Prevention of Money Laundering (ML) and

Combating Financing of Terrorism (CFT)

 Topics for Discussion

1. What is Money Laundering ?

2. Introduction and stages of money laundering
3. Money laundering techniques in India and Global
4. How Money Laundering takes place?
5. Terrorist Financing
6. Laws related to money laundering
7. Penal Provisions
8. How to track Money Laundering?
9. Challenges to curb money laundering
10.Live Cases
Objectives of Program

PMLA Brief and Requirements

FIU Set Up in India and Reports

Attempted Suspicious Transactions

Modus Operandi-Placement, Layering &

Integration

Key 14 Points for successful compliance of

AML

Dos and Don'ts

 What is Money Laundering
Any act or attempted act to conceal or disguise the identity of illegally
obtained proceeds so that they appear to have originated from legitimate
sources.
In other words, it is the process used by criminals through which they
make dirty money appear clean
Extortion
Drugs/Arms Appears to originate
Trafficking From Legitimate
Terrorism source

Criminal Activity Illegally

obtained money
 Money
Laundering
Money Laundering is
the practice of disguising
illegally obtained funds so
that they seem legal. It is a
crime in many jurisdictions
with varying definitions.
It is a key operation of
the underground
economy.
What is Money
Laundering?
'Money Laundering' is the
process by which illegal
funds and assets are
converted into legitimate
funds and assets.
ILLEGAL or DIRTY money
is put through a cycle of
transactions or washed so
that it comes out the other
end as LEGAL or CLEAN
money.
Money Laundering-
Definition
Section 3 of the Prevention of
Money Laundering Act (PMLA),
2002 defines the 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.
Who is Guilty of Money Laundering?

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
 Overview of Money
INTEGRATION
INTEGRATION
Laundering
PLACEMEN
JUSTIFICATIO
JUSTIFICATIO INTEGRATI
INTEGRATI
PLACEMEN N
N
LAYERING
LAYERING ON
ON
T
T INVESTMEN
INVESTMEN
GOAL GOAL
GOAL T
T
GOAL
GOAL GOAL CREATE
SOURCE
SOURCE CONCEAL CREATE AN
AN
DEPOSIT
DEPOSIT CONCEAL THE
THE APPARENT
OF APPARENT LEGAL
LEGAL GOAL
GOAL
OF ILLEGAL
ILLEGAL FUNDS
FUNDS
CRIMINAL
CRIMINAL ORIGIN
ORIGIN ORIGIN
ORIGIN FOR
FOR USE
INCOME
INCOME INTO
INTO FINANCIAL
FINANCIAL
OF
OF PROCEEDS
PROCEEDS USE CRIMINAL
CRIMINAL
CRIMINAL
CRIMINAL
SYSTEM PROCEEDS
PROCEEDS FOR
FOR
SYSTEM PROCEEDS
PROCEEDS PERSONAL
PERSONAL
BENEFIT
BENEFIT
CREATING
CREATING
FICTIOUS
FICTIOUS
LOANS/TURNOVER/
LOANS/TURNOVER/
TAX
TAX CRIMES
CRIMES SAES,
SAES,
FRAUD
FRAUD DEEDS/CONTRACTS
DEEDS/CONTRACTS
EMBEZZLEMEN
EMBEZZLEMEN
CHANGE
CHANGE OF
OF WIRE
WIRE TRANSFERS
TRANSFERS /FINANCIAL
/FINANCIAL
TT
CURRENY
CURRENY CASH
CASH STATEMENTS
STATEMENTS
DRUGS
DRUGS
CHANGE
CHANGE OF
OF WITHDRAWALS
WITHDRAWALS DISCUSS
DISCUSS
THEFT
THEFT
DENOMINATIONS
DENOMINATIONS CASH
CASH DEPOSIT
DEPOSIT IN
IN OWNERSHIP
OWNERSHIP OF OF LIQUIDITY
LIQUIDITY
BRIBERY
BRIBERY
OTHER BANKS
OTHER BANKS ASSEST
ASSEST +CASH
+CASH ININ HAND
HAND
CORRUPTIO
CORRUPTIO
TRANSPORTATION
TRANSPORTATION SPLIT
SPLIT AND
AND MERGE
MERGE CRIMINAL
CRIMINAL FUNDS
FUNDS CONSUMPTION
NN CONSUMPTION
OF
OF CASH
CASH BETWEEN
BETWEEN BANK
BANK USED IN THIRD
USED IN THIRD INVESTMENT
INVESTMENT
CASH
CASH DEPOSITS
DEPOSITS ACCOUNTS
ACCOUNTS PARTY
PARTY
TRANSACTION
TRANSACTION
 PLACEME
NT disposal) of dirty cash
The initial entry (physical or proceeds
of crime in the financial system

COMMON METHODS OF PLACEMENT:

LOAN
REPAYEMEN SMURFING
T

CURRENCY
GAMBLING EXCHANGE
S

CURRENCY BLENDING
SUMUGGLIN FUNDS
G
HAWALA
 Layerin
The separation
g
of illicit ELECTRONI
C FUND
proceeds from their source by TRANSFER
creating complex layers of S
financial transactions
SHELL
Complex series of transfers COMPANIE
instead of straight one to S
one transfers

Meticulously planned INTERMED

IARIES
transaction to disguise the
audit trail & provide
anonymity
INSURANC
E POLICIES
Money Laundering process
Theft Tax evasion Fraud
Human trafficking
Robbery
Prostitution
Arms smuggling

Drug trafficking
Corrupt
 Placement
Where this Money is
Placed?
Investment in Emerging
Overseas markets
Money Exchange Bureau
Car / Boats / Antiques
Precious Metals
Estates
Travel
Cash Incentive Business
Friends & Relatives
What is smurfing?-
explained
 Gambling

Electronic Transfer
 Layering
Funds Transfer through Electronic
Mode
 Integration
Credit and Debit Cards
 Prevention of Money Laundering Act (PMLA) - 2002
The PMLA 2002 was enacted on Jan 15, 2003 and
forms the core of the legal framework put in place
by India to combat money laundering and related
crimes.
PMLA and Rules notified there under came into
force from July 1, 2005.
Director, FIU-IND and Director (Enforcement)
have been conferred with exclusive and concurrent
powers under relevant sections of the Act to
implement the provisions of the Act.
Criminalizes Money Laundering.
Establishes fines and sentences for Money Laundering
offences.
Imposes reporting and record keeping requirements on
Financial Institutes (F.I.)
Provides for the seizure and confiscation of criminal
proceeds.
Effects of
Money
Laundering
Socio- Cultural Effects:
This success encourages
criminals to continue their
illicit schemes; that gives birth
to more fraud, more corporate
embezzelement, more drugs
on the streets and, more drug-
related crime.
Consequently Law-
enforcement resources are
stretched beyond their means
and there is a general loss of
morale on the part of
legitimate business people
who dont break the law and
dont make the profits that
the criminals do.
Economic Effect:
Money laundered is usually untaxed it, therefore,
deprives Governments of tax revenues thereby
raising the relative burden of honest citizens as
they have to make up the loss in tax revenue.
Legitimate small business cant compete with
money-laundering front businesses that can
afford to sell a product much cheaper because
their primary purpose is to clean money, not to
turn a profit. They have so much cash coming in
that they might even sell a product or service
below cost.
Effects on Financial Institutions:
Affects legally because of the obligations placed
on them by legislation.
Affects financially because of the need for
compliance. The money laundering regulations
require financial institutions to put in place
systems to check money laundering, and to
assist the relevant authorities to deter money
laundering activities.
 Legislation
&
International Co-operation
 Financial Action Task Force (FATF)
Formed in 1989 by the G-7 countries.
The FATF is an Inter-Government body
which sets standards, develops and
promotes policies to combat money
laundering and terrorist financing.
 Financial Action Task Force (FATF)
Formed in 1989 by the G-7 countries.
The FATF is an Inter-Government body
which sets standards, develops and
promotes policies to combat money
laundering and terrorist financing.
Activities
Creating a comprehensive
framework for combating money
36 Countries (Including laundering and terrorist financing.
India)-34 members and 2 Asking all countries to take
regional organizations. necessary steps to bring their
8 Associate Members national systems on PML and CFT in
21 Observers line with FATF guidelines.
Exchanging information on PML and
5 Regional Bodies
CFT between all countries.
40 FATF Recommendation as on February 15, 2012
40 FATF Recommendation as on February 15, 2012 (Cont.)
40 FATF Recommendation as on February 15, 2012 (Cont.)
40 FATF Recommendation as on February 15, 2012 (Cont.)
Combating
Financing of
Terrorism
(CFT)
 Terrorist Financing Indicative Red
Flags
Frequent Address changes
Frequent domestic and international ATM activity
Purchase of military items or technology
Use of wire transfers and the Internet to move funds to and
from high risk countries and geographic locations
Funds generated by a business owned by nationals of countries
associated with terrorist activity
Charity/relief organization linked transactions
Currency exchange, buying/selling foreign currencies from
various countries in the Middle East.

Funding activities distinct to terrorism

Direct sponsorship by certain states
Contributions and donations
Sale of publications (legal and illegal)
 Terrorist Financing (CFT) -
Caution
Banks, before opening any new account, must ensure that the names of the
proposed customer does not appear in the sanctions lists.
Further, banks should also scan all existing accounts to ensure that no
account is held by or linked to any of the entities or individuals included in
the sanctions list.
Full details of accounts bearing resemblance with any of the individuals/
entities in the sanctions list should immediately be intimated to RBI and
FIU-Ind.
In case, the particulars of any of the customers match with the particulars of
designated individuals/entities, inform, immediately, not later than 24
hours from the time of finding out such customer, full particulars of
the funds, financial assets or economic resources or related services held in
the form of bank accounts, held by such customer on their books to the Joint
Secretary (IS-I), MHA, at Fax No. 011-23092569 and also convey over
telephone on 011-23092736. The particulars apart from being sent by post
should necessarily be conveyed on e-mail
 Attempted Suspicious
Transactions
Customer not opening account on being informed
of documentary requirement
Form rejected at branch end/ from RPU for
documentary lapse/ forged documents
Customer not going ahead with transaction on
being informed of documentary requirement
Internal negative list to be compulsorily updated-
link, process given in Other Links>>>AML>>>
AML User manual, mail to be sent to
amlcell@idbi.co.in
9/11 Terrorist Organisation Al-Qaeda probably spent on more
than US $ 500,000 to carry out this crime.
 Live Case of 9/11 Attack

The September 11 hijackers used U.S. and foreign financial

institutions to hold, move and retrieve their money.
Hijackers deposited money into U.S. accounts, primarily by wire
transfers and deposits of cash or travelers cheques brought
from overseas.
Funds kept in foreign accounts, which they accessed in the U.S.
through ATM and credit card transactions.
The plot cost Al Qaeda somewhere in range of US $ 400,000
500,000, of which, approximately $ 300,000 passed through the
hijackers bank accounts in the United States.
Hijackers spent money primarily for flight training, travel and
living expenses (such as housing, food, cars and auto
insurance).
19 hijackers opened 24 domestic bank accounts at 4
different banks by giving following Account /
Transactions Profiles :
Account Profiles :
Accounts were opened with cash/cash equivalents
in the average amount of $ 3,000 to $ 5,000.
Identification used to open the accounts were
visas issued through foreign governments.
Accounts were opened within 30 days after entry
into the U.S.
All accounts were normal checking accounts with
debit cards.
Hijackers tended to open accounts in groups of 3
or 4 individuals. Some of the accounts were joint
accounts.
Addresses used usually were not permanent (i.e.
mail boxes) and changed frequently.
Account Profiles (contd.):

The hijackers often used the same address / telephone

numbers on the accounts.
No savings accounts or safe deposit boxes were opened.
The hijackers opened their accounts at branches of large,
well-known banks.
Twelve hijackers opened accounts at the same bank.
Transaction Profiles :
Some accounts directly received / sent wire
transfer of small amounts from / to foreign
countries such as United Arab Emirates (UAE),
Saudi Arabia and Germany.
Hijackers made numerous attempts to cash
withdrawals that often exceeded the limit of the
debit card.
Transactions Profiles (contd.):

High percentage of withdrawals was from debit cards.

Low percentage of cheques was written.
Numerous balance inquiries were made.
After a deposit was made, withdrawals occurred
immediately.
There were not discernible pattern of timing of deposits /
disbursements.
Funding for daily expenditures was not evident from
transactions.
Overall transactions were below reporting requirements.
Funding of the accounts was by cash and overseas wire
transfers.
Uninterrupted series of transactions involving several
hijackers at the same ATM
 Why it gone unidentified ?
The money laundering controls in place
at the time were largely focused on
drug trafficking and large-scale
financial fraud and could not have
detected the hijackers transactions.
The controls were never intended to,
and could not, detects or disrupt the
routine transactions in which the
hijackers engaged.
Loss from 26/11 Taj attack put to Rs 400
crore
The terrorist attack on November 26, 2008 at
many places in Mumbai, including the Taj, a
heritage hotel, and the Oberoi and Trident hotels,
had resulted in the loss of over 160 lives and huge
damage to property.
Money Laundering Vs Terrorist Financing
 Financial Intelligence Unit (FIU)
FIU-IND was set-up by the Government of India on 18th November
2004 as the central national agency responsible for receiving,
processing, analyzing and disseminating information relating to
suspect financial transactions.
FIU-IND is also responsible for coordinating and strengthening
efforts of national and international intelligence, investigation and
enforcement agencies in pursuing the global efforts against money
laundering and related crimes.
FIU-IND is an independent body reporting directly to the Economic
Intelligence Council (EIC) headed by the Finance Minister
FUNCTIONS
Collection, Analysis and Sharing of information.
Act as Central Repository.
Coordinate and strengthen collection and sharing of financial
intelligence.
Monitor and identify strategic key areas on Money Laundering
trends
It will process and analyze received financial information
disseminate actionable intelligence in appropriate cases to
relevant enforcement agencies
 PMLA,2002 Amendments(August
2013)
Meaning of the word transaction is considerably
widened to address the requirements of all kinds of
reporting entities.
Officially valid documents accepted for KYC
Designated Director on Board to ensure overall
compliance
Maintenance and furnishing of information
Customer Due Diligence (CDD)
Beneficial Owner (BO)
Risk assessment
 Obligation to report
Suspicious Transaction (STR)

Bank is required to furnish information of all

suspicious transactions whether or not made
in cash to FIU-IND.

The suspicious transaction have to be reported

within 7 working days on being satisfied that
the transaction is suspicious.
 How to submit STR ?
Identify suspicious transaction or an activity.
Identify key players & related entities in the suspicious
transaction or activity.
Identify factual information available at your end.
Express the suspicion on transaction or activity correctly
under the grounds of suspicion.
Background / profile / occupation of the customer and other
related individuals / entities.
When did the relationship with the customers begin ?
How was suspicion detected ?
What information was linked or collected during the review
process ?
What explanation was provided by the subjects or other persons
(without tipping off).
Report within 7 days of confirmation of suspicion.
 Reporting
&
Freezing of Assets
Banks are advised to strictly follow the procedure laid down in the UAPA Order
dated August 27, 2009 and ensure meticulous compliance to the Order issued by
the Government.

Banks are advised that on receipt of the list of individuals and entities subject to
UN sanctions from RBI, they should ensure expeditious and effective
implementation of the procedure prescribed under Section 51A of UAPA in
regard to freezing/unfreezing of financial assets of the designated
individuals/entities enlisted in the UNSCRs and especially, in regard to funds,
financial assets or economic resources or related services held in the form of
bank accounts.

In case, the particulars of any of their customers match with the particulars of
designated individuals/entities, the banks shall immediately, not later than 24
hours from the time of finding out such customer, inform full particulars of the
funds, financial assets or economic resources or related services held in the
form of bank accounts, held by such customer on their books to the Joint
Secretary (IS.I), Ministry of Home Affairs, at Fax No.011-23092569 and also
convey over telephone on 011-23092736. The particulars apart from being sent
Punishment?

RI of 3 to 7 Years
Fine upto 5 Lacs

Narcotic Offences
RI upto 10 Years
what are the
risks?
Reputation Risk

It takes several
years to build
reputation and few
minutes to ruin it
 Operational
Risk

Loss on account of
failed process / people / systems /
external events
Compliance Risk

Loss due to failure of compliance

 Legal Risk
Loss due to any legal action against the bank
and its staff.
 Suspicious Transactions
Suspicious Transaction means a transaction whether
or not made in cash which, to a person acting in
good faith:

(a) give rise to a reasonable ground of suspicious that it

may involve the proceeds of crime; or
(b) appears to be made in circumstance of unusual or
unjustified complexity; or
(c) appears to have no economic rationale or
bonafide purpose; or
(d) Give rise to a reasonable ground of suspicion that it
may involve financing of the activities relating to
terrorism.
 Needle of Suspicion
Large value and volume of cash deposits followed by
immediate RTGS payment or transfer.
Large value of RTGS or transfer followed by immediate
withdrawals/ transfers.
Issuing large number of cheques.
Cash deposits across various branches followed by
withdrawals, transfer.
Frequent closure and subsequent opening of accounts.
Sudden activity in a dormant account.
Closing of an account followed by the opening of new
accounts in same name or by members of the clients
family.
 Needle of Suspicion (contd.)
High number of debit and credits by way of small
value cheques.
Large value inward remittance followed by cash
withdrawals.
Inward remittance to one account followed by small
value transfers to multiple accounts
Inward remittance from a high risk country followed by
cash withdrawal from a third party bank ATM located
in a sensitive area
Deposit and withdrawal of cash from multiple locations
in one account all being non base branches/ ATMs
 Examples of Suspicious Transactions

False Identification Documents

Welcome Kit returned.
No person found/address found to be false.
Identity Matching - Match with watch-lists
Name and DOB of account holder matched with
sanction list (UN Sanction List).
Transactions inconsistent with customers profile
(business)
Number of transactions in a period.
Value of transaction (s).
Turnover in Account.
Indicative Alert Indicators
 Terrorist Financing (CFT) -
Caution
Banks, before opening any new account, must ensure that the names of the
proposed customer does not appear in the sanctions lists.
Further, banks should also scan all existing accounts to ensure that no
account is held by or linked to any of the entities or individuals included in
the sanctions list.
Full details of accounts bearing resemblance with any of the individuals/
entities in the sanctions list should immediately be intimated to RBI and
FIU-Ind.
In case, the particulars of any of the customers match with the particulars of
designated individuals/entities, inform, immediately, not later than 24
hours from the time of finding out such customer, full particulars of
the funds, financial assets or economic resources or related services held in
the form of bank accounts, held by such customer on their books to the Joint
Secretary (IS-I), MHA, at Fax No. 011-23092569 and also convey over
telephone on 011-23092736. The particulars apart from being sent by post
should necessarily be conveyed on e-mail
 Key 14 points for successful compliance
of AML
I. Customer Identification Procedure & KYC Updation
Establishment of identity of the proposed customer and the beneficial
owner to the satisfaction of the bank before permitting the opening of
accounts

Re-verification of the identity of an existing customer while activation

dormant/in-operative accounts

Special care to be taken in not putting the customer to any sort of

discomfort under the guise of compliance of KYC formalities

II. Identification of Beneficial Owners of Accounts

Steps to be taken to gather adequate & accurate information on

beneficial owners of accounts in case of legacy customers

Due importance to be given to gather the requisite information

considering the potential money laundering and terrorist financing
risks associated with such accounts
 Key 14 points for successful
compliance of AML
III. Combating Financing of Terrorism

Prompt updation of list of individuals & entities, approved by Security

Council Committee established pursuant to UNSCRs on receipt of same
from RBI
System for enabling real time scanning of the proposed customer names
against the updated list before opening of accounts

IV. Allotment of Uniform Customer Identification Code(UCIC) to

Customers

Allotment of UCIC, coupled with robust monitoring mechanism enables

banks to identify structuring of transcations/integrally connected
transactions below the threshold limits spread across different accounts
of the same customer
UCIC aids in enabling banks to monitor customer transactions in a
holistic manner and thereby get a better picture of customers risk profile
and fulfill its obligations under PMLA 2002
Check MULCUS and customer opening accounts with different
 Key 14 points for successful
compliance of AML
V. Verification of Genuineness of Permanent Account numbers
(PAN)

Real Time verification of PANs submitted by the customers against

NSDL database of PAN
PAN verification path : Departments > Operations > Central Processing
Unit [CPU] > Online PAN Verification

VI. KYC for sale of Third Party Products

Sale only to KYC compliant IDBI Bank customers

No cash, no routing of cash through Omnipay (DD Purchase), suspense
accounts
Strict adherence to Circulars
 Key 14 points for successful
compliance of AML
VII. Risk categorisation of Accounts
Appropriate risk assignment in respect of accounts (as specified in the
Master Circular on KYC/AML norms issued by RBI) during account
opening
Periodical review of all accounts regarding its risk categorization at
prescribed intervals
Risk sub-categorization as per account type and occupation
mandatory

VIII. Monitoring & Reporting of Transactions

Transactions of walk- in customers to be subjected to the same rigor as

that applicable to banks own customers for monitoring purposes
Prohibition of use of banks internal accounts as a parking account for
own customers/walk in customers cash transcations which involved
purchase of DDs, sale of gold coin, for amounts above Rs. 50,000
Internal accounts if used for routing/parking customer transcations due
to practical/operational reasons should be demarcated and brought
under transcation monitoring mechanism and considered for CTR/STR
 Key 14 points for successful
compliance of AML
IX. Acceptance of Cash above Rs. 50,000 for issue of Demand
Drafts

Issuance of DDs only upto Rs 49,999.99 per purchaser per day,

regardless of payee/ beneficiary name
No splitting of transcations to avoid system restriction
Strict adherence to circulars

X. Structuring of transactions with value just below threshold

limits.
Beware of structured transactions involving multiple cash deposits,
DD purchases and sale of gold coins with the individual transcations of
values just below the threshold limit of Rs. 50,000
 Key 14 points for successful
compliance of AML
XI. Transactions through NRE/NRO Accounts, Liberalised
Remittance Scheme and Import of Gold under consignment
basis
Strict adherence to the extant FEMA, 1999 regulations on permissible
transcations and upper limits for transcations in NRE & NRO accounts
considering the aspect of repatriation of funds through such accounts
Prohibition of cash deposits in NRE account along with routing of cash
to NRE account through suspense accounts

XII. Acceptance of Cash Deposits

Attempts to structure cash transactions below the threshold limits of
Rs 50,000/- and Rs10,00,000/- should be taken up for necessary actions
including generation of CTRs & reporting such transaction under STRs
 Key 14 points for successful
compliance of AML
XIII. Management Overview and Compliance Culture

Exposure to reputational risk if the bank knowingly/unknowingly

participates in transcations intended to be used by customers to avoid
regulatory or financial reporting requirements, evade tax liabilities or
facilitate illegal conduct

XIV Internal Audits and Concurrent Audits

It was noticed during thematic study that the internal and concurrent
audits had not accomplished their functions as envisaged in the
guidelines on KYC/AML
Such lapses should be dealt with seriousness including fixing of
accountability and escalating matter to the appropriate authorities ,if
warranted.
 Strictly avoid tipping off

Due diligence preferably in the pretext of sales

calls. No statement, which cautions or warns the
customer.
AML triggers/ rules/ reporting thresholds and
internal monitoring processes not to be discussed
with the customers.
Conclusion reached by bank after making
necessary enquiries not to be revealed to
customer.
No disclosure to customer that his account under
monitoring or that STR filed/ being filed against
him.
DOS
Also Dont Forget

Ensure MULCUS option is

visited mandatorily before
certifying and sending the
account opening form to RPUs.

Ensure to obtain PAN (on

best effort basis) or Form 60/
61 while on boarding the
customer.

Obtention of AML
Questionnaire while on
boarding the Co-Op Bank
Customers.
 DONTS
Issuance of DD/NEFTs against cash for walk in customer for
Rs 50,000/- and above

Selling of Third Party Products to non Bank Customers

Acceptance of Cash in Non-resident accounts (FEMA

Guidelines)

Acceptance of cash below threshold limit of Rs 10,00,000/-

in the accounts by structuring of transactions

Routing of customers cash through suspense account which

leads to avoid reporting the regulatory report like Cast
Transaction Report to the Regulator
 Role & Responsibility of Bankers
Employees responsibility
To strictly follow the prescribed
procedures policies and guidelines
The success of compliance effort
rests on all the employees and their
ability to recognize potential
problems and react to them correctly
Remember: Customer
Identification and record
keeping are no longer a matter
of good practice; they are a
matter of law now.
KYC applies to all staff and it should
be policy that all staff must be
responsible for the verification of
customer identity and follow the
relevant procedures
Broad groups of offences
related to money laundering
Knowingly assisting in concealing, or
entering in to arrangements for the
acquisition, use, and /or possession
of, criminal property
Failing to report knowledge, suspicion,
or where there are reasonable
grounds for knowing or suspecting,
that another person is engaged in
money laundering
Tipping off, or prejudicing an
investigation
Tipping off is punishable by
imprisonment or a fine or
both. Dont help the Criminals
Know Your Customer
Screening

&

Monitoring
 Know Your Customer(KYC)-
guidelines
Banks Policy on KYC and AML
Objectives of the Policy :
To lay down policy framework for
abiding the KYC/AML measures as set
out by RBI, based on
recommendations of the FATF,
provisions under PMLA and the paper
issued on Customer Due Diligence
(CDD) for banks issued by Basel
Committee on Banking Supervision
To prevent the Bank from being used,
intentionally or Unintentionally, by
criminal elements for money laundering
or financing terrorist activities
To enable the Bank to know/understand
its customers and their financial
dealings better, which helps
managing risk prudently
Banks Master Circular on
KYC/AML
Four key elements as set by RBI:
i. Customer Acceptance Policy
(CAP)
the
ii. Customer Identification
Procedures (CIP)
iii. Monitoring of Transactions(TM)
iv. Risk Management (RM)
Documentation requirements and other
information to be collected in respect of
different categories of customers
depending on perceived risk and keeping
in mind the requirements of PML Act,
2002 and instructions/guidelines issued
in by Reserve Bank from time to time.
Please type URL (http://10.144.136.103/AML_BRANCH) into Internet Explorer and press enter, the login page is
displayed.

Please insert valid user id, password, domain and branch to access Branch Project.
 Manual scanning:
This module searches the Al-Qaida and UN list and Internal List for entered customer name or
date of birth month, day or year, and with this an Or query with passport. This passport number
searches from all lists and not just for Al-Qaida and UN.
--Manual scanning searching initial screen.

Saddam Search result.

--
When we click on the name from the Al-Qaida and UN list, it shows full details of that clicked name with
name variants, reference, Date of birth, profile-Id and all other details.
--Profile Watch-list Details.
 When we click on the name from the Internal list, it shows the following details:

When no result is found then the following is shown:
-- No result is found
 The PDF shows the certificate with the customer name:
--Certificate PDF Export.
 Negative list:
Here is the screen for adding into negative list.
--Negative List Adding Screen.
You can insert all the information about suspicious customer with date and other details.
Category is the category under which the customer is looking suspicious and all comment and other
details about that customer we can put into branch observation.
For any document submission, we can attach files with form, it will allow .txt and .pdf
Formats only and then hit on submit button we got one row inserted successfully message.

--Negative list submit with data.

 Passport Details:
Using Passport Details, the MRZ Line1 and MRZ Line2 can be decoded to obtain
passport information of the Customer or the passport information can be
encoded to obtain the MRZ Line1 and MRZ Line2.The MRZ Line1 and MRZLine2
denote the two lines that appear like codes on the passport.

 Decode Passport Details

The MRZ Line1 and MRZLine2 that appear on the passport are to be provided by the
User. For Eg: If in MRZLine1 the code MRZ
P<INDVEMPATI<<HARITHA<DEEKSHITULU<<<<<<<<<<< is given and in MRZLine2
J9241136<3IND8805197F2110031<<<<<<<<<<<<<<<8 is given and the page is
submitted then the Personal information along with the document information of
the details provided by the user are displayed.
The personal information of the Customer like the Name, Surname, Date of Birth
and Gender are displayed along with the document information like the Document
Type, Document Format, Document Number , Expiration Date and the Issuing
Country are displayed.
 Politically
Exposed
Persons
Politically exposed persons are individuals who are or have been entrusted with
prominent public functions in a foreign country, e.g., Heads of States or of
Governments, senior politicians, senior government/judicial/military officers, senior
executives of state-owned corporations, important political party officials, etc. Banks
should gather sufficient information on any person/customer of this category
intending to establish a relationship and check all the information available on the
person in the public domain. Banks should verify the identity of the person and seek
information about the sources of funds before accepting the PEP as a customer. The
decision to open an account for a PEP should be taken at a senior level which should
be clearly spelt out in Customer Acceptance Policy. Banks should also subject such
accounts to enhanced monitoring on an ongoing basis. The above norms may also be
applied to the accounts of the family members or close relatives of PEPs.
 Politically
Exposed
Persons
In the event of an existing customer or the beneficial owner of an existing account,
subsequently becoming a PEP, banks should obtain senior management approval to
continue the business relationship and subject the account to the CDD measures as
applicable to the customers of PEP category including enhanced monitoring on an
ongoing basis. These instructions are also applicable to accounts where PEP is the
ultimate beneficial owner.

Further, banks should have appropriate ongoing risk management procedures for
identifying and applying enhanced CDD to PEPs, customers who are close relatives
of PEPs, and accounts of which PEP is the ultimate beneficial owner.
How to track Money Laundering ?
Effective Implementation of KYC
norms.
Customer identification should be
through a dependable ISA
verification.
Customer acceptance should be
after completing personal
interview and after collecting
market information.
Risk profile sheet should reflect
the actual profile of the applicant.
Inquisitive queries should be made
with applicant. The applicant
should fill this sheet himself.
How to Check Money Laundering ?
AML alerts should not be disposed
off perfunctorily.

Timely disposal of AML alerts.

Monitoring of transaction should be

objective. Quality time should be
spent on checking the following
reports

IBank 28
IBank 102
AMLTRXS
Exception Report
Obligations of the Bank
Maintaining Record of
prescribed transactions.
Furnishing Information of
Prescribed Transactions.
Verifying and Maintaining the
ID of Clients.
Preserving the above records
for 10 Years from the date of
cessation of the relationship.
 Financial Institution
If the Director ( ML ), finds that a bank
or any of its officer has failed to comply
with the provisions of Section 12, without
prejudice to any other action that may be
taken under the Act, he may , by an order,
levy a fine which shall not be less than
Rs.10000/- & extending up to Rs 1.00 lacs
for each failure

RBI has penalised as many as 48 small banks in just six months, for lapses
in implementing customer identification norms and various other violations.
Slapped penalties between Rs 1 lakh and Rs 5 lakh on 48 banks during
January - June 2011.
Recently RBI had slapped a penalty of Rs 25 lakh on US-based Citibank
contravention of various guidelines and instructions relating to KYC and
AML.
Gondal Nagrik Sahakari Bank was also found guilty of not submitting cash
transaction reports to the Financial Intelligence Unit-India (FIU-IND).
RBI is sending right signals as laxity on KYC norms is a serious matter as it
compromises transparency
Some Live Cases
 Serious lapses in Citibank led to fraud

An internal investigation into the scam in Citibank's Gurgaon branch in May has shown that there were
serious lapses within the bank that was responsible for one of the country's biggest fraud involving a
multinational bank.

The bank and its staff had either failed to detect or ignored the illegal activities of its relationship
manager. The Citi Security & Investigative Services (CSIS) report available with TOI found that a full
review of the account was not triggered even though about Rs 405 crore flowed through a savings
account of a 92-year-old account holder.

The report shows how senior officials in the branch did not review the daily large transaction report of
the branches which was meant to check and highlight large flow of funds. The review by the bank's own
investigator identified that even as there were several alerts on high volume transactions, these were
disposed off.

This was done despite the fact that they were not supported by adequate details by the branch
operation and service head (BOSH) and relationship manager (RM). It also says that the anti-money
laundering (AML) and know your customer (KYC) staff closed the alerts despite the inadequacy and even
certain red flags were ignored.

The CSIS report mentions that account inquiry requests (AIR) for alerts raised in October and November
2010 for transactions from September to November - 80% of the transactions in the account - were sent
to RM and BOSH only on December 3, 2010.

KYC concerns were also identified in 12 accounts opened during 2009 and 2010. The holders of these
accounts were related and were in taxi services. Field verifications disclosed that the companies did not
exist at the provided address in case of 11 accounts.

The service relationship manager (SRM) were identified to have updated the system notepad confirming
that welcome and RM calls were made by them, although no calls had been made. The investigation
found that savings accounts variances during November 2010 showed significant fluctuations. On
 Cops freeze bank accounts of MLM Tulip Global Ltd
The city police has frozen bank accounts containing Rs 48 crore of multi-level marketing
company, Tulip Glopal Pvt Ltd, who reportedly duped its investors promising high returns.

Vidhayakpuri Police station SHO Rajendra Diwakar said the police have frozen the bank accounts
of the company containing Rs 48 crore to verify the transactions that have taken place in the
recent past. The company has its accounts in Bank of Baroda, IDBI and HDFC.

Earlier on Friday morning, officials of Tulip Global held a press conference. Instead of clearing the
air about accusations of duping investors, frustrated agents of the company vent their anger on a
photo journalist and broke his camera.

SHO Diwakar said the police have received two more complaints of duping from its investors
Raghvendra and Puranmal that the company lured them on the promise of providing high returns.
However, after paying the money, they did not get any money.

The police said the company officials had called over 300 people to build pressure on the
administration. But before the situation could go out of control, policemen from Vidhayakpuri
Police station and Mahesh Nagar Police station rushed to the spot and managed the situation.

The office was opened on Friday by the company officials, but its director PC Jain did not come to
the office, said the police.

Hanuman, one of the victims, alleged that the company promised to pay him `500 on every
member he adds to company making the chain system, but it did not pay anything. Later, when
he got the cheque, it bounced. The senior police official said a team has been formed to trace the
location of the director and documents of the company will soon be checked. Investigation in the
matter is on.
 Duo who duped Bollywood arrested; gold worth crores
recovered

The Central Bureau of Investigation (CBI) today recovered gold worth crores of rupees from
the lockers of one of the two conmen arrested from Mumbai who ran a gang to allegedly
cheat top Bollywood and business personalities.

On a tip-off, a team of CBI officials from Mumbai had reached Panipat - the home town of one
of the accused Ashwani Sharma - where two lockers in the IDBI bank were spotted, official
sources said.

When these big lockers of Sharma, who worked at a sick hosiery factory, were opened, it was
found that these were stuffed with gold jewellery, biscuits and cash which could run into
crores, sources said.

A senior official of the agency said that evaluation of these recoveries is still on and it is likely
to be completed by tomorrow.

The Mumbai unit of the agency had arrested two conmen last week based on the complaint of
filmmaker Rakesh Roshan while one of the gang members is still absconding, sources said.

So far 28 people, who were conned by the gang, have approached the CBI.

The arrested duo, Rajesh Ranjan and Sharma, have completely contrasting backgrounds - an
MBA graduate and a 10th pass respectively- who used to fake as senior agency officials in
Mumbai and allegedly cheated and extorted money from top business and film personalities
by threatening them with action against them.
Speak Asia biggest multi-level marketing fraud, says EOW
Referenc
es
https://en.wikipedia.org/wiki/Money_laundering

https://www.int-comp.org
Queries?
About Faculty
Mr. Vidyasagar G. Gaikwad
Asst. General Manager (Retd.)
IDBI Bank

Email: vidyasagargaikwad03@gmail.com
Cell No: 8097045553