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Anti-money laundering practices in banks: customer’s awareness and

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 Journal of Money Laundering Control
Anti-money laundering practices in banks: customer’s awareness and acceptance
in India
Viritha B. Mariappan V.
Article information:
To cite this document:
Viritha B. Mariappan V. , (2016),"Anti-money laundering practices in banks: customer’s awareness
and acceptance in India", Journal of Money Laundering Control, Vol. 19 Iss 3 pp. 278 - 290
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countering the financing of terrorism", Journal of Money Laundering Control, Vol. 19 Iss 3 pp. 264-277
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JMLC
19,3
Anti-money laundering practices
in banks: customer’s awareness
and acceptance in India
278 Viritha B. and Mariappan V.
Department of Banking Technology, Pondicherry University,
Pondicherry, India
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Journal of Money Laundering
Control
Vol. 19 No. 3, 2016
pp. 278-290
© Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-03-2015-0009
Abstract
Purpose – The aim of this study was to assess the level of awareness and acceptance of bank
customers regarding anti-money laundering (AML) practices of banks. The study also aimed to
understand their constraints in following the bank’s AML practice.
Design/methodology/approach – The target population was account holders of the banks above
the age of 18 years, residing in the Puducherry and Chennai regions in India. Convenience sampling was
adopted in selecting the sample from these states. The sample consisted of 416 customers of the public,
private and foreign banks in India. The responses were collected by administering the pre-tested
structured questionnaire. The data was collected during the period June–December 2014. Descriptive
and non-parametric tests were applied, and the significance was considered at p ⫽ 0.5.
Findings – Respondents showed low level of awareness with regard to usage of banks as a channel for
money laundering (ML) and terrorism financing (TF) activities (62.3 per cent), reporting function of the
banks (70.4 per cent), AML and combating financing of terrorism (CFT) legislation (86.3 per cent) and
about the existence of Financial Intelligence Unit (FIU)-India and its function (96.9 per cent). The
customers were quite aware of ML (62.5 per cent) and customer identification requirements (95.2 per
cent). The participants exhibited neutral attitude towards acceptance of AML measures (3.11 ⫾ 1.31). The
descriptive analysis showed 97.4 per cent were ready to provide their identification documents to the bank;
however, 64.5 per cent of the participants were reluctant to update their Know Your Customer particulars
when it has not experienced any change, and about 68.3 per cent expressed that banks should not disclose the
details of their transactions to any third party including financial intelligence units.
Research limitations/implications – The sample constituted only few participants from the
foreign sector banks because of the difficulty in identifying the foreign bank customers.
Social Implications – There is a necessity to undertake public awareness campaigns on the importance
of AML/CFT system either by the banks or FIU-India or both to increase the level of acceptance towards
AML measures. This will help the banks to strengthen the bank– customer relationship.
Originality/value – An extensive review of literature could not find any research study on the
assessment of awareness and acceptance of banking customers towards AML practices in India. Thus, this
paper attempts to understand the level of awareness and acceptance in the bank customers towards AML
practices.
Keywords India, Awareness, Money laundering, KYC, Terrorism financing
Paper type Research paper
We sincerely thank the Indian Council of Social Science Research (ICSSR) for its financial
assistance in conducting this research.
 1. Introduction Anti-money
The efforts of the banks in the fight against money laundering (ML) and financing of laundering
terrorism cannot succeed without the support of their customers. For the customers to
lend their support, it is necessary that they should be aware of the threat of ML and the
practices
benefits of implementing the Anti-Money Laundering (AML) controls by banks. The
law-abiding citizens as consumers of banking services can help their banks to weed out
the prospective clients who pose a serious threat to the banks with their unaccounted 279
money. By providing their identification documents and relevant information to banks
as required under Know Your Customer (KYC), the customers, to an extent, make it
harder for money launderers and terrorists by closing the potential loopholes of identity
theft. This act of customers also helps oneself from not becoming the victim of identity
fraud and any resulting financial loss (FSA, 2003). Banks can also seek additional
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information apart from the identification documents under KYC based upon the conduct
of the account to rule out the suspicion of ML. Though many customers consider KYC
rules as intrusive to the privacy of their data, they should be educated that these issues
have to be balanced against the benefits of detecting and preventing the crime and
terrorism (FSA, 2003). When the customers understand the reasons for complying with
the AML requirements, KYC is no more a hindrance for the bank– customer
relationship. The awareness and confidence on AML among the banking customers can
help the banks in controlling customer alienation and thereby preventing loss of
business. Thus, the prospective account holders and customers void of illegal notions
can play a constructive role in the implementation of AML policy and in keeping their
banks clean of ML and terrorism financing (TF). It is therefore required that for the
customers to play such a pivotal role they should be aware of the threats of ML/TF and
the importance of KYC and AML controls.
The importance of public/customer awareness was highlighted in several works.
Financial Intelligence Unit (FIU)-Mauritius (2006) stated that to seek the support of
public, they should be made aware of the regulations and build confidence in them that
those regulations will be used for its intended purpose. It has also highlighted the fact
that to have an efficient AML/combating financing of terrorism (CFT) regime, it is
important to develop a converging approach among its various stake holders. The
FIU-Canada also expressed the same notion of the importance of public awareness of
ML for realizing the benefits of its efforts. It undertook a public opinion survey in 2006
to measure the public awareness and understanding of ML/TF activity in Canada. It
reported that 90 per cent of the Canadians had some understanding of ML, and 79 per
cent believed that it has an impact on the financial institutions. Accordingly, it
recommended for developing a public awareness programme to make them understand
their role in combating ML and TF (FINTRAC, 2007, Gerstein and Hervieux-Payette,
2013). Singh (2009) cited that in India the lack of awareness about the problem of ML
among the common people is an obstacle for having a proper AML regime. Public
should be educated on the negative consequences of ML, importance of AML measures
and the operations of the FIU to effectively combat ML (Jun and Ai, 2009; Simwayi and
Haseed, 2011).
Simultaneously, it is also important to understand and ease out the issues
confronting the bank customers in meeting the KYC requirements. In India, people have
difficulty in establishing proof of current address (Ail, 2012; Revathy, 2013), especially
for those who are on continuous relocation to different places because of their
 JMLC employment. Currently, this issue is mostly addressed through the Reserve Bank of
19,3 India amendment[1] in furnishing the proof of address, where the customer can present
either the current or the permanent address for opening a bank account. And in case, if
the address proof submitted is not of the current address where the customer is actually
residing, the bank may obtain a declaration of the current address on which all the
correspondence can be made. Also, India being a state of several languages, people are
280 also finding difficulty in responding to the details asked in account opening application
cum KYC form, by not finding the form in their local language (Revathy, 2013). In regard
to the process of updating the KYC documents of the existing account holders, certain
banks have the practice of freezing the accounts of the account holders who have not
submitted their KYC documents, instead of closing the accounts with due notice as per
the Reserve Bank of India regulation. This is because the banks have considered that the
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freezing of the account is less harmful compared to the closure of the account. This has
placed the customers in unfavourable situations. In the recent past, in a court case
seeking bail for the purpose of submitting the KYC documents, the judiciary[2] ordered
that personal presence of the account holder is not a must and the documents can be
submitted through an authorized representative of the account holder. The court also
held that if the KYC documents are not submitted, the bank would neither have the right
to freeze the account nor it could stop the cheque book or ATM facility. However, the
bank reserves the right to close the account in the case of non-submission of documents
under KYC after repeated requests and with prior intimation to the customer. The court
considered that freezing the account is not less prejudicial to the closure of account
because in the case of freezing the account, the account holders are deprived of using
their monetary property held in their bank accounts, whereas the bank is supposed to
refund the money held in the account at the time of closure of the account. In Nepal, the
huge paper work imposed by some of the banks in the name of KYC resulted in keeping
the people away from opening new accounts (Shreshtha, 2013).
It is apparent from the review of related literature that very few studies have been
conducted on the awareness of ML/TF risks. No study was conducted to the best of our
knowledge to assess the awareness and acceptance of banking customers towards AML
system in India. Thus, the present study was conducted to achieve the following
objectives.

2. Objectives
This study is intended to assess the bank’s customers’:
• Level of knowledge about ML and TF, its governing laws, KYC and its
importance and about FIU-India;
• Level of acceptance to certain KYC and AML practices of banks; and
• Issues in following the bank’s AML practices.

3. Research approach
Descriptive type of research design was considered to achieve the objectives of the
present study. The target population was the persons holding bank account above the
age of 18 years and residing in the regions of Puducherry and Chennai. The Union
Territory of Puducherry has 100 per cent financial inclusion and relatively has a good
literacy rate (86.5 per cent). Chennai is the fourth most populous metropolitan area with
 a literacy rate of 90.18 per cent, and it is the fourth largest economy in India. Convenience Anti-money
sampling was adopted to select the sample from Puducherry and Chennai regions. laundering
Because there was no survey tool available in the literature addressing the objectives
of the present study, the present questionnaire was developed which includes
practices
closed-ended statements on a five-point Likert scale. It was sectioned into four parts as
follows:
(1) Demographics, such as age, gender, location, educational level, occupation and 281
so forth.
(2) Awareness about ML and TF and KYC’s guidelines and importance: A few
dichotomous questions to understand the customer’s awareness of the term
“Know your customer”. A total of 19 statements to capture awareness on the
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aspects: ML and TF, KYC requirements and its importance, AML/CFT

legislation and about FIU-India. The meanings of the words “Money
Laundering” and “Financing of Terrorism” were explained to avoid bias in
results as majority were found, during the course of discussions held with the
customers, unaware of the nomenclature though they were quite aware of the
issues when explained what they meant. A five-point Likert scale of 1 to 5 was
used where 1 ⫽ no idea, 2 ⫽ fair, 3 ⫽ average, 4 ⫽ good, 5 ⫽ very good. A total
awareness score of each participant under each aspect was computed and then
this total score is classified into groups – low, medium and high – using the
Visual binning tool in SPSS.
(3) Acceptance to KYC and AML practices of banks: A total of ten statements to
capture the customer’s acceptance towards information disclosure, information
updation, transaction reporting and freeze/closure of customer account. A
five-point Likert scale of 1 to 5 was used where 1 ⫽ strongly disagree and 5 ⫽
strongly agree. The “strongly disagree” indicates “not acceptable”, whereas
“strongly agree” denotes “acceptable”. Some statements were framed on a
negative note. These statements were recoded and then the total acceptance
score was calculated.
(4) Challenges: A total of 11 statements to capture the constraints of customers in
following the KYC practices of banks on a five-point Likert scale of 1 to 5, where
1 ⫽ strongly disagree and 5 ⫽ strongly agree.

The validity of the questionnaire was assessed by the experts from the academic and
banking field. A pilot survey was carried out on 40 customers of the banks to assess the
appropriateness of wording, clarity and reliability of the questionnaire. All the
observations were reviewed again by the experts to reach the final form of
the questionnaire.
The responses were collected through survey method by administering the
structured questionnaire directly and through online. In case of the persons who felt
convenient to respond to the questionnaire in their native language, interview schedule
was adopted to record the data. The data for the present study has been collected during
June-December 2014. All data were coded and analysed using the SPSS software.
Descriptive statistics, such as mean, percentage and standard deviation, were used.
Mann-Whitney U test and Kruskal-Wallis test were applied to find out the significant
difference in the groups of demographic factors w.r.t the awareness and acceptance level
 JMLC of participants. The relationship between the customer’s awareness and acceptance was
19,3 examined using spearman’s rank order correlation (␳). Significance was considered at
p ⱕ 0.05.

5. Results and discussion

Overall, 540 questionnaires were distributed to the customers of the bank. A total of 416
282 completed questionnaires were received giving a response rate of 77 per cent. The data
were collected from students, academicians, professionals, business persons, NGOs, etc.
The Cronbach’s alpha showed satisfactory internal consistency score of 0.830.

5.1 Description of the sample

Majority of the participants were males 248 (59.6 per cent) and 168 (40.4 per cent) were
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females. Most of them belonged to the age group of 26-40 years (49.8 per cent). More than
half of the participants (56.2 per cent) had completed their post-graduation and majority
were employed in government sector (31.5 per cent) (Table I). Most of the participants

Category Response category No. of respondents

Gender Male 248 (59.6)

Female 168 (40.4)
Total 416
Age 18-25 95 (22.8)
26-40 207 (49.8)
41-60 97 (23.3)
Above 60 17 (4.1)
Total 416
Literacy level Illiterate 0 (0)
Primary/Secondary education 8 (1.9)
Under graduation (UG) 136 (32.7)
Post-graduation (PG) 234 (56.2)
Others 38 (9.1)
Total 416
Occupation Government service 131 (31.5)
Private service 110 (26.4)
Self-employed 34 (8.2)
Retired 11 (2.6)
Students 100 (24)
Others 30 (7.2)
Total 416
Region Pondicherry 134 (32.2)
Chennai 282 (67.8)
Total 416
Location Metropolitan 214 (51.4)
Urban 145 (34.9)
Semi-urban 47 (11.3)
Table I. Rural 10 (2.4)
Demographic Total 416
characteristics of the
study participants Note: Figures in parentheses indicate number of respondents in %
 were the customers of the public sector banks (57.9 per cent), followed by the private Anti-money
sector (39.2 per cent) and the foreign sector (2.9 per cent) (Table II). laundering
practices
5.2 Customer awareness on money laundering and Anti-Money Laundering aspects
More than half of the participants (n ⫽ 244, 58.7 per cent) had heard about the term
“Know Your Customer (KYC)”. Of these customers, 39.2 per cent stated that KYC
denotes to the act of customer identification. Remaining of them interpreted it as the 283
term related to customer relationship (15.9 per cent), customer loyalty (1.4 per cent) and
others (2.2 per cent). Thus, only 39.2 per cent were aware of what “know your customer”
means. Many of the customers (n ⫽ 341, 82 per cent) said that the bank staff had never
explained them about KYC and its importance.
Table III shows distribution of participants according to their knowledge score. It
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showed that the level of awareness of majority of participants was generally low with
regard to usage of banks by the criminals as a channel for ML and TF activities (n ⫽ 259,
62.3 per cent), reporting function of the banks (n ⫽ 293, 70.4 per cent), AML and CFT
legislation (n ⫽ 359, 86.3 per cent) and about the existence of FIU-India and its function
(n ⫽ 403, 96.9 per cent). The awareness was considerably good, where more than half of
the participants showed medium and high level of awareness with regard to ML activity
and its impact (n ⫽ 260, 62.5 per cent). The level of awareness on customer identification
requirements and its importance was quite high (n ⫽ 396, 95.2 per cent). Further
analysis of the responses using the frequency distribution revealed (Table IV) that
participants (n ⫽ 252, 60.5 per cent) had shown considerably good level of awareness on
the impacts of ML compared to the awareness on the process of conversion of black money
into white money i.e. ML activity (n ⫽ 215, 51.7 per cent). This might be mostly because of
the strong belief among the public that anything related with black money has an adverse

Bank sector No. of respondents

a
Public 241 (57.9)
Private 163 (39.2)
Foreign 12 (2.9)
Total 416 Table II.
Distribution of
Notes: a Majority of the participants from the private and foreign-sector banks were also the sample according to
customers of public-sector banks. However, this number is not included in this category; figures in the type of the
parentheses indicate number of respondents in % banking sector

Awareness level
Low Medium High

Money laundering and its impact 156 (37.5%) 104 (25%) 156 (37.5%) Table III.
Terrorism financing 188 (45.2%) 81 (19.5%) 147 (35.3%) Distribution of
Banks used as a channel for ML/TF activities 259 (62.3%) 79 (19%) 78 (18.8%) respondents
Customer identification norms and its importance 20 (4.8%) 121 (29.1%) 275 (66.1%) according to their
Reporting function of the banks 293 (70.4%) 65 (15.6%) 58 (13.9%) level of awareness on
AML and CFT legislations 359 (86.3%) 46 (11.1%) 11 (2.6%) money laundering
FIU-India as an institution and its role 403 (96.9%) 10 (2.4%) 3 (0.7%) and KYC
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19,3

284
JMLC

awareness
Table IV.

of participant’s
Descriptive statistics
% of responses
Statements No idea Fair Average Good Very good Mean SD

Money laundering and impact: 3.04 ⫾ 1.53

1. I am aware of “Money laundering” (i.e. process of disguising black money to make it appear 32.7 15.6 19.5 16.3 15.9 2.67 1.46
as white money) activity
2. Money laundering promotes bribery and corruption 20.7 19 16.1 19.2 25 3.09 1.48
3. Money laundering increases crime 19.7 23.3 8.7 21.4 26.9 3.13 1.51
4. Money laundering affects our economy and nation 16.6 14.2 12.7 20.7 35.8 3.44 1.50
5. Money laundering increases terrorist activities 31.5 14.2 9.9 20.4 24 2.91 1.60

Terrorism financing: 2.95 ⫾ 1.48

6. I am aware of “Financing of Terrorism” (i.e. supply of funds for terrorist activities) 19.2 15.4 16.6 28.4 20.4 3.15 1.41
7. Donations are the major source of financing of terrorism 33.2 13.5 16.3 18 19 2.76 1.53

Bank as a channel for ML/TF activities: 2.4 ⫾ 1.35

8. Banks are used for money laundering activities 31.2 17.5 22.1 12.7 16.3 2.65 1.44
9. Banks are used as a channel for financing terrorist activities 39.9 24 21.9 8.4 5.8 2.16 1.20

Customer identification norms and its importance: 3.99 ⫾ 1.11

10. I am aware of providing address proof and identity proof for opening an account in the bank 2.9 0.5 23.6 39.9 33.2 4 0.92
11. I understand the importance of providing the address and identity proof to the bank 3.8 3.1 8.9 33.2 51 4.24 1.0
12. I know the importance of providing information about the nature of job, purpose of opening 3.8 13.2 16.6 21.2 45.2 3.91 1.21
account, source of income, etc. to the bank
13. Knowing the customer details and establishing the identity of the customer helps banks to 10.3 3.8 16.6 32.7 36.5 3.83 1.25
prevent financial frauds

Reporting function: 2.35 ⫾ 1.22

14. Banks are required to report certain transactions of the customers to the concerned authority 46.6 27.9 12.3 6.5 6.7 2.03 1.21
15. Reporting is necessary to detect money laundering activities 15.9 27.6 32.9 15.9 7.7 2.72 1.14

AML & CFT law: 1.63 ⫾ 0.94

16. I am aware of the Prevention of Money Laundering Act 58.2 19.5 16.8 3.4 2.2 1.74 1.00
17. I am aware of the Unlawful Activities (Prevention) Act 63.5 22.4 11.1 1.4 1.7 1.57 0.875

FIU: 1.33 ⫾ 0.64

18. I am aware of the Financial intelligence unit-India (FIU-India) 64.9 25.7 7 1.4 1 1.49 0.77
19. I understand the role of FIU-India 82.5 15.6 1.7 0.2 0 1.20 0.45
Overall mean awareness score 2.76 ⫾ 1.52
 impact on the progress of the Nation. Though many were not aware of the reporting Anti-money
requirement of the banks (n ⫽ 293, 70.4 per cent), about 56.5 per cent (n ⫽ 235) had an laundering
understanding on the importance of reporting by the banks in detecting ML activities.
practices
5.3 Customer acceptance to Anti-Money Laundering practices
Table V presents the distribution of participants’ responses to the statements on certain
AML practices of the banks. Of the total attitude score of 50, the mean acceptance score 285
of 31.17 ⫾ 4.67 by the survey participants indicated that majority of the respondents had
chosen undecided/neutral position against the statements. The frequency distribution
showed that 97.4 per cent were ready to provide their identification documents to the bank.
About half of the respondents (54.8 per cent) were not ready to disclose information like their
annual income, value of assets, details of accounts in other banks, etc., which generally some
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banks ask through their account opening cum KYC application form during account
opening. However, only 35.6 per cent stated that they prefer to provide false information for
such details. Most of the participants (64.5 per cent) showed reluctance to update their KYC
particulars when there was no change in the existing particulars. Half of the participants also
felt that banks in their process of complying with guidelines on periodic updation of KYC
should not freeze the accounts of customers failing to resubmit the KYC documents;
however, 64.2 per cent acknowledged that the banks can close the account in case of the
customer’s non-compliance to KYC requirements. The acceptance level with regard to the
reporting function of banks was low (2.71 ⫾ 1.19). About 68.3 per cent expressed that banks
should not disclose the details of their transactions to any third party, including financial
intelligence units; some showed reluctance (40.9 per cent) to perform certain transactions
through banks if the transactions were reportable. Few even expressed that they may prefer
to close the account in case their transactions got reported (34.6 per cent).

5.4 Association of customer’s awareness and acceptance with participant’s

characteristics
Table VI shows that the level of awareness was significantly associated with the
following characteristics: gender (Z ⫽ ⫺5.98, p ⫽ 0.00), age group (␹2 ⫽ 39.269, p ⫽
0.00), educational level (␹2 ⫽ 39.648, p ⫽ 0.00), occupation (␹2 ⫽ 13.381, p ⫽ 0.02),
location (␹2 ⫽ 14.69, p ⫽ 0.00) and bank sector (␹2 ⫽ 17.17, p ⫽ 0.00). The awareness in
male participants (mean rank ⫽ 237.51) was higher than female participants (mean rank ⫽
165.68). The awareness level was higher in the age group 26-40 years and was found to
significantly differ from age groups 18-25 (z ⫽ ⫺5.259, p ⫽ 0.00) and 41-60 (z ⫽ ⫺4.645,
p ⫽ 0.00). The awareness level was higher in the participants belonging to the “other”
education category that comprised diploma holders, certificate holders, etc. (mean
rank ⫽ 269.76), followed by the participants with post-graduation (mean rank ⫽ 228.06).
Surprisingly, the participants with only secondary education also exhibited a higher
awareness level (mean rank ⫽ 202.69) comparing to the participants with under
graduation (mean rank ⫽ 158.72). The awareness levels also differed significantly in the
participants based on the type of bank sector. The foreign bank’s customers exhibited a
higher level of awareness (mean rank ⫽ 341.33), comparing to the customers of private
sector (mean rank ⫽ 218.45) and public sector (mean rank ⫽ 195.15) banks. This may be
because of the fact that the customers of foreign banks are exposed to the advanced
services of banks like the wealth management services, and they generally evolve
beginning with a public bank then moving on to a private or a foreign bank. Thus,
 JMLC % of responses
19,3 Statements SD MD N MA SA Mean SD

Information disclosure: 3.64 ⫾ 1.435

1. I am ready to provide my true identity 1.7 0 0 1 97.4 4.92 0.52
and address proof to the bank
286 2. I am not ready to disclose certain 8.9 26.4 9.9 34.4 20.4 3.31 1.3
information (such as details of my other
accounts with banks, annual income,
value of my assets, source of funds etc.)
to the bank
3. I prefer to provide incorrect information 22.8 27.9 13.7 31 4.6 2.67 1.256
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for such details (as mentioned in the

above statement) if asked to be provided
compulsorily
KYC updation: 2.94 ⫾ 1.169
4. I will update my KYC particulars if it 2.9 14.4 25.7 39.7 17.3 3.54 1.029
experiences any change
5. I am reluctant to provide my KYC 3.4 9.9 22.4 47.4 17.1 3.65 0.985
documents to banks at regular intervals
(say for e.g. every three or five years)
when there is no change in the KYC
particulars
Transaction reporting: 2.71 ⫾ 1.19
6. Bank should not report any of the 3.8 8.9 19 34.4 33.9 3.86 1.101
customer information/transaction to any
third party, including income tax office,
and financial intelligence unit
7. I am reluctant to perform certain 6 20.4 32.7 35.1 5.8 3.14 1.004
transactions through banks in case banks
report such transactions
8. I prefer to close the account with the 16.1 25.7 23.6 25.5 9.1 2.86 1.227
bank if my transactions got reported
Freeze and closure of customer accounts: 3.09 ⫾ 1.192
9. Bank should not suspend the customer 6.2 27.6 16.1 30.8 19.2 3.29 1.234
transactions, such as withdrawal of
money, transfer of money, honoring of
cheques, etc., in case the customers fail to
submit the KYC documents after repeated
requests
10. Bank can close the account with due 2.4 21.4 12 54.1 10.1 3.48 1.013
intimation to the account holder in case of
the customers who fail to submit the KYC
documents after repeated requests by
Table V. banks
Acceptance of Overall acceptance score 3.11 ⫾ 1.317
participants towards
KYC and AML Notes: SD ⫽ strongly disagree; MD ⫽ mildly disagree; N ⫽ neutral; MA ⫽ mildly agree; SA ⫽
practices of banks strongly agree
 Characteristics Awareness M ⫾ SD Acceptance M ⫾ SD
Anti-money
laundering
Gender practices
Male 56.43 ⫾ 15.72 30.78 ⫾ 5.11
Female 46.93 ⫾ 13.54 31.76 ⫾ 3.88
Z ⫽ ⫺5.980, p ⫽ 0.00* Z ⫽ ⫺1.762, p ⫽ 0.07
Age 287
18-25 46.83 ⫾ 14.28 31.49 ⫾ 3.87
26-40 57.16 ⫾ 15.32 31.93 ⫾ 4.13
41-60 47.9 ⫾ 15.13 29.69 ⫾ 5.81
Above 60 56 ⫾ 9.5 28.59 ⫾ 5.23
␹2 ⫽ 39.269, p ⫽ 0.00* ␹2 ⫽ 19.572, p ⫽ 0.00*
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Education level
Secondary education 52.12 ⫾ 10.60 29.25 ⫾ 2.43
UG 46.26 ⫾ 14.73 30.71 ⫾ 5.20
PG 54.97 ⫾ 15.35 31.57 ⫾ 4.49
Others 60.74 ⫾ 13.22 30.76 ⫾ 3.88
␹2 ⫽ 39.648, p ⫽ 0.00* ␹2 ⫽ 3.839, p ⫽ 0.279
Occupation
Government service 49.98 ⫾ 15.05 32.24 ⫾ 4.18
Private service 55.77 ⫾ 15.59 31.37 ⫾ 5.02
Self-employed 48.44 ⫾ 18.67 28.32 ⫾ 6.11
Retired 57.64 ⫾ 8.07 25.91 ⫾ 4.30
Student 52.48 ⫾ 15.82 30.67 ⫾ 3.91
Others 55.60 ⫾ 12.65 32.6 ⫾ 3.13
␹2 ⫽ 13.381, p ⫽ 0.02* ␹2 ⫽ 28.629, p ⫽ 0.00*
Location
City 54.82 ⫾ 15.83 31.80 ⫾ 4.49
Urban 48.88 ⫾ 15.46 29.71 ⫾ 4.53
Semi-urban 54.83 ⫾ 13.63 32.60 ⫾ 5.26
Rural 48.30 ⫾ 10.10 32.20 ⫾ 1.93
␹2 ⫽ 14.697, p⫽ 0.02* ␹2 ⫽ 19.93, p ⫽ 0.00*
Bank sector Table VI.
Public sector 50.79 ⫾ 15.06 30.97 ⫾ 4.285 Association of the
Private sector 54.06 ⫾ 16.02 31.53 ⫾ 5.30 mean scores of
Foreign sector 69 ⫾ 5.98 30.42 ⫾ 2.64 customer’s
␹2 ⫽ 17.178, p ⫽ 0.00* ␹2 ⫽ 4.102, p ⫽ 0.12 awareness and
acceptance with their
Notes: Z ⫽ Mann-Whitney U test was applied; ␹2 ⫽ Kruskal-Wallis test was applied; * p ⬍ 0.05 characteristics

apparently a higher level of awareness is expected in the customers of foreign banks.

However, the effect of these demographic variables and the type of bank sector on the
awareness levels was small (r ⬍ 0.3)[3].
When testing the association between the total score of acceptance and participant’s
characteristics, the following variables were found to be significantly associated: age
(␹2 ⫽ 19.572, p ⫽ 0.00), occupation (␹2 ⫽ 28.629, p ⫽ 0.00) and location (␹2 ⫽ 19.93, p ⫽ 0.00).
The acceptance level was higher in the age group 26-40 years (mean rank ⫽ 226.49) and was
 JMLC found to significantly differ from the age groups 41-60 years (z ⫽ ⫺3.828, p ⫽ 0.00) and
19,3 above 60 years (z ⫽ ⫺2.425, p ⫽ 0.01); however, the effect of age on acceptance level was
small (r ⬍ 0.3).

5.5 Relationship between customer awareness and acceptance on certain Anti-Money

288 Laundering aspects
A significant positive and moderate association (␳ ⫽ 0.361, p ⫽ 0.00) was found between
the awareness on customer identification requirements and importance and acceptance
to information disclosure. No relationship was found (p ⬎ 0.05) between the awareness
on reporting function and acceptance to the reporting practices of banks. A significant
positive but very weak association was obtained between the awareness on AML/CFT
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legislation and acceptance to information updation (␳ ⫽ 0.188, p ⫽ 0.00). A significant

but negative association was found between the awareness on AML/CFT legislation
and acceptance to reporting function (␳ ⫽ ⫺0.101, p ⫽ 0.03), and freeze/closure of
account (␳ ⫽ ⫺0.113, p ⫽ 0.02).

5.6 Customer issues in the implementation of Know Your Customer measures by banks
Quite a number of participants (n ⫽ 157, 37.7 per cent) indicated that they had faced
discomfort from the banks in the name of KYC. They expressed grievance with the current
process of account opening procedures (n ⫽ 154, 37 per cent). Some participants felt that
(n ⫽ 155, 37.3 per cent) the filling of account opening cum KYC application is of huge
paperwork. Also participants exhibited difficulty (n ⫽ 113, 27.1 per cent) in understanding
the account opening/KYC form because it is not available in their native language. About
41.8 per cent (n ⫽ 174) acknowledged that there is difficulty in providing the proof of current
address as demanded by the bank. Participants (n ⫽ 157, 37.7 per cent) agreed that in the
case of non-availability of address proof in the name of customer, the bank did not accept the
declaration from any of the customer’s close family members who got the address proof. Few
participants stated that (n ⫽ 82, 19.8 per cent) bank has blocked their deposit accounts
without prior notice because the KYC documents were not resubmitted, which generally
banks demand to meet the guidelines on periodic updation of KYC. Also they (n ⫽ 161, 38.7
per cent) stated that bank is asking the account holder to come in person for resubmitting
the KYC documents. The participants (n ⫽ 158, 38 per cent) also expressed that during the
course of account transfer from one branch to another, the bank is insisting to submit all the
KYC documents once again. About one-fourth of the participants (n ⫽ 102, 24.5 per cent) felt
that the bank staff were not helpful in resolving the KYC related issues. They (n ⫽ 139, 33.4
per cent) felt that lack of proper and timely guidance by the banker for fulfilling the
formalities of account opening has affected their account opening process.
Few other comments stated by some of the participants were:
It is not necessary to get the social identities of an individual like caste and religion to open the
account.
When I go with updated address proof, the bank people does not care and feel that it is a
burden.
The middle class customers are unduly targeted leaving upper and lower class customers.
 6. Summary Anti-money
Awareness on the importance of AML controls and acceptance to the AML measures laundering
among bank customers can act as a facilitator for the effective implementation of AML
guidelines by the banks. In this present study:
practices
• Majority of the respondents showed low level of awareness on usage of banks as
a channel for ML and TF activities, reporting function of the banks, AML and
CFT legislation, and about the existence of FIU-India and its function. The 289
awareness level was considerably good with regard to ML and customer
identification requirements.
• The low level of awareness was significantly evident among female respondents,
and in the participants falling in the age groups 18-25 and 41-60 years.
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• The awareness level in the customers of public sector banks was lower comparing
to the private and foreign sector banks.
• A statistically significant difference was evident in the acceptance levels of the
participants based on age, occupation and location. The acceptance level was higher
in the age group 26-40 years and in the customers belonging to the rural location.
• More than half of the participants were reluctant to update their KYC particulars
when there was no change in the existing information.
• Above 50 per cent of the participants felt that banks should not disclose the details of
their transactions to any third party, including income tax officials and financial
intelligence units.

7. Recommendations and Conclusion

The study highlights that still many people are unaware of the importance of some of the
AML measures, such as reporting function, the existence of FIU and AML/CFT laws. In
India, money laundering is referred by the media only in the context of its predicate offence,
mostly Corruption. There is no prime focus in the media on the offence of money laundering,
its modus-operandi, and its consequences. To increase the level of acceptance in public
towards AML measures, there is a necessity to emphasize money laundering as a serious
offence in the minds of public and educate them on the counter measures adopted by the
banks and other sectors. Therefore, there is a need to undertake public awareness campaigns
on the importance of AML/CFT system by the RBI or FIU-India or both, and particularly by
the government, apart from the display of AML/KYC requirements in the bank’s websites
and premises. This will help the banks to control the threat of customer alienation and
thereby strengthen the bank– customer relationship. Further, confidence should be built up
in the public that these laws will not unduly target the middle class but will help in
controlling the crime, in seizing the black money and convicting the criminals to increase
public acceptance to AML/CFT measures.

Notes
1. Reserve Bank of India master circular on KYC norms/AML standards/CFT/Obligation of
banks under PMLA 2002, dt. July 1, 2014.
2. In Gujarat High Court – criminal miscellaneous application No. 5100 of 2012 – oral order dated
30/04/2012 – State Bank of India Chandkheda branch versus Ashvin chaturbhai Parmar.
3. r ⫽ Z/Sqrt (N); interpretation of r using Cohen’s effect size estimate.
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About the authors

Viritha B. is a Research Scholar at the Department of Banking Technology, School of Management,
Pondicherry University. Her area of interest is banking and compliance and information security in
banks. Currently, she is working in the area of KYC and money laundering. Viritha B. is the
corresponding author and can be contacted at: b.virithareddy@gmail.com
Dr Mariappan V. is an Associate Professor at the Department of Banking Technology, School
of Management, Pondicherry University. He earlier worked as an Associate Professor at Vaikunth
Mehta National Institute of Cooperative Management, Pune. He was also a trainer for cooperative
and rural banks. He is having a teaching experience of 16 years and has published many articles
of national and international repute. His areas of interests are strategic finance, banking and bank
marketing, cyber crimes and IT laws. He is associated with project consultancy works of Govt. of
Kerala, Govt. of Tamil Nadu, NCDC, New Delhi and BIRD, Lucknow.

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