ANTI MONEY LAUNDERING KNOW YOUR CUSTOMERS

Presented by, 0155 - Gayatri Sharma 0161 - Kanchan Suchak 0328 - Shalaka Deshpande 0309 - Yogita Rajput 0367 - Neha Jadhav 9333 - Sakshi Parihar

MONEY LAUNDERING
Criminal Activities

Drugs
Arm Trafficking Flesh Trade Extortion Illegally Obtained money Converted to legal money originating from legitimate source

MONEY LAUNDERING
Section 3 of the Prevention of Money Laundering Act, 2002 defines offence of money laundering as under: Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering."

PROCESS OF MONEY LAUNDERING

1)Placement Place Illicit proceeds into the Financial system

3)Integration Use the cleaned proceeds to invest in legalized activities

2)Layering
Disguise the origins of those proceeds

Consequences of Money Laundering

Undermining financial system Expanding crime Criminalizing the society Reducing Revenue and control

TYPOLOGIES OR TECHNIQUES EMPLOYED

Using fictitious names or operating on behalf of others Using shell or front companies False and Illegal documentation Using representative offices of foreign banks Electronic transfers

PMLA - Objective

To combat money laundering To impose obligations on banking companies, financial institutes to: Verify identity of clients Maintain records Furnish information to FIU-IND

Punishment of money laundering

Whoever commits the offence of money laundering shall be punishable with rigorous imprisonment of a term which shall not be less than three years but which may extend to seven years (for some crimes 10 years) and shall also be liable to fine which may extend to five lakh rupees.

Obligations

1.
2. 3. 1. 2. 3.

For institutes Maintain a record Furnish information to the director Verify and maintain records of clients Records from last 10 years Power of director to impose fine Checking records Imposing fine Furnish information to institute No civil proceedings for some cases.

FINANCING OF TERRORISM

International Convention for Suppression of the Financing of Terrorism states that financing of terrorism refers to: Any conduct by any person that directly or indirectly, whether lawfully or unlawfully and willfully provide or collect funds with the intention that they should be used, or in the knowledge that they should be used, to carry out an act that constitutes an offence under any one of the thirteen United Nations Conventions. It also relates to any act intended to cause death or serious bodily injury to a civilian, or to any other person not actively involved in a situation of armed conflict, when the purpose of such act is to intimidate a population, or to compel a government or an international organization to either do or abstain from doing a specific act. Moreover it also includes the act of attempting to participate, organize, contribute or directing the provision or collections of such funds. It is not necessary that the funds are actually used to commit an offence.

1.

2.

3.

FINANCING OF TERRORISM
1. 2. 3. 4.

FATF/GAFI- the 9 basic guidelines: Criminalization of acts of financing terrorism Effective sanctions for legal persons for the acts of financing terrorism Freezing and Confiscating terrorist assets Obligations of suspicious transactions reporting involving terrorist acts or organizations International cooperation for investigations, inquiries, and proceedings related to the financing of terrorism Other important preventive and detective measures

5.

6. 7. 8. 9. 10.

Control of alternative remittance

Control of wire transfers Control of non-profit organizations Control of cash couriers

LEGAL SOURCES OF TERRORIST FINANCING

1.

2.
3. 4. 5. 6.

Collection of Membership dues Sale of publications Cultural or social events Door to Door solicitation within community Appeal to wealthy members of community Donation of a portion of personal savings

ILLEGAL SOURCES OF TERRORIST FINANCING

1. 2. 3. 4.

5. 6.

Kidnap and extortion Smuggling Fraud including credit card fraud Misuse of non-profit organizations and charities fraud Thefts and robbery Drug trafficking

INDIAS PROGRESS ON ANTI MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (AML/CFT)

India became FATFs 34th Member in June 2010. India also gave an Action Plan in June 2010 and followed up with Action Taken Report in October 2010 and in February 2011. The 2nd review of Indias Action Taken Report was discussed by the FATF Plenary on 23rd February in Paris. The FATF Plenary appreciated the strong commitment demonstrated by India to the international drive against money laundering and financing of terrorism. During the meeting, India reiterated its commitments to adopt, enforce and contribute to international best practices in AML and CFT. India also highlighted the implementation of the 2010-11 budget announcement relating to the establishment of a Financial Stability and Development Council that would interalia review the effective implementation of Indias multilateral commitments including FATF priorities. The Union Finance Minister, Shri. Pranab Mukherjee, approved India taking over as the co-chair of the Asia Pacific Regional Review Group of the FATF. It is one of the four FATF International Co-operation Review Groups. The others are: Europe/Eurasia, Americas, Middle East / Africa.

KNOW YOUR CUSTOMER

For the purpose of KYC, a customer is defined as: a person or entity that maintains an account and/or has a business relationship with the bank. One on whose behalf the account is maintained (i.e., the beneficial owner) Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc., as permitted under the law, and Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

WHAT KYC MEANS?

Making reasonable efforts to determine the true identity and beneficial ownership of accounts; Sources of funds Nature of customers business What constitutes reasonable account activity? Who your customers customer are?

KYC DOES NOT MEAN

Denial of Service to the Common Person Intrusive Behaviour Use of information for cross selling Harassment of customers- threatening to close down the accounts arbitrarily

KNOW YOUR CUSTOMER

1.
2. 3. 4.

Four key elements are the basis: Customer Acceptance Policy Customer Identification procedures Monitoring of transactions Risk Management

CUSTOMER ACCEPTANCE

1. 2. 3.

No account is opened in anonymous or fictitious/ benami name(s) and Customers are categorised based on risk perceptions in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status, etc. A Customer Profile (in the prescribed format) The customer profile shall be updated, on a periodical basis, as under: For low risk customers Once in three years For medium risk customers Every year For high risk customers Every year

CUSTOMER IDENTIFICATION

Customer identification means identifying the customer and verifying his/her/its identity by using reliable, independent source documents, data or information. Customer Identification is carried out at different stages i.e., while establishing a banking relationship, carrying out a financial transaction or when the branch has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data. The process of verifying a customer's identity and his/her credentials is not a faultfinding exercise but to create a better customer relationship that may safeguard the mutual interests of the Bank as well as the customer.

General KYC Guidelines

Information collected from the customers to be kept confidential. Not to indulge into cross selling Information sought should be relevant to perceived risk Any remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and issue of travellers cheques for value of Rupees fifty thousand and above is effected by debit to the customers account or against cheques and not against cash payment. Provisions of Foreign Contribution (Regulation) Act, 1976 as amended from time to time, wherever applicable, are strictly adhered to.

COMPLIANCE FOR DIFFERENT TYPES OF ACCOUNTS

Account for Individual

Documents
(i) Passport (ii) PAN card (iii) Voters Identity Card (iv) Driving licence(v) Identity card (subject to the banks satisfaction) (vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank (i) Telephone bill (ii) Bank account statement (iii) Letter from any recognized public authority(iv) Electricity bill (v) Ration card(vi) Letter from employer (subject to satisfaction of the bank)(any one document which provides customer information to the satisfaction of the bank will suffice)

Features
Legal names and any other names used

Correct Permanent Address

Trust/Nominee or Fiduciary Accounts

DOCUMENTS (i) Certificate of registration, if registered (ii) Power of Attorney granted to transact business on its behalf (iii) Any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders/managers/ directors and their addresses(iv) Resolution of the managing body of the foundation/association(v) Telephone bill

FEATURES Names of trustees, settlers, beneficiaries and signatories Names and addresses of the founder, the managers/directors and the beneficiaries Telephone/fax numbers

Accounts of Companies and Firms

DOCUMENTS (i) Certificate of incorporation and Memorandum & Articles of Association (ii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account (iii) Power of Attorney granted to its managers, officers or employees to transact business on its behalf (iv) Copy of PAN allotment letter (v) Copy of the telephone bill

FEATURES Name of the company Principal place of business

Mailing address of the company

Telephone/Fax Number

Accounts of Partnership Firms

DOCUMENTS (i) Registration certificate, if registered(ii) Partnership deed (iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf (iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses (v) Telephone bill in the name of firm/partners

FEATURES Legal name Address

Names of all partners and their addresses Telephone numbers of the firm and partners

Accounts of non-face-to-face customers

Usual CIP Certification of all the documents presented Banks may also require the first payment to be effected through the customer's account with another bank which, in turn, adheres to similar KYC standards. Cross border customers third party certification/ introduction.

Small Accounts

Account balance not exceeding Rs. 50,000/- and total credit in all accounts not exceeding Rs. 1,00,000/Introduction from another accountholder Any other evidence as to the identity and address of the customer to the satisfaction of the bank. Job card issued by NREGA signed by an officer of the State Government or the letters issued by the Unique Identification Authority of India containing details of name, address and Aadhaar number.

Records to be maintained under PMLA by NBFCs, Co-op & RRBs

All cash transactions (or series thereof) of value of more than Rs. 10 Lakh in INR or foreign currency Wherein forged currency was used Suspicious transactionsDeposits and credits by third party cheques, travelers cheques, pay orders, demand drafts, etc. Transfer from one account to another within same bank including N/Vostro accounts.

Cr or Dr. from non monetary a/c Money transfer or remittances in favor of own/nonclients within India or from abroad Loans, advances, contingent liability by way of subscription to CP, CD, debentures, etc. LC, BG, Foreign exchange contracts, derivative contracts, etc.

Procedure
For Maintaining Information: In hard and soft copies as specified by SEBI or RBI. Contain details of: Nature of transaction Amount Currency Date Parties to the contract

For Furnishing Information: Every month to director by seventh day of succeeding month by the Principal Officer Maintenance of records of identity of clients: Ten years from date of cessation of transactions.

Obligation of NBFC, Co-op & RRBs under PMLA, 2000

Reporting to Financial Intelligence Unit-India NBFCs are advised to adopt the format prescribed for banks with suitable modifications.

CTR for each month should be submitted to FIU-IND by 15th of the succeeding month.(While filing CTR, individual transactions below Rs 50,000 may not be included) STR should be furnished within 7 days of arriving at a conclusion that any trans., whether cash or non-cash, or a series of trans. integrally connected are of suspicious nature. The Principal Officer will be responsible for timely submission of CTR and STR to FIU-IND and utmost confidentiality should be maintained in filing of same. It should be ensured that the reports for all the branches are filed in one mode i.e. electronic or manual

THANK YOU