Transcript Document

Prevention of Money
Laundering
By
Ms. Lakshmi Arun
Assistant Director
Have any of you who
have not experienced
giving bribe directly or
indirectly?
How do you think that the
money earned out of
corruption, bribery etc is
utilised by Criminals?
Some taunting facts
According to United Nations office of
Drugs and Crime, the estimated amount of
money laundered globally in one year is 2
- 5% of global GDP, or $800 billion - $2
trillion in current US dollars.
 According to Corruption Perception Index
2011 India is in 95th position, where as
according to doing business report 2012 of
the world bank India is in 132nd position.
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Some taunting facts
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As many as 62% of all citizens think that corruption is
real and they have in fact have had first hand experience
of paying a bribe or “using a contact” to get a job done
in a public office – India Corruption Study 2005 by
Transparency International.
In the book 'Corruption in India: The DNA and RNA'
authored by Professors Bibek Debroy and Laveesh
Bhandari say that the public officials in India may be
cornering as much as Rs.92,122 crore ($18.42 billion), or
1.26 per cent of the GDP, through corruption. The books
estimates that corruption has virtually enveloped India
growing annually by over 100 percent (Source :
Economic Times Dated December 11, 2011)
Result…….
Black Money and its laundering
Act of Money Laundering
Process by which illegal funds and
assets are converted into legitimate
funds and assets.
How the process takes place
Entry of illegal funds into the systemPlacement
 Distancing of funds from its originLayering
 Laundered funds are made available as
legitimate funds-Integration.
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The Process
How Does It Work?
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Sell cocaine and get a million dollars.
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Take the million in cash to the some Islands.
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Buy a legitimate company , complete with a board of
directors.
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Open a bank account in the company’s name and deposit
the rest of the money.
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Enjoy the islands, get some sun, then go home.
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When you get home, borrow $200,000 from the Company
account and have it delivered via wire transfer.
How does it work?
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Open a restaurant.
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Deposit proceeds from ongoing drug business along with
proceeds from the restaurant every month into a legitimate
bank account. Don’t add too much illegal money, just
enough to make it look as though your restaurant is doing a
good, healthy business.
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Pay all of your taxes on the restaurant deposits, so the tax
authorities don’t start an investigation.
Parliamentary History of the
Law.
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The PML bill, 1998 was introduced in Lok Sabha on 04-08-1998.
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Referred to Standing committee on finance on 05-08-1998.
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The committee submitted its report on 04-03-1999.
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The bill was presented in Rajya Sabha on 08-03-1999.
Parliamentary History of the
Law.
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The PML, Bill 1999 was presented in Lok Sabha on 29-10-1999.
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The PML, Bill 1999 was passed in Lok Sabha on 02-12-1999.
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Rajya Sabha referred the bill to Select committee.
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The committee finalised its report on 24th July, 2000.
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The present act after being passed by both the houses received
the assent of the president on 17th January, 2003.
What is a Financial
Intelligence Unit?
A financial intelligence unit (FIU) is a central agency of a
government that
1.
receives financial information pursuant to country's anti-money
laundering laws
2.
analyzes and processes such information and
3.
disseminates the information to appropriate national and
international authorities, to support anti-money laundering
efforts.
Broad Regulatory Framework
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The Prevention of Money Laundering Act, 2002
Prevention of Money-laundering (Maintenance
of Records of the Nature and Value of
Transactions, the Procedure and Manner of
Maintaining and Time for Furnishing
Information and Verification and Maintenance
of Records of the Identity of the Clients of the
Banking Companies, Financial Institutions and
Intermediaries) Rules, 2005.
Guidelines on Anti Money Laundering
Standards/KYC norms/customer identification
process issued by SEBI/RBI/IRDA
The Prevention of MoneyLaundering Act, 2002
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Director, Financial Intelligence Unit-India
– The reporting entities to furnish information of specified
transaction to FIU-IND
– Analyse and process reports and disseminate to LEAs/IAs
– Power to impose fine for non-compliance
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Director of Enforcement
– Powers relating to investigation of and prosecution for moneylaundering offences
– Power of attachment of property, survey, search & seizure and
retention of property and document
– Power regarding summons, production of document and
recording of statement
– .
Obligation under PMLA
PMLA impose obligations on
 Banking Companies
 Financial Institutions
 Intermediaries
in respect of
 Maintenance of Records
 Furnishing of information
 Verification of identity of the clients.
Banking Company includes
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Public sector banks
Private sector banks
Private foreign banks
Co-operative banks
Regional rural banks
Financial Institutions includes
 Financial Institution as defined under Section
45-I of the RBI Act
 Insurance Companies
 Hire purchase companies
 Chit fund Companies
 Housing finance institutions
 Non-banking financial companies.
Intermediary includes
Stock Brokers
 Sub-brokers
 Share-transfer agents
 Bankers to an issue
 Trustees to trust deed
 Registrar to an Issue
 Merchant Bankers…………….
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Obligation in respect of
maintenance of records
Maintenance of records includes records of
 All cash transactions of the value of more
than rupees ten lakhs or its equivalent in
foreign currency
All series of cash transactions which are
integrally connected
 All suspicious transactions
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Furnishing of Information
Reporting of cash and suspicious
transactions
 Reporting on the appointment/change in
the principal officer etc.
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Suspicious Transaction means
A transaction whether or not made in
cash,which, to a person acting in good faith
 gives rise to a reasonable ground of suspicion
that it may involve the proceeds of crime; or
 appears to be made in circumstances of unusual
or unjustified complexity; or
 appears to have no economic rationale or
bonafide purpose
Illustrative list of suspicious
transactions
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False Identification documents
Identification documents which could not
be verified within reasonable time
Multiple Demat Accounts
Multiple Trading Account with the broker
Sudden increase in the transaction of
client
Huge off-market deals
Illustrative list of suspicious
transactions
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Multiple Bank accounts
Huge withdrawals/deposits
Nature of transactions inconsistent with
what would be expected from declared
business
Foreclosure of home loan accounts by
substantial cash payments
Illustrative list of suspicious
transactions
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Frequent purchases of drafts or other
negotiable instruments with cash
Large number of accounts with common
account holders , introducer or authorised
signatory
Unexplained transfers between multiple
accounts with no rationale
Data on cash/suspicious
Transactions (as on 31.07.11)
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Collection of Information
– 30.36 million Cash Transaction Reports (CTRs) received
– 99.62 % CTRs received in electronic format
– 46,409 Suspicious Transaction Reports (STRs) received
– 5.26 lakh Counterfeit Currency Reports (CCR) of face value of
Rs.446 million
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Analysis and Dissemination of Information
– 41,934 STRs processed
– 28,210 STRs disseminated
Data on Suspicious
Transactions
Category
Banking Company
2008-09
200910
201011
Total
2,826
7,394
12,287
24,127
Financial Institution
841
1,655
7,006
9,878
Intermediary
742
1,018
1,405
3,902
Total
4,409
10,067
20,698
37,907
How to increase the Compliance
level
Spread financial literacy among reporting
entities and their clients.
 Conduct educational programmes to
reinforce the importance of reporting
requirements
 Impose more stringent penalties for
money laundering offences.
 Training of staff
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KYC norms issued by
RBI,SEBI & IRDA covers
Customer Acceptance
Customer Identification
Transaction Monitoring
Risk Management
International efforts
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1985- The United Nations- Started efforts with the recognition that drug
trafficking—and associated money laundering—were truly international
problems and could be addressed effectively only on a multinational basis
1988 – Basel Committee on Banking Supervision - issued a
statement on Prevention of Criminal use of Banking System for the purpose
of ML
1989 – Financial Action Taskforce (FATF)- Set up to ensure global
action to combat money laundering ( subsequently included terrorist
financing )
1995 - Egmont Group- Set up to stimulate international cooperation and
develop best Practices for exchange of information amongst FIUs
1997- Asia/Pacific Group on money laundering (APG)- FATF-style
regional body (FSRB)-set up to create awareness and encourage adoption
of AML measures in the region.
World Bank and International Monetary Fund- have evolved a
comprehensive AML/CFT assessment methodology for evaluating country’s
compliance with FATF Standards and provide technical support
FATF
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Mandate :
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FATF Forty+ Nine Recommendations:
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Establish, revise and clarify global standards and measures for combating ML/TF;
Promote global implementation of the standards;
Identify and respond to new money laundering and terrorist financing threats;
Engage with stakeholders and partners throughout the world.
Forty Recommendations - Complete set of counter-measures against money laundering
Nine Special Recommendations on Terrorist Financing
Internal Review Mechanisms :
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Self-assessment exercise based on a standard questionnaire designed by FATF and used by
its members to report on their anti-money laundering system on an annual basis and
Mutual evaluation process in which each country is evaluated by a team of experts drawn
from other member countries to give ratings with respect to each recommendation of FATF
FATF Recommendations
– Criminalization: To criminalize money laundering and terrorist financing. The
definition of money laundering offenses has now expanded to include all serious
offenses.
– Provisional Measures and Confiscation: To put in place measures to
identify, trace, freeze, or seize and finally to confiscate the illegal proceeds.
– Customer due diligence: To impose duties on financial institutions to know
their customers and to abolish the use of anonymous accounts.
– Record keeping: Financial institutions to keep records on all the transactions
that they conduct.
– Suspicious transactions reporting: Financial institutions to report all
transactions that raise their suspicion, without alerting the clients.
– Internal controls: Financial institutions adopt internal mechanisms that allow
them to comply with the regulatory requirements.
– Implementation: To create regulatory and supervisory agencies that are
capable of implementing the international standards set by the
Recommendations.
– International cooperation: To put in place a system that allows it to
cooperate with other countries on all aspects of law enforcement including
exchange of information, preservation and confiscation of assets and extradition.
KPMG -India Anti-Money
Laundering Survey 2012
– This survey was conducted across the financial
services sector covering public sector banks, private
sector banks, foreign banks, general and life
insurance companies, mutual funds, non-banking
financial companies and other institutions in the FS
sector covered under PMLA.
– The primary target respondents of the survey were
senior and mid management members from
Compliance, Audit, Risk Management and AML
departments. The respondents were also senior
management members from the business and
operation functions.
KPMG -India Anti-Money
Laundering Survey 2012
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Increased focus on money laundering risk
by the Senior Management
1. 76% Discuss the AML profile on at
least a monthly or quarterly basis
2. 41% Integrate AML in the
business strategy of new
products/services.
3. 35% Publicize the AML
compliance programme internally
KPMG -India Anti-Money
Laundering Survey 2012
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FATF: Membership comes with increased
responsibilities
84% -Regulatory scrutiny has become more
stringent post FATF membership
90% -Regulatory scrutiny is high in
the
area of Know Your Customer policy and
processes
81% - Agree that scrutiny will remain high
in the area of Transaction Monitoring /
Reporting
KPMG -India Anti-Money
Laundering Survey 2012
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Laying the foundation: Money laundering
risk assessment
65%Conduct an AML risk assessment
on
at least a half yearly or yearly basis
32%Conduct an AML risk assessment
on
the basis of an event
51% AML policies and procedures are
based on local regulations and
benchmarked against global best practices
KPMG -India Anti-Money
Laundering Survey 2012
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Drilling down to unearth the core
86% -Institution follows a risk based approach
in relation to account opening
84%-Beneficial owner identified at the time of
opening an account
83% -Have procedures for monitoring sanctions
lists before account opening
81% -Customer documents are collected and
verified before opening an account
77%-Have specific procedures in place for
identifying politically exposed persons
KPMG -India Anti-Money
Laundering Survey 2012
Testing and monitoring the effectiveness
of your controls
71%- Have a formal procedure to test and monitor
the effectiveness of anti-money laundering
systems and controls
80% - Compliance function plays an important role
in the testing and monitoring procedures
76%-Internal Audit plays an important role in the
testing and monitoring procedures.
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KPMG -India Anti-Money
Laundering Survey 2012
Investment to be made in the area of
AML
44% -Investment will increase by 10 to 20
percent.
29%- Investment will increase by 21 to 50
percent
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ASSOCHAM REPORT 2012
ON BLACK MONEY MENACE
IN INDIA
Assocham in its recent report on 'Black
money menace in India' had suggested
the government should provide immunity
to persons wanting to bring back funds
stashed abroad.
ROLE OF COMPANY
SECRETARIES
As Practising Company Secretary/Company
Secretary in whole time employment, what shall
we do to prevent money laundering?
Thank you
Disclaimer Clause: Views expressed in this presentation views
of the author do not necessary reflect those of the Institute.