Transcript Briefing on ‘KYC’ Norms and ‘AML’ Measures for IBA Member Banks Venue: Hotel Hilton Towers, Mumbai Date: 12th April 2006 Presented by Sanjeev Singh Additional Director,

Briefing on ‘KYC’ Norms and ‘AML’ Measures
for IBA Member Banks
Venue: Hotel Hilton Towers, Mumbai
Date: 12th April 2006
Presented by
Sanjeev Singh
Additional Director, FIU-IND
Financial Intelligence Unit-India
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Contents

Background

About FIU-IND

Legal Framework

Verification of identity

Furnishing information

AML and Tax Compliance
FIU-IND
Background
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Timeline

Mid 1980s - Growing concern of international community to deprive
criminal elements of the proceeds of their crimes.

1989 – Financial Action Taskforce (FATF) set up to ensure global action
to combat money laundering.
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Forty Recommendations - Complete set of counter-measures against money
laundering
Nine Special Recommendations on Terrorist Financing
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1995 - Egmont Group set up to stimulate international cooperation
amongst FIUs. Best Practices for exchange of information.

1997- Asia/Pacific Group on money laundering (APG) set up to create
awareness and encourage adoption of AML measures.
FIU-IND
Need for a Financial Intelligence Unit

Law enforcement agencies had limited access to
relevant financial information.

Need to engage the financial system in the efforts
to combat laundering.

Need to report suspect financial transactions by
financial institutions to a central agency for
assessing and processing reported transactions.
FIU-IND
Definition of a FIU
A central, national agency responsible for receiving, (and as
permitted, requesting) analysing and disseminating to the
competent authorities, disclosures of financial information:
(i) Concerning suspected proceeds of crime, or
(ii) Required by national legislation or regulation,
in order to combat money laundering.
- Definition formalised by Egmont Group in 1996
FIU-IND
About FIU-IND
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Background of FIU-IND
Set up vide Government of India’s Office Memorandum
(O.M.) dated 18th November 2004
“To coordinate and strengthen collection and sharing of financial
intelligence through an effective national, regional and global
network to combat money laundering and related crimes.”

Multi-disciplinary unit headed by a Director.

Core Functions

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
Intelligence Management
Relationship Management
Policy Review and Development
FIU-IND
Framework
Supervisory and
Regulatory Agencies
RBI
SEBI
DCA
IRDA
Supervisory and
Regulatory Agencies
Reporting Entities
RBI
Banking Company
Financial Institutions
SEBI
Intermediaries
Intelligence/Enforcement
Agencies
FIU-IND
DCA
IRDA
Intelligence/Enforcement
Agencies
IB /RAW
REIC
IB /RAW
CBDT-DGIT/CCIT
REIC
CBEC-DGDRI/DGCEI
CBDT-DGIT/CCIT
ED/NCB
CBEC-DGDRI/DGCEI
EOW of Police/CBI
ED/NCB
Others
EOW of Police/CBI
Foreign FIUs
Others
Foreign FIUs
FIU-IND
Legal Framework
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Prevention of Money Laundering Act
Prevention of Money Laundering Act (PMLA) and the Rules
notified thereunder impose obligation on
 banking companies
 financial institutions
 intermediaries of the securities market
to
 appoint principal officer
 verify identity of clients
 maintain records
 furnish information
FIU-IND
Banking Company under PMLA
“Banking Company” under PMLA includes:

All nationalized banks, private Indian banks
and private foreign banks.

All co-operative banks viz. primary cooperative banks, state co-operative banks and
central (district level) co-operative banks.

State Bank of India and its associates and
subsidiaries.

Regional Rural Banks.
FIU-IND
Role of Principal Officer

Every banking company shall communicate the
name, designation and address of the Principal
Officer to the Director, FIU-IND. (Rule 7)

The Principal Officer shall:
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furnish the information referred to in rule 3 to the
Director.
retain copy of such information shall for the purposes
of official record.
FIU-IND
Scheduled Offences under PMLA

Offences specified under Part A of the Schedule
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Offences under the Indian Penal Code (Sec 121, 121A)
Offences under the Narcotic Drugs And Psychotropic Substances
Act, 1985
Offences specified under Part B of the Schedule if the
total value involved in such offences is thirty lakh rupees
or more.
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Offences under the Indian Penal Code
Offences under the Arms Act, 1959
Offences under the Wild Life (Protection) Act, 1972
Offences under the Immoral Traffic (Prevention) Act, 1956
Offences under the Prevention Of Corruption Act, 1988
FIU-IND
Know Your Customer Guidelines
Customer Acceptance - Ensure that you
accept only legitimate and bona fide
customers.
Customer Identification- Ensure that you
properly identify your customers to
understand the risks they may pose.
Transactions Monitoring- Monitor
customers accounts and transactions to
prevent or detect illegal activities.
Risk Management- Implement processes
to effectively manage the risks posed by
customers trying to misuse facilities.
FIU-IND
Verification of identity
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Verification of Identity of Clients

Verify and maintain the record of:
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Identity of client
Address - current and permanent
Nature of business
Financial Status
Maintain records of the identity of clients for a
period of ten years from the date of cessation of
the transactions with the client.
FIU-IND
Challenges in verification of identity

Mechanism to verify ID

Multiple IDs

Existing Clients

Consolidated Hot List
FIU-IND
Furnishing Information
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Information to be furnished

Cash Transactions

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All cash transactions of the value of more than rupees ten
lakhs or its equivalent in foreign currency
All series of cash transactions integrally connected to each
other which have been valued below rupees ten lakhs or its
equivalent in foreign currency where such series of
transactions have taken place within a month
Suspicious Transactions

All suspicious transactions whether or not made in cash
FIU-IND
Suspicious Transactions
Suspicious transaction means a transaction
whether or not made in cash which, to a person
acting in good faith –
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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;
Reference: Categories of suspicion for banks
FIU-IND
Reporting Formats
Attributes
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Scalable design - STRs involving
numerous individuals, legal entities and
accounts.
Normalised design- Reduced repetitive
information capture.
Editable PDF forms- Ease of filling.
Compatibility of electronic formats with
transactional data structure of reporting
entities.
Compatibility of electronic and manual
formats.
Roadmap Ahead

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Secure Gateway
Information security standards (BS 7799)
Manual CTR
Summary of Cash Transaction Reports
Cash Transaction Report
Annexure A- Individual Detail Sheet
Annexure B- Legal Person/Entity Detail Sheet
Manual STR
Suspicious Transaction Report
Annexure A- Individual Detail Sheet
Annexure B- Legal Person/Entity Detail Sheet
Annexure C- Account Detail Sheet
Electronic Formats
STR for a Banking Company
CTR for a Banking Company
STR for an Intermediary
CTR for an Intermediary
Data Files in Electronic Reporting
Transaction Data File
Control File
Branch Data File Individual Data File
Account Data File Legal Person Data File
FIU-IND
Challenges in detection of suspicious transactions
Data Quality
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Process
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Selection of appropriate AML solution and analytical tools
Money laundering typologies
People
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New Roles and Responsibilities
Identity matching with hot list of individuals and entities
Mechanism to verify financial details
Technology
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Decentralized databases
Data not captured in electronic form
Awareness
Training
Compliance Cost
Confidentiality and Privacy
FIU-IND
Data Quality of Reports
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Significance
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Meet data requirements of data mining, identity matching
Reduce false positives
Validation of data files
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Valid data structure
Mandatory data fields
Relationship integrity
Data sufficiency
(File Validation Utility-Assist in error correction)
FIU-IND
FIU-IND Website
www.fiuindia.gov.in
About FIU-IND
Maintenance of Records
PMLA 2002
Furnishing Information
Scheduled Offences
Identity of Clients
Notifications
International
Publications
FAQs
FIU-IND
AML and Tax Compliance
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AML Measures and Tax Compliance
Money Laundering is the process by which illegal funds and
assets are converted into legitimate funds and assets.
Investments
Purchases
Placement: Illegal funds or assets
are first brought into the financial
system
Layering: Use of multiple
accounts, banks, intermediaries,
corporations, trusts, countries to
disguise the origin.
Integration: Laundered funds are
made available as apparently
legitimate funds.
Money Laundering is tax evasion in progress
FIU-IND
Thank You
[email protected]
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