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What is KYC ?

Know your customer

Good. Thats the phrase for which KYC is an abbreviation for. But what does it
mean ?

Check the customers identity proof and residence proof.

That is one of the process you follow in KYC one of the form of KYC. But what
is the spirit of know your customer- What does it really mean?

KYC covers an entire spectrum of due diligence procedures conducted right

from prospecting for a new customer till his loan maturity.
They are done for minimizing the risk of customer frauds and defaults. But more
importantly, they are followed in order to combat and prevent money laundering

Money laundering? !!.....?

Money laundering is a process by which unaccounted, illegitimate money is

brought into the system. ( In other words, black money is converted into
white). Banks and financial institutions are at a huge risk of being used for
this purpose.
So money that was unaccounted earlier, is now getting accounted. Isnt it
good for the system?

One must remember, that this money was unaccounted either to conceal its
source or to avoid taxes or for such other illegal purposes. These are
primarily, CRIMES that were committed and now trying to find a
means to seamlessly merge with the whole system and avoid legal
Are all tax avoiding citizens money launderers?
No. We may disclose our source of income and use the tax laws in such a
way that it works to our advantage in minimizing our tax obligation. This is
not an offence. However, when one intentionally conceals income to evade
the tax obligation, it is an offence. That amounts to black money.
Depending upon the severity, it could even be a CRIMINAL offence!! And
when such a criminal, uses a bank or financial institution to legalize his
money, he is a money launderer.

What is the extent of this crime?

It is difficult to estimate the extent of black money in Indian economy.
There are reports that suggest it to be almost as high as the 50% of the
total GDP.

What is more important to understand is the nature of crimes that generate

this kind of money. It could be a simple tax avoidance of a few thousand
rupees or a complex and sophisticated activity involving international

Human trafficking, drug dealing, arms dealing, are just few of the
criminal activities that are run on black money. Black money is used and
also generated from these activities !!

Why would these criminals use our company for money laundering purpose?
Our customers are simple and well intentioned.
EVERY company, particularly banks and financial institutions are susceptible
to being used for money laundering. There is NO EXCEPTION.

Criminal minds are working every minute to find loopholes within the
internal controls of an organization. It would be wrong to underestimate
the level of preparation with which they enter our system. A single such
customer is capable of stalling the entire companys activities and
getting the whole company and its officers into substantial regulatory
issues !!