: the untold truth about

Global Money Laundering.
N.C.Deassis & S.M. yikona, financial sector development and
money laundering.

SEARCH ENGINES
GOOGLE

WEBSITES

www.countermoneylaundering.com

www.undcp.org/money_laundering.html

www1.oecd.org/faft/

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