Transcript Document 7155373

Anti Money Laundering and Combating Terrorist
Financing: Indian Initiative and Global Backdrop
Presentation at
Risk and Compliance Summit 2007
Mumbai, 9th March 2007
Arun Goyal
Director
Financial Intelligence Unit-India
(FIU-IND)
Need for Money Laundering
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Every year, huge amounts of funds are generated
from illegal activities. These funds are mostly in
the form of cash.
The criminals who generate these funds need to
bring them into the legitimate financial system.
Hide Wealth
Avoid Prosecution
Increase Profits
Evade Taxes
Become Legitimate
Over $1.5 trillion of illegal funds are laundered each year
FIU-IND
Consequences of Money Laundering
Finances Terrorism: Money laundering provides terrorists with
funds to carry out their activities.
Undermines rule of law and governance: Rule of Law is a
precondition for economic development – Clear and certain
rules applicable for all
Affects macro economy Money launderers put money into
unproductive assets to avoid detection.
Affects the integrity of the financial system: Financial system
advancing criminal purposes undermines the function and
integrity of the financial system.
Reduces Revenue and Control: Money laundering diminishes
government tax revenue and weakens government control
over the economy.
FIU-IND
Global Framework - Financial Action Task Force
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Established by the G-7 Summit in Paris in 1989 in
response to mounting concern over money laundering.
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A policy making body, having secretariat at Organisation
for Economic Co-operation and Development (OECD).
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Works to generate the necessary political will to bring
about national legislative and regulatory reforms to
combat money laundering and terrorist financing.
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Members: 31 countries, European Commission and Gulf
Co-operation Council
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India has been accorded ‘Observer’ status
FIU-IND
FATF Mandate
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Sets Standards
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Assesses compliance against standards
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Researches money laundering and terrorist
financing threats
FIU-IND
FATF Recommendations
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1990 - Forty Recommendations - Complete set of
counter-measures against money laundering
covering:
 Criminal justice system and law enforcement
 Financial system and its regulation
 National and international co-operation
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1996 -Recommendations Revised
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Nine Special Recommendations on Terrorist
Financing
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2003: Eight Special Recommendations
2004: 9th Special Recommendation
FIU-IND
Global Framework -Asia/Pacific Group
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The Asia/Pacific Group on money laundering (APG) is a
FATF styled regional body
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Established in February 1997 at Bangkok, Thailand.
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Facilitates adoption of internationally accepted antimoney laundering and anti-terrorist financing standards
set out in the recommendations of the Financial Action
Task Force (FATF).
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Similar FATF styled regional bodies for other regions
FIU-IND
The Global Framework - Egmont Group
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The Egmont Group serves as an international network
fostering improved communication and interaction among
FIUs.
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Egmont Group is named after the venue in Brussels where the
first such meeting of FIUs was held in June of 1995.
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FIUs provide support to their respective governments in the
fight against money laundering, terrorist financing and other
financial crimes
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Best Practices for exchange of information
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Members- 101 FIUs (13 from Asia)
FIU-IND
Why AML/KYC?
 Reduces reputational, operational, regulatory
risk
 Reduces risk of adverse impact on business
 Share price impact
 Suspension, downgrade or revocation of licence
 Loss of consumer confidence: bank run
 they make good business sense.
FIU-IND
FATF Recommendations: Criminal Justice System
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Criminalisation of Money Laundering (R.1 & 2)
Criminalisation of Terrorist Financing (SR.II)
Confiscation, freezing and seizing of proceeds of
crime (R.3)
Freezing of funds used for terrorist financing
(SR.III)
The Financial Intelligence Unit and its functions
(R.26, 30 & 32)
Law enforcement, prosecution and other
competent authorities (R.27, 28, 30 & 32)
FIU-IND
Indian Context
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Prevention of Money Laundering Act brought into
force form 1st July 2005
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to prevent money laundering and
to provide for confiscation of property derived from,
or involved in, money laundering.
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Offence of money laundering (section 3 of PMLA)
Proceeds of crime (section 2(1)(u) of PMLA)
Scheduled offences
FIU-IND established in Nov 2004.
Enforcement Directorate
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Powers to investigate
FIU-IND
FATF Recommendations : Financial System & Regulation
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Customer due diligence, including enhanced or reduced measures (R.5 to 8)
Third parties and introduced business (R.9)
Financial institution secrecy or confidentiality (R.4)
Record keeping and wire transfer rules (R.10 & SR.VII)
Monitoring of transactions and relationships (R.11 & 21)
Suspicious transaction reports and other reporting (R.13-14, 19, 25 &
SR.IV)
Internal controls, compliance, audit and foreign branches (R.15 & 22)
Shell banks (R.18)
The supervisory and oversight system - competent authorities and SROs (R. 17,
23, 29 & 30)
Financial institutions - market entry and ownership/control (R.23)
AML/CFT Guidelines (R.25)
Ongoing supervision and monitoring (R.23, 29 & 32)
Money value transfer services (SR.VI and SR. IX)
FIU-IND
Indian Context
Obligations under PMLA on Banking companies, financial
institutions and intermediaries to
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Appoint of Principal Officer
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Verify identity, address, nature of business and financial status
of the client
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at the time of opening an account
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and while executing transactions.
FIU-IND
Indian Context
 To furnish information
 Cash transactions of more than Rs.10 lakhs
 Integrally connected cash transactions adding to Rs. 10
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lakhs in a month,
Cash transactions where forged or counterfeit currency or
bank notes have been used,
Suspicious transactions
 whether or not made in cash.
 Need not involve proceeds of crime
 maintain records
FIU-IND
FATF Recommendations: National and International
Cooperation
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National co-operation and coordination (R.31)
Mutual Legal Assistance (R.32, 36-38, SR.V)
Extradition (R.32, 37 & 39, & SR.V)
Other Forms of Co-operation (R.32 & 40, &
SR.V)
FIU-IND
Indian Context
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Dissemination of STRs to Enforcement Agencies
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Sharing information with Foreign FIUs
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Egmont Group Membership
Establish clear mechanism for the exchange of
information
Case to case on reciprocal basis
MOU
Egmont Group’s best practices for information
exchange
FIU-IND
AML/CFT Timeline
FATF
Established
at Paris
Egmont
Group
Established
at Brussels
Prevention
of Money
Laundering
Act, 2002
enacted
APG Set up
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
FATF
Recommendations
Revised FATF
Recommendations
PMLA
brought into
force
IRDA
FIU-IND set
KYC/AML
up by GOI
Guidelines
9/11
Terrorist
Attack
2000 2001 2002 2003 2004
US Patriot
Act, 2001
2005 2006
Special FATF
Recommendations
RBI KYC
Guidelines
RBI KYC/
AML
Guidelines
SEBI
KYC/AML
Guidelines
RBI
KYC/AML
Circular
FIU-IND
Compliance under PMLA
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Detailed guidelines on AML/KYC by regulators viz
RBI, SEBI, IRDA, NHB
Principal officers have been appointed
More than 15 lakh CTRs have been received
More than 500 STRs have been received
After analysis and value addition more than 300 STRs
have already been disseminated to enforcement and
intelligence agencies
FIU-IND
Expectations from the Financial Sector
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Senior officers to be appointed Principal Officers
KYC norms to be followed uniformly
CTRs to be submitted regularly, where applicable
Capacity of the financial institution to habitually
detect and report suspicious– not merely reactive
filing
Increase awareness and training of staff – new roles
and responsibilities
Evaluate and ensure adherence to AML/KYC policies
FIU-IND
The way forward
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Manual filing to Electronic filing
User driven searches to system driven alerts
Analysis - Report driven to intelligence led
Feedback
 Enforcement Agency to FIU
 FIU to Reporting Entity
 Money Laundering Typology Report
 Trends in STRs received
 Sanitised money laundering cases
 Indicators for detection of suspicious transactions
FIU-IND
Thank You
[email protected]
www.fiuindia.gov.in