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FOUNDATION COURSE IN AML - INDIA

1.1 What is Money Launderin ! Money laundering, as the name suggests, is the process by which criminals attempt to disguise the true origin of the proceeds of criminal activities by using the financial system such that after a series of transactions, the money, its ownership and the income earned from it appear to be legitimate. They try to disguise the true origin of the illegal money by transferring them from one financial institution to another, using accounts of apparently different persons or businesses. These persons or businesses may, in fact, have a legitimate existence in the financial system. However, they are usually controlled by one person or entity for the sole purpose of converting that persons illegal money into legal money. Money "aunderin # An e$a%&"e Mr. PQ , a wor!er in an organi"ation, has a salary account in a ban!. He also runs an extortion rac!et, #illegitimate and forcible extortion of money, also called protection money or $hafta$%. He puts the money that he gets from this rac!et into another account opened in the name of a trust, as a cash donation. &ith this money, Mr.PQ , as the trustee, purchases office premises that are leased out to generate legitimate funds for the $trust$. Thus, Mr. PQ $launders$ money obtained from his extortion rac!et by channeling it into a trust. 'bviously the trust is a front for his illegal activities. (y ma!ing legitimate purchases for the trust with the illegal money, he tries to convert the illegal money into legal money. Money "aunderin de'ined )et us loo! at some definitions of money laundering as given by domestic and international guidelines. *. +ccording to the ,inancial +ction Tas! ,orce #,+T,%, money laundering is the processing of criminal proceeds in order to disguise their illegal origin. -. .ection / of The Prevention of Money0)aundering +ct, -11-, of 2ndia defines the offence of money laundering as under3 &hosoever directly or indirectly attempts to indulge or !nowingly assists or !nowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and pro4ecting it as untainted property shall be guilty of the offence of money0laundering. (o) %oney is "aundered How is money laundered5 &ell, criminals may differ in the means they employ to launder illegal money. However, money laundering, regardless of the degree of complexity, is usually carried out in three stages3 Placement stage )ayering stage 2ntegration stage )et us examine each of these stages in detail. Money "aunderin # The &"a*e%ent sta e The placement stage involves the channeli"ation of cash proceeds of illegal activities into the ban!ing or financial system. The proceeds of most criminal transactions are in cash. However, criminals who accumulate large amounts of cash run the ris!s of detection and sei"ure. Hence, they try to channel the funds into the financial system, usually into ban!s, and this is called placement.

+t the placement stage it is relatively easy to detect money0laundering attempts because at this point the money is still traceable to its source. )et us loo! at some common placement methods used by money launderers. Money "aunderin # The "ayerin sta e The next stage in the money0laundering cycle is the layering stage. +fter placing illegal funds in a ban!, money launderers would try to separate them from their illegal source through a process called layering. )ayering consists of multiple, complex, financial transactions that ma!e it difficult to lin! money to an illegal activity. 2t disguises or eliminates the audit trail. +t this stage, money launderers may also mix the $dirty$ money with $clean$ money and try to disguise it further. )et us loo! at the methods employed by launderers for layering money. Money "aunderin # The inte ration sta e The final stage in the money0laundering cycle is the integration stage. 2n this stage illegitimate funds are integrated into the economy by providing what appears to be a legitimate explanation for the illicit financial wealth. ,or example, integration of illegal proceeds might include purchase of real estate, businesses, securities, automobiles, or 4ewellery. 2ntegration moves illegal funds bac! into the economy with the appearance of normal business earnings. 2t would be extremely difficult at this point for a ban! to distinguish between illegitimate funds and legitimate funds. )et us loo! at some common means of integration used by money launderers. Sta es in the %oney "aunderin *y*"e# A su%%ary Money laundering ta!es place through / stages3 Placement, layering, and integration. The placement stage involves the channeli"ation of the cash proceeds of illegal activities into the ban!ing or financial system. Placement is usually performed through smurfing, smuggling, asset conversion, alternative remittances, and electronic transfers. )ayering is the process of separating illegal money from the sources that generated them, through multiple, complex, financial transactions. )ayering is performed through electronic transfers, offshore ban!s, shell corporations, trusts, wal!ing accounts, and intermediaries. 2ntegration is the final stage in the money laundering cycle. 2n this stage, illegitimate funds are integrated into the economy by providing what appears to be a legitimate explanation for the illegitimate financial wealth. 6redit and debit cards, sale and purchase of assets, business recycling, and export0import transactions are some means of integrating laundered money. egulations to prevent money laundering for 2ndia Introdu*tion Money laundering is a serious problem worldwide, affecting financial mar!ets and institutions. +ccordingly, laws and regulations, for combating money laundering have been set up or are in the process of being set up across various countries. 2t is imperative for us, as employees of a ban!, to !now and understand these regulations and our role in ensuring compliance with the same. This !nowledge would help us implement appropriate measures to prevent criminals from laundering money

using our ban! as a channel. .ince our (an! operates in various geographies, our distributed wor!force needs to be aware of the anti money laundering laws and regulations operating in such countries. +no) ,our Custo%er -+,C. +nti money laundering regulations emphasi"e that a ban! or financial institution should invest in !nowing their customers. 2t is only when we !now our customer properly, that we can identify unusual transactions 7 an important part in identifying money0laundering activities. +n effective 8now 9our 6ustomer #896% policy:procedures would include implementation of the following3 6ustomer identification procedures 6ustomer verification procedures 6omparison with negative lists maintained by governments #for instance, lists of !nown terrorists or terrorist organi"ations% These programs and measures help in ensuring that only bona fide accounts are opened, and in understanding the money laundering ris!s in certain products and customers. Monitorin and Re&ortin o' Sus&i*ious Transa*tions .uspicious transactions are transactions that are inconsistent with a customers !nown, legitimate activities or with the normal business for that type of account. The 896 policy:procedures should provide guidelines for recogni"ing such transactions. This should be bac!ed up by training to ensure that employees understand how to implement these guidelines. Many ban!s also use software to identify such transactions. a sample list of suspicious transactions *. + business account receives and disburses large amounts of money that does not seem to reflect any normal business0related activity such as payments to vendorsb or employees. -. + customer ma!es a large cash deposit in a business account, which is notnormally considered to be a cash0intensive business. /. ;nexplained transactions between business and personal accounts. <. + customer comes with a re=uest for a loan on behalf of an offshore company,especially one that is located in a country where anti money laundering laws are lax. >. )arge electronic deposits immediately followed by bul! cash withdrawals, or bul! cash deposits followed by electronic transfers out of the account. ?. &ithout a good reason, a customer opens many accounts in single or multiple names and moves money fre=uently between these accounts. Co%&"ian*e )ith "a) +nti money laundering regulations should ensure that financial transactions are carried out in compliance with the regulatory re=uirements. These include the following3 customer identification and verification procedures and due diligence measures reporting transactions above threshold limits and reporting suspicious transactions recording transactions and maintaining these records bloc!ing or free"ing accounts 9ou will be able to understand each of these terms as we deal with them under the different anti money

laundering regulations. Coo&eration )ith "a) en'or*e%ent a en*ies +nti money laundering regulations also emphasi"e the need for cooperation with law enforcement agencies. These include3 sharing and reporting information when re=uired, providing access to records and documents, and adherence to orders and re=uests issued. Interna" &o"i*ies and &ro*edures +nti money laundering regulations include the following actions that need to be ta!en by a financial institution, as part of its internal policies and procedures3 adoption of written anti money laundering policies:procedures by the (oard of @irectors:.enior Management, appointment of a compliance officer within an organi"ation, laying down internal reporting procedures, development and review of policies, procedures and controls on a periodic basis, independent audit function to test an organi"ations anti money laundering programs, ongoing employee training programs, and record retention procedures. Internationa" re u"ations Money laundering is clearly a serious issue facing the international financial community. +ll countries are re=uired to participate in the prevention of money laundering activities as this affects the international financial system. 6ountries should follow comprehensive and authoritative international standards in drafting and implementing anti money laundering regulations. 2n addition, of course, each country must have its own rules, regulations, and guidelines to tac!le money laundering. +wareness of ma4or international anti money laundering regulations will enable you to understand the (an!$s anti money laundering compliance re=uirements while participating in the international spheres. Do%esti* re u"ations 2n 2ndia, money laundering has been recogni"ed and ac!nowledged as a ma4or threat to society and to the stability of the financial mar!et. The /re0ention o' Money Launderin A*t 1221-/MLA., drafted in -11-, is an +ct to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering. The obligation of (an!ing 6ompanies, financial institutions and intermediaries are laid out in the +ct. The +ct comes into effect from Auly *, -11>. +part from this act, the R3I # eserve (an! of 2ndia%, the ban!ing regulator, has issued 896 and anti money laundering guidelines to ban!s. 1.1 The Finan*ia" A*tion Tas4 For*e -FATF. uide"ines Introdu*tion The ,inancial +ction Tas! ,orce #,+T,% is an intergovernmental body that develops and promotes policies and guidelines to combat money laundering. 2t consists of // members B /* countries and international organi"ations. The // member countries include countries that are the ma4or financial centers in Curope, Dorth and .outh +merica, and +sia. The ,+T, guidelines consist of <1 recommendations. Dine special recommendations were issued to combat terrorist financing. The ,+T, lists certain countries and territories, with little or no anti money laundering measures, as

non0cooperative countries and territories #D66Ts%. +s on ,ebruary **, -11>, the following countries figured on the ,+T,$s D66T list3 *. Myanmar -. Dauru /. Digeria The ,+T, guidelines for financial services re=uire that they should not maintain anonymous accounts, perform a thorough customer identification procedures based on reliable documents:data:information, and analy"e and report unusual or suspicious transactions, and have policies, procedures and training to counter money laundering. +ey e"e%ents o' the FATF uide"ines The following are the !ey elements of the ,+T, guidelines. *. The ,+T, defines financial institutions according to their activities. The guidelines are intended to ensure that they meet 6@@, .T , and 6T re=uirements. -. The ,+T, guidelines re=uire that ris!0based customer due diligence #6@@% procedures should be performed by financial institutions. 6@@ is the process of chec!ing and verifying the identity of a customer, and the nature of his or her business, and maintaining such verification and identification throughout the business relationship and transactions. 6@@ should be performed initially during the establishment of a business relationship and later for occasional transactions only. 2t should also be performed when money laundering or terrorism financing is suspected and when doubts arise about previous customer due diligence verifications. /. The ,+T, guidelines prescribe the following processes and procedures to help ban!s detect and prevent money laundering. i. (an!s should collect and store information, intelligence and evidence. 2nformation is material collected that describes events and transactions, for example, reports of suspicious transactions 2ntelligence is information that has value added to it by the process of investigation and analysis. Cvidence is information and matter that could form the basis for proving or establishing a fact. ii. 6ustomers should not be =uestionedE + ban! should not try to obtain evidence of a crime or to conduct an investigation. 2nstead it should assess transactions that seem unusual or suspicious and report them. iii. (an!s should develop procedures to assess transactions fairly. .uch procedures should be based on3 !nowledge of money laundering symptoms, !nowledge of the history and profile of customers, and customers behaviour during transactions. <. + ban! should not $tip off$ customers of its intention to report them to the concerned anti money laundering authorities. The identity of reporters must be !ept secret Su%%ary The ,inancial +ction Tas! ,orce #,+T,% is an intergovernmental body that develops and promotes policies and guidelines for financial services and organi"ations to combat money laundering. The ,+T, consists of /* countries and - international organi"ations. 2ts guidelines comprise forty0nine recommendations. 6ountries and territories with little or no anti money laundering measures are listed by the ,+T, as non0cooperative countries and territories #D66Ts%.

The !ey elements of the ,+T, guidelines for ban!s and financial institutions are as follows. *. is!0based 6ustomer due diligence #6@@% procedures should be performed by financial organi"ations. -. (an!s should collect and store information, intelligence and evidence develop procedures to assess transactions fairly not try to obtain evidence of a crime or to conduct an investigation assess transactions that seem unusual or suspicious and report them R3I 5UIDELINES Introdu*tion 2n +ugust -11-, the eserve (an! of 2ndia # (2% issued guidelines on $8now 9our 6ustomer$ norms and for cash transactions. This was with a view to safeguarding ban!s from being unwittingly used for the transfer or deposit of funds derived from criminal activity #for both deposit and borrowal accounts%, or for financing of terrorism. The guidelines are also applicable to foreign currency accounts or transactions. 2n Dovember -11<, the (2 has issued revised guidelines on $8now 9our 6ustomer #896% Fuidelines 0 +nti Money )aundering .tandards$. These guidelines are based on the ecommendations of the ,inancial +ction Tas! ,orce and the Paper issued on 6ustomer @ue @iligence #6@@% for ban!s by the (asel 6ommittee on (an!ing .upervision. Through these guidelines ban!s are advised by (2 to ensure that a proper policy framewor! on $8now 9our 6ustomer$ and +nti0Money )aundering measures is formulated and put in place with the approval of (oard of @irectors within three months from the date of (2 circular and ensure full compliance with the provisions of the revised guidelines by @ecember -11>. These guidelines are issued under .ection />+ of the (an!ing egulation +ct, *G<G and any contravention or non0compliance with the same may attract penalties under the relevant provisions of the +ct. Note# = ,inancial +ction Tas! ,orce #,+T,% is an inter0governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing = (asel 6ommittee on (an!ing .upervision is the 6ommittee constituted by the (an! for 2nternational .ettlements #an international organisation which fosters international monetary and financial cooperation and serves as a ban! for central ban!s% for providing a forum for regular cooperation among central ban!s on ban!ing supervisory matters. Terroris% Finan*e (2 has been circulating lists of terrorist entities notified by the Fovernment of 2ndia to ban!s so that ban!s may exercise caution if any transaction with such entities is detected. There should be a system at the branch level to ensure that such lists are consulted in order to determine whether a person:organi"ation involved in a prospective or existing business relationship appears on such a list. The authority to which ban!s may report accounts suspected to belong to terrorist entities would be advised in consultation with the government. Forei n Contri6ution Re u"ation A*t -FCRA.7 189:

#i% (an!s are also re=uired to adhere to the instructions on the provisions of the ,oreign 6ontribution egulation +ct, *GH? cautioning them to open accounts or collect che=ues only in favor of associations that are registered under the +ct by the Fovernment of 2ndia. + certificate to the effect that the association is registered with the Fovernment of 2ndia should be obtained from the concerned associations at the time of opening of the account or collection of che=ues. #ii% (ranches of the ban!s are re=uired to exercise due care to ensure compliance and desist from opening accounts in the name of banned organi"ations and those without re=uisite registration. Re*ord 4ee&in ,inancial intermediaries should prepare and maintain documentation on their customer relationships and transactions in order to meet the re=uirements of relevant laws and regulations, and enable any transaction effected through them to be reconstructed. 2n the case of wire transfer transactions, the records of electronic payments and messages must be treated in the same way as other records in support of entries in the account. +ll records of financial transactions should be preserved and maintained in accordance with the provisions of PM)+. As &er the 5rou& AML /o"i*y o' ICICI 3an4 and under /MLA7 re*ords are to 6e retained 'or a &eriod o' 12 years. The /re0ention o' Money Launderin A*t7 1221 Introdu*tion The Prevention of Money0)aundering +ct, -11-, #PM)+% was enacted in -11- and extends to the whole of 2ndia. The Fovernment of 2ndia has subse=uently amended the PM)+ to remove certain shortcomings existing in the earlier version and the +ct has been notified in the 'fficial Fa"ette for implementation with effect from Auly *, -11>. PM)+ is an +ct to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto. PM)+ defines offence of Money )aundering as follows3 ;Whosoe0er dire*t"y or indire*t"y atte%&ts to indu" e or 4no)in "y assists or 4no)in "y is a &arty or is a*tua""y in0o"0ed in any &ro*ess or a*ti0ity *onne*ted )ith the &ro*eeds o' *ri%e and &ro<e*tin it as untainted &ro&erty sha"" 6e ui"ty o' the o''en*e o' %oney-"aunderin .; Let us e$a%ine the o6"i ations o' 6an4in *o%&anies7 'inan*ia" institutions7 and inter%ediaries as &ro0ided in this A*t. /ro0isions o' the /MLA Se*tion 1= o' /MLA states the 'o""o)in as re ards no *i0i" &ro*eedin s. ;nless otherwise provided in section */ of PM)+, ban!ing companies, financial institutions, intermediaries and their officers shall not be liable to any civil proceedings against them for furnishing information as prescribed under clause #b% of sub0section #*% of section *- of PM)+. #This clause states that ban!ing companies:financial institutions:intermediaries should furnish information to the @irector.% Se*tion 1> o' /MLA states the 'o""o)in as re ards the &ro*edure and %anner o' 'urnishin in'or%ation. The Centra" 5o0ern%ent %ay7 in *onsu"tation )ith the Reser0e 3an4 o' India7 &res*ri6e the &ro*edure and the %anner o' %aintainin and 'urnishin in'or%ation under su6-se*tion -1. o'

se*tion 11 o' /MLA 'or the &ur&ose o' i%&"e%entin the &ro0isions o' this A*t. The Fovernment, in of 2ndia consultation with the eserve (an! of 2ndia, has notified the rules under PM)+, for ban!ing companies, financial institutions and intermediaries for3 *. maintenance of records of the nature and value of transactionsI -. procedures J manner of maintaining and the time for furnishing of informationI and /. verification of records of identity of the clients The rules notified under PM)+ are effective from Auly *, -11>. The main highlights of the rules, which are, inter alia, applicable to every ban!ing company are as follows3 *. Maintenance of record of prescribed transactions #nature and value prescribed under the rules% 0 ule / -. Maintenance of information in respect of prescribed transactions in accordance with the procedures and manner specified by the eserve (an! of 2ndia from time to time 0 ule > /. Maintenance of the records for a period of ten years from the date of cessation of the prescribed transactions 0 ule ? <. ,urnishing of the information in respect of prescribed transactions within the specified time frame 0 ule K >. Lerification and maintenance of the record of identity and current address or addresses, permanent address or addresses of the client, the nature of the business of the client and his financial status 0 ule G Further7 the 3an4in Co%&any is re?uired to *o%%uni*ate the na%e7 desi nation and address o' the /rin*i&a" O''i*er o' the 3an4 to the Dire*tor *onstituted under the /MLA. Prescribed Transactions referred to under ule / are as follows3 *. +ll cash transactions of value of more than upees ten la!hs or its e=uivalent in foreign currency 0 ule /#*%#+% -. +ll series of cash transactions integrally connected to each other, which have been valued below upees ten la!hs or its e=uivalent in foreign currency where such series of transactions have ta!en place within a month 0 ule /#*%#(% /. +ll cash transactions where forged or counterfeit currency notes or ban! notes have been used as genuine and where any forgery of valuable security has ta!en place 0 ule /#*%#6% <. +ll Sus&i*ious transa*tions#According to Rule 2(g), the term "suspicious transaction" means a transaction whether or not made in cash which, to a person acting in good faith: 1. Gives rise to a reasona le ground of suspicion that it ma! involve the proceeds of crime" 2. Appears to e made in circumstances of unusual or un#ustified comple$it!" /. Appears to have no economic rationale or onafide purpose% 0 ule /#*%#@% 5rou& AML /o"i*y o' ICICI 3an4 Introdu*tion Money laundering, as already discussed, is a criminal activity with serious conse=uences for financial organi"ations. )aws and regulations are already in place, or are being formulated, in most countries, to prevent and control money laundering. 9ou have read about these in the previous sections. &hat are the conse=uences of not ta!ing money laundering seriously5 +s a ban!, what problems would we be li!ely to encounter if we do not develop a framewor!:standards:policies J procedures for dealing with money laundering practices5 )et us find out. ICICI 3an4@s initiati0es +s a leading ban! in 2ndia, 26262 (an! constantly benchmar!s itself against international practices, regulations and conventions to a reasonable and practicable extent. The (an! has therefore underta!en to establish a global anti money laundering #+M)% framewor! to participate in the international efforts against money laundering and to ensure that it is not used as a vehicle for money laundering. The

proposed anti money laundering framewor! of the (an!, in fact, goes beyond the present regulatory environment in 2ndia. +s part of the anti money laundering framewor!, 26262 (an! has formulated a Froup +M) Policy in Aanuary -11<. The Froup +M) Policy has been revised in @ecember -11<, !eeping in view the re=uirements of (2 on 896 and +M). )et us examine the features of the Froup +M) Policy document which covers the following topics. #i % .cope and ob4ectives of the Froup +M) Policy #ii% +M) .tandards #iii% +M) 'perating .tructure #iv% M2., eporting and 6ompliance #v% 6ustomer +cceptance Policy S*o&e and o6<e*ti0es o' the 5rou& AML /o"i*y 'ur (an! is re=uired to comply with laws and regulations relating to +nti Money )aundering #+M)%. Cvery employee of 26262 (an! plays a !ey role in protecting the (an!s reputation and also prevent it from becoming a channel for money laundering. Hence you must become familiar with the (an!s Froup +nti Money )aundering Policy. )et us see what its scope and ob4ectives are and what it covers. S*o&e The (an!s Froup +M) Policy establishes the standards of anti money laundering compliance and is applicable to all activities of the (an! and its .trategic (usiness ;nits #.(;s% in 2ndia or abroad. ,or the purpose of this policy, the term M.(;s refers to any business group constituted by the (an! for carrying out its activities:offering of products and services, and as may be specified for the purpose of +M) compliance monitoring by the Money )aundering eporting 'fficer #M) '% of the (an!. ,urther, !eeping in view the re=uirements of the recent guidelines of eserve (an! of 2ndia # (2% on 896:+M) dated Dovember -G, -11<, a separate 6ustomer +cceptance Policy for the (an! has been formulated which lays down the criteria for acceptance of customers. The 6ustomer +cceptance Policy forms an integral part of the Froup +M) Policy. 2t contains the basis for the due diligence:ris! profiling:documentation procedures applicable to different types of customers. @etailed +M) procedure manuals for .(;s for different products:services would be laid down in line with the (an!s Froup +M) Policy with the approval of the 6ommittee of @irectors #6'@%. However, if any country or 4urisdiction has any uni=ue +M) re=uirements, overseas .(;s are re=uired to implement such standards and accordingly adopt an appropriate +M) Procedures for the same. .uch +M) policy or procedures shall be an addendum to, the (an!s Froup +M) Policy and would be applicable only to respective overseas .(;s. These addendums will be approved by the 6'@, and are to be read in con4unction with the (an!s Froup +M) Policy. AML and the 3an4As su6sidiaries The (an!s Froup +M) Policy framewor! enshrined in the Froup +M) Policy document is to be used by the subsidiaries of 26262 (an!, including overseas subsidiaries, and 4oint ventures and alliances. The subsidiaries, 4oint ventures, and alliances shall formulate their respective +M) policies #in line with their regulatory re=uirements% with the approval of the respective (oard of @irectors:6ommittee of @irectors and in consultation with M) ' of 26262 (an!. .uch policy documents may cover the +M) procedures too. +ey anti %oney "aunderin o6<e*ti0es &ithin the overall (an!$s Froup +M) Policy framewor!, the !ey anti money laundering ob4ectives of 26262 (an! are3 To prevent the (an!s business channels, products and services from being used for money

laundering. To establish a framewor! for adopting appropriate +M) procedures and controls in the operations and business processes of the (an!. To ensure compliance with the laws and regulations in force from time to time. To protect the (an!s reputation. To assist law enforcement agencies in their effort to investigate and trac! money launderers. To lay down +M) compliance norms for the employees of the (an!. S*o&e and o6<e*ti0es o' the 5rou& AML /o"i*y# Re*a& 26262 (an!s anti money laundering policy #the (an!s Froup +M) Policy% establishes the standards of anti money laundering #+M)% compliance and is applicable to all activities of the (an! including its .trategic (usiness ;nits #.(;s% in 2ndia or abroad. @etailed +M) procedure manuals for .(;s for different products:services are laid down in line with the (an!s Froup +M) Policy with the approval of the 6ommittee of @irectors #6'@%. 2f any country or 4urisdiction has any uni=ue anti money laundering re=uirements, overseas .(;s are re=uired to implement such standards and accordingly adopt an appropriate +M) policy : procedures. The !ey ob4ectives of the (an!s Froup +M) policy include the prevention of usage of the (an! as a channel for money laundering and to ensure compliance with the laws and regulations in force, from time to time so as to protect the (an!s reputation. /i""ars o' AML Standards# +,C and MSTR The +M) standards of the (an! would be primarily based on two pillars, namely, 896 and Monitoring: eporting of .uspicious Transactions #M.T %. .uspicious transactions shall include large as well as cash transactions above a threshold limit as per applicable regulations:(an!s internal guidelines and shall be monitored and reported. @etailed procedure manuals shall be prepared for each .(; illustrating the 896 and M.T re=uirements for the various products. 9ou are already familiar with the term 896. .o let us first loo! at what is mentioned for 896 policies and procedures under the Froup +M) Policy document and how the employees of the (an! can help implement it. Monitorin BRe&ortin o' Sus&i*ious Transa*tions -MSTR. + suspicious transaction is one that is inconsistent with a customers !nown, legitimate activities or with the normal business for that type of account. + satisfactory 896 procedure provides the foundation for recogni"ing unusual or suspicious transactions since !nowledge of the customers normal or expected activities would enable the (an! to recogni"e when a transaction or series of transactions are abnormal. .ufficient guidance and training shall be imparted to staff to enable them to recogni"e potentially suspicious transactions. However, considering the magnitude of the transactions being handled, it would be necessary to develop appropriate software systems to better support the identification and reporting of suspicious transactions. The assessment of suspicious transactions shall be based on a reasonable evaluation of relevant factors, including having information on the clients business, financial history, bac!ground, behavior and threshold limits for transactions as stipulated by applicable regulations and the (an!s internal

guidelines. Monitorin BRe&ortin o' Sus&i*ious Transa*tions -MSTR. The (an! would endeavor to3 a% Cnsure that the .(;s have in place re=uisite processes and technology to3 monitor transactions in order to identify unusual behavior, conduct enhanced due diligence upon such identification, and report any suspicious transaction that has been identified based on the results of such enhanced due diligence. b% Cstablish Management 2nformation .ystems #M2.% to identify critical areas and issues which need to be addressed to prevent money laundering and to provide re=uired information relating to suspicious transactions to the top management and regulatory authorities at pre0determined intervals. c% have proper record maintenance policies and procedures, which would ensure that documents re=uired are available within reasonable period. Monitorin BRe&ortin o' Sus&i*ious Transa*tions -MSTR. Cach .(; shall develop appropriate parameters for transaction monitoring and suspicious behavior in consultation with the M) '. The country 0 and product0specific details of li!ely or potentially suspicious transactions such as large transactions and cash transactions shall be included in specific anti money laundering procedures along with the threshold limits as defined by respective regulations and:or internal guidelines. +ccording to the existing (2 guidelines, cash transactions above s. * million are re=uired to be reported by the branches of ban!s to their controlling offices. Sus&i*ious transa*tions# So%e e$a%&"es The transaction is done by a customer who is listed in a Degative )ist given by the Fovernment or the eserve (an! of 2ndia # (2%. *.There is a large cash deposit that does not match with customer profile #or if this happens fre=uently% -.2mmediate withdrawal of 6ash #within a short duration% after the 6ash is deposited in the 6ustomer account /.+ client starts conducting fre=uent cash transactions in large amounts when this has not been a normal activity in the past. <.The use of )etters of 6redit and other methods of trade finance to move money between countries where such trade is not consistent with the client$s usual business. >.@etailed guidelines on identification of suspicious transactions shall be informed from time to time to the concerned employees by way of e0circulars.+ customer ma!es or receives huge deposits or remittances along with pre0closure of loans or payment of past overdues. ?.There is excessive activity in a hitherto dormant account H.There are fre=uent deposits of foreign travelers$ che=ues K.There are structured transactions, such as ma!ing numerous small remittances to a single account to evade reporting thresholds. Su%%ary Money laundering poses several ris!s including legal and financial ris!s and ris!s to ban!s reputations. (eing aware of these ris!s, 26262 (an! has established a global +M) framewor!. The (an! would follow a ris!0based approach in implementing its anti money laundering framewor!. This involves ris! profiling of various customer and product segments and review and approval of such profiles by the M) '. The anti money laundering standards of the (an! are based on two pillars.

a. 8now your customer #896% b. Monitoring: eporting of .uspicious Transactions #M.T % . Su%%ary a% 8now your customer #896% +vailability of 6ustomer information is a critical element in the effective management of Money )aundering ris!s. The 896 would include procedures for obtaining and verifying customer identification, such as basic and enhanced due diligence procedures. b% Monitoring: eporting of .uspicious Transactions #M.T % + suspicious transaction is one that is inconsistent with a customers !nown, legitimate activities or with the normal business for that type of account. The assessment of suspicious transaction would be based on a reasonable evaluation of relevant factors such as information on the clients business, financial history, bac!ground, behavior and threshold limits for transactions as stipulated by applicable regulations and the (an!s internal guidelines. ICICI 3an4@s AML O&eratin Stru*ture The Audit Co%%ittee The +udit 6ommittee of the 26262 (an! (oard shall supervisethe implementation of the (an!s Froup +M) Policy framewor!. Anti Money Launderin Monitorin 5rou& The +nti Money )aundering Monitoring Froup #+M)F% is a (an!0wide group to ensure proper implementation of the +M) framewor!. The +M)F functions under the overall supervision of the +udit 6ommittee of the (oard. The +M)F for the (an! shall comprise of 6hief ,inancial 'fficer and Treasurer, Head06ompliance and +udit Froup, Head06orporate )egal +dvisory Froup and M) '. The +udit 6ommittee shall review the composition of the +M)F on an annual basis. The =uorum for the meetings of the +M)F shall be any two members, one of whom shall be the M) '. ,rom time to time the +M)F shall analyse the unusual or suspicious activity that may have been escalated by M) ' for its review and decide on action to be ta!en in that regard. +M)F will also be responsible for defining #or estimating% the money laundering ris!s inherent in all the activities of the .(;s and hence, will provide strategic inputs to the +udit 6ommittee. The Money Launderin Re&ortin O''i*er Here are some more functions of the M) '3 Participating in strategic planning meetings, 6omment on proposed plans, specifically if they increase the money laundering ris! exposure of .(;s #for example, expansion into international mar!ets, introduction of products to facilitate cross border payments, etc.%, +dvising the detailed responsibilities of the respective +M) 6ompliance functionaries in consultation with the respective .(; Heads from time to time, and Cscalating to +M)F unusual behavior and suspicious activity or transactions. Fo to the next slide to read some examples of suspicious activities or transactions.

The Money Launderin Re&ortin O''i*er ,inally, the M) 's functions also include3 Monitoring of compliance and exception reporting eviewing all reports #such as the suspicious transaction report or 6ash transaction report% that are to be submitted to regulatory or law enforcement authorities, and ensuring that they are submitted on a timely basis. Su%%ary The +udit 6ommittee of the 26262 (an! (oard shall supervise the implementation of the (an!s Froup +M) Policy framewor!. The +nti Money )aundering Monitoring Froup #+M)F% is a (an!0wide group to ensure proper implementation of the +M) framewor!. 2t functions under the overall supervision of the +udit 6ommittee of the (oard. The +M)F for shall comprise the 6hief ,inancial 'fficer and Treasurer, Head0 is!, 6ompliance and +udit Froup, Head06orporate )egal +dvisory Froup and M) '. The +udit 6ommittee shall review its composition on an annual basis. ,rom time to time the +M)F shall analy"e suspicious activity that may have been escalated by M) '. The Money )aundering eporting 'fficer #M) '% would be a senior level officer of the (an!, who shall have the executive responsibility of monitoring the day0to0day implementation of the (an!s Froup +M) Policy and Procedures. Su%%ary The M) ' shall3 liaison with the regulatory:enforcement authorities on +M) matters submit periodic reports to the +udit 6ommittee review and approve all the products and services offered by the .(;s to ensure compliance with +M) policies and procedures ensure that +M) controls are put in place before any new product is launched comment on proposed plans, specifically if they increase money laundering ris! exposure of .(;s advise the detailed responsibilities of the respective +M) compliance functionaries in consultation with the respective .(; Heads escalate to +M)F unusual behavior and suspicious activity or transactions monitor compliance and exception reporting Anti Money Launderin Co%&"ian*e Fun*tions at S3Us The S3U *o%&"ian*e 'un*tionary Cach .(; Head shall be responsible for implementing the +M) framewor!, policies and procedures in his:her respective .(;. To aid effective implementation, each .(; shall have a designated official to perform +M) compliance function, which will operate independently and report to the M) ' through the respective .(; Heads. The compliance function shall draw upon the expertise from the ris!, compliance, legal, and system functions. .(; compliance officer is responsible for3 Money laundering ris! monitoring, ris! measurement, and ris! evaluation at the respective .(; Cnsuring that the Management 2nformation .ystems #M2.% generated as per the internal policies and regulatory e=uirements

The S3U *o%&"ian*e 'un*tionary The .(; compliance officer is also responsible for3 Providing inputs to employees and managers of the .(; on issues related to money laundering ris!s. Cnsuring that there are comprehensive, updated operating ris! management procedures in line with policies to guide the day0to0day activities of .(;s. 6ollating and maintaining +M) records Cnsuring the validity and accuracy of data used for +M) analysis Monitoring compliance and exceptions reporting The S3U *o%&"ian*e 'un*tionary ,urther, the .(; compliance functionary is also responsible for3 Cscalating of unusual behavior or suspicious activity or transaction to the M) '. Participating in the development of behavior trac!ing models and operations of the +M) system, that is, in defining the rules and models that help identify unusual or suspicious transactions and account activity of a customer. This is basically to set customer behavior patterns which should draw attention when necessary. 6oordination and participation with sub0groups, which are set up from time to time to study specific matters #such as a new regulation, a new product, or a case% Ma!ing specific re=uests to the M) ' for training, systems upgrading, etc. The S3U *o%&"ian*e 'un*tionary Heres a chec!list of the .(; compliance functionarys responsibilities3 Money laundering #M)% ris! monitoring M) ris! measurement M) ris! evaluation at .(; Cnsuring that M2. is generated as per internal policies and regulatory re=uirements Providing inputs to employees:managers of .(;s on M) ris!s Cnsuring comprehensive, updated, operating ris! management procedures in line with policy to guide daily activities of .(;s 6ollating and maintaining +M) records Cnsuring validity and accuracy of data used for +M) analysis Monitoring compliance and exceptions reporting Cscalating unusual behavior and suspicious activity:transactions to M) ' Participating in the development of behavior trac!ing models and operations of +M) system 6oordinating and participating with sub0groups set up from time to time to study specific matters Ma!ing specific re=uests to M) ' for training, systems upgrades, etc. Ro"es and res&onsi6i"ities o' e%&"oyees The ro"e o' e%&"oyees The Human esource Policy of the (an! and all its .(;s shall include the due diligence procedures from an +M) perspective that need to be carried out before employing any personnel including temporary or outsourced manpower. The role of employees in implementing any +M) framewor! is critical. Therefore, they are expected to carry out the stipulated procedures efficiently. They shall maintain strict confidentiality in regard to 896, M.T , and other +M) procedures. +ny inefficient or suspicious behavior of employees shall be

dealt with suitably. 2f any activity is outsourced to any agency:individual, it would be ensured that they would adhere to the guidelines outlined in this Policy. Please note that employees are not expected to play detectivesE That is the role of the regulatory authorities and is best left to them. Cmployees are only re=uired to be vigilant while opening accounts and monitoring transactions. 2n doing so they should D'T in any way communicate to the customers that they are being viewed with suspicion. Most of our customers come to us for bona fide ban!ing needs B it would be unforgivable if we were to communicate by word or action that we suspect them of money laundering activities. The ro"e o' e%&"oyees Deedless to say, ade=uate training programs shall be conducted for all employees on the re=uirements laid down in the policy document as well as in the +M) procedure manuals. .peciali"ed training programs shall also be underta!en to address the needs of3 The M) ', the .(; compliance functionaries, and their staff The employees dealing with high money laundering ris! products The employees with customer contacts or those authori"ed to settle cash or non0cash financial transactions This e0learning module is part of the initiative to train employees and ma!e them aware of the regulatory re=uirements regarding the topic. The ro"e o' e%&"oyees E$*e&tionBEs*a"ation /ro*edures Cmployees are expected to be conversant with the procedures laid down from time time in connection with the 8now 9our 6ustomer J monitoring:reporting of transactions. ,urther, all the exceptions to +M) policy and procedures must be recorded and reported to the Money )aundering eporting 'fficer #M) '% immediately who will deal with the same in accordance with the applicable guidelines. .ignificant exceptions shall be reported to the +udit 6ommittee of the (oard on a =uarterly basis. +ll .(;s shall escalate any identified suspicious activity or transaction to the M) ' in accordance with the instructions on monitoring:reporting of transactions issued by 6orporate 'ffice from time to time. The M) ' shall escalate the suspicious activity or transactions to +M)F. (ased on the review by +M)F, the suspicious activity or transaction in the prescribed format will be reported in accordance with the applicable laws. Su%%ary 26262 (an!s anti money laundering policy #the (an!$s Froup +M) Policy% establishes the standards of anti money laundering #+M)% compliance and is applicable to all activities of the (an! including its .trategic (usiness ;nits #.(;s% in 2ndia or abroad. The policy ma!es for a hierarchical framewor!. +t the top of the +M) framewor! is the +udit committee. The +nti Money )aundering Froup #+M)F% wor!s under the supervision of the +udit 6ommittee and implements the policy thro$ various officers. The Money )aundering eporting 'fficer #M) '% is a senior level officer of the (an! who is responsible for monitoring the day0to0day implementation of the (an!$s Froup +M) Policy and

Procedures. Su%%ary ,urther, .(; heads are responsible for implementing the +M) framewor!, policies, and procedures in their respective .(;s. Cach .(; has a designated officer to perform +M) compliance functions. This officer operates independently and reports to the (an!$s M) ' through the respective .(; head. Su%%ary The Human esource Policy of 26262 (an! and all its .(;s include the due diligence procedures that need to be carried out before employing any personnel, including temporary or outsourced people. Dow, 26262 (an! employees should ensure that they adhere to the guidelines outlined in the policy:related procedures. They are expected to carry out the stipulated procedures efficiently. Therefore, they should be vigilant while opening accounts and monitoring transactions. They should not, however, communicate their suspicion to customers. MIS7 Re&ortin and Co%&"ian*e Introdu*tion 2n respect of the reports and compliance re=uirements 26262 (an! Froup +M) Policy covers the following sections3 ecord 8eeping eporting to the +udit 6ommittee of the (oard eporting Procedures for .ubsidiaries egulatory eporting:2nternal 6ontrols +udit:Monitoring 6ooperative Cfforts ;pdation )et us examine each of them. Re*ord 4ee&in The (an! shall maintain appropriate documentation on its customer relationships and transactions to enable reconstruction of any transaction. The records shall be maintained for a period of ten years from the date of cessation of the transaction. ecords shall be maintained in a manner that facilitates its easy retrieval as and when re=uired. Re&ortin &ro*edure 'or su6sidiaries 2n subsidiaries, the M) ' for each subsidiary shall ma!e a =uarterly report to the (oard of @irectors of the subsidiary and circulate this report to the 6ompliance and +udit Froup of the (an! at the 6orporate 'ffice in Mumbai, 2ndia. The report would contain the following3 observations on deficiencies in compliance with procedures,

a summary of the latest changes in money laundering preventive guidelines or other regulations, information on training provided to staff members during the period, any resources re=uirements, information concerning reports from eporting +ccountants or 2nternal +udit, and a ris! assessment of the impact of new products or services. Re u"atory re&ortin egulatory reporting refers to reports on +nti Money )aundering compliance to regulatory or law enforcement agencies. +ll .(;s must implement necessary procedures and controls to ensure that all regulatory reporting, as laid down by the applicable regulations in the +M) 6ompliance framewor!, is completed properly and within the re=uired reporting timelines. The M) ' or his designated staff shall review all reports submitted to regulatory law enforcement authorities before submission from time to time. Cach .(; must use specific forms or formats as approved by the M) ' for reporting unusual transactions or suspicious transactions or in submitting any other information as may be prescribed. AuditB%onitorin The scope of the internal audit of the (an! shall include testing of compliance with the (an!$s Froup +M) Policy and procedures by the various .(;s. The chec!list of items reviewed, which should include a summary of deficiencies and actions ta!en, must be documented and submitted to the +udit 6ommittee. The (an! shall monitor all )arge Transactions and 6ash Transactions beyond the threshold limits defined by the +M)F. Coo&erati0e e''orts +s a part of its ris! management strategy, the (an! shall cooperate with regard to the law enforcement and mutual assistance programs initiated by various countries as may be re=uired under applicable laws in 2ndia or other laws governing the .(;s. U&dation Fiven the fact that the ris!s the (an! faces are constantly changing and that M) ris! management methodologies, regulations, and tools are also evolving, it is imperative that the (an!s Froup +M) policy document be reviewed, and if necessary, updated on a periodic basis or when there are significant changes in the applicable +M) regulations. The 6ommittee of @irectors #6'@% would be authori"ed to approve amendments to the Froup +M) Policy and approve the +M) procedures for .(;s as may be re=uired from time to time. Su%%ary Here is a gist of the reporting and compliance procedures laid down in the (an!$s Froup +M) Policy. The (an! shall maintain appropriate documentation on its customer relationships and transactions to enable reconstruction of any transaction. The ade=uacy of the (an!s money laundering ris! measurement systems, including any findings of internal and external auditors and advisors, shall be reported to the +udit 6ommittee on a =uarterly basis. The M) ' for each subsidiary shall ma!e a =uarterly report to the (oard of @irectors reviewing

assessing and summing up the anti money laundering measures and any other information about the subsidiary. Cach .(; must report unusual or suspicious transactions to regulatory bodies using specific forms and formats. The (an! shall put in place internal controls such as an ade=uate and well0defined organi"ational structure and explicit allocation of duties and responsibilities. The (an! shall implement an effective internal audit function for testing compliance with (an!$s Froup +M) policy guidelines. This audit report shall be documented and submitted to +udit 6ommittee. CUESTIIONS# *. Placement methods are broadly divided into NDone of the above -. +ccording to (2 guidelines branches should intimate their controlling offices about cash transactions above N s * million /. +ccording to ,+T, money laundering is NProcessing of criminal proceeds in order to disguise their illegal origin <. M) ' will escalate the suspicious transaction to N+M)F >. ,+T, guidelines are intended to meet N6ustomer due diligence procedure ?. Money laundering is N6onverting legal money into illegal money H. .eparating the funds from their illegal source is called -DS%ur'in . K. eports on anti money laundering compliance to regulatory agencies is called N egulatory reportingNQuarterly audit G. Placement methods using ban!ing and financial institutions is broadly divided into N.murfingNClectronic Transfers *1. ,acilities provided by the ban! for the transfer of money via electronic media are called NClectronic transfers **. 26262 ban! maintains records on customer transactions in order to N econstruction of any transactions *-. Passport of the customer is used for N2dentity proofN+ddress proof */. The stage where legitimate explanation is given to illegitimate funds is called N2ntegration stage *<. &hat are the !ey anti money laundering ob4ectives of 26262 ban! NTo protect the ban!Os reputationNTo ensure compliance with the laws and regulations in force from time to time *>. +t which stage of the money laundering process it is relatively easy to detect the crime NPlacement stage *?. (an!s are re=uired to apply basic due diligence for Nlow ris! customers *H. +ll .(;s would conduct ris! profiling of various N6ustomer segments *K. +ppointing a compliance officer within a organi"ation falls under which aspect of money laundering regulations N2nternal policies and procedures

*G. 26262 ban! will have proper record maintenance policies and procedures in place to NCnsure re=uired documents are available within reasonable period of time -1. &hat does reselling and repurchasing assets for laundering money do N,urthers integration -*. &hat forms an integral part of 26262 ban!Os group +M) policy -DCusto%er identi'i*ation &ro*edures. --. 2llegal activity where stac!s of gold, cash, 4ewllery or even rare stamps are moved from place to place is called N.muggling -/. Cach .(; will develop appropriate measures for transaction processing in consultation with NM) ' -<. )aundering money by putting it in cash intensive businesses li!e restaurants is called N(usiness recycling ->. .(; compliance officer also does NMa!ing specific re=uest to M) ' -?. This document is accepted as an identity proof at the time of opening the account N@riving license -H. +de=uate diligence is the fundamental re=uirement for any business transaction NTrue -K. Cffective element of a 8now your customer #896% procedure is N'n going monitoring -G. ;se of multiple cash deposits each smaller than the minimum cash reporting re=uirements is called -DS%u "in . /1. Placement stage is when cash is channeled into N(an!s /*. This is not a step in the money laundering process N ecovery stage /-. PM)+ was enacted in -D:B1>B182>. //. &hich intergovernmental body develops promotes anti money laundering guidelines N,+T, /<. +ll .(;s must implement necessary procedures and controls to ensure N egulatory reporting />. This is not a sources of funds for illegal money N6harity /?. egulations empowering the director to levy a fine or order on ban!ing companies or financial institutions or intermediaries for failure to comply with provisions of section *- are laid down in N.ection */ /H. @riving license of the customer is used for N2dentity proof /K. Photo debit card of the customer is used for N2nvalid /G. The ban!Os approach for establishing a customer behavior pattern includes N('TH <1. The ban! shall deal with the ban! providing services to shell ban!s only with the prior approval of the ban!Os +M)F NTrue

<*. &hich section of the PM)+ tal!s about ban!ing companies, financial institutions and intermediaries should maintain records -DSe*tion 1E. <-. Process whereby people send each other money without going through the ban!ing system is called N+lternative remittances </. &hich of these is not non ban!ing method of laundering money -DA"ternati0e re%ittan*es. <<. Fovt of 2ndia in consultation with (2 has notified the rules under PM)+, for ban!ing companies, financial institutions and intermediaries for NMaintenance of records of the nature and value of transactionsNLerification of records of identity of clients <>. &hich section of the PM)+ tal!s about civil proceedings N.ection *< <?. The stage where clean money is mixed with illegal money to disguise it further is called N)ayering <H. 26262 ban! will monitor all cash transactions beyond the threshold limit set by the -DAML 'ra%e)or4. <K. 6ommon means of integrating money into the financial system is -D3usiness re*y*"in . NCxport import transactions <G. 6ustomer identification procedures fall under which aspect of money laundering regulations N8now your customer #896% >1. &hat approach would 26262 ban! adopt in implementing its anti money laundering framewor! -D5rou& 6ased. >*. This means also features in the placement methods of laundering money NClectronic transfers >-. ,+T, provides guidelines for anti money laundering policies and procedures at NThree levels >/. 6onse=uences of money laundering are N,inances TerrorismNCndangers society at largeN@rains the national treasury ><. (efore offering its services to its correspondent ban!s 26262 ban! will N6hec! whether the correspondent ban! complies with an acceptable money laundering program >>. evised anti money laundering guidelines of (2 cover N6ustomer acceptance policyN is! ManagementN6ompliance management >?. (asic due diligence is an approach the ban! ta!es to N2dentify and verify customers >H. Pillars of +M) standards are N8now your customer #896%NMonitoring:reporting of suspicious transactions >K. .ignificant suspicious activity is reported to the audit committee on -DFortni ht"y. >G. &ho can call for records defined in the section */ of PM)+ -DMRLO. ?1. is! profiles of customer segments should be submitted to the board of directors of the ban! N,alse ?*. &hen a customer moves from a low ris! to high ris! the approach used is NCnhanced due diligence ?-. 2nternal controls must be ade=uately supplemented by

-DRe&ortin &ro*edures DE$terna" *ontro"s. ?/. .(; compliance officer is responsible for NMoney laundering ris! monitoringNManagement 2nformation .ystems #M2.% ?<. +t what point it is difficult for the ban! to distinguish between legal and illegal funds N2ntegration ?>. (efore employing temporary or outsourced people 26262 ban! adheres to NH policies ??. This is the preferred means of laundering money accumulated by tax evasion N'ffshore ban!s ?H. M) ' will submit the =uarterly report to N(o@ of the .ubsidiary ?K. Transactions that are inconsistent with the customerOs !nown legitimate activities are called N.uspicious transactions ?G. How many special regulations were issued to combat terrorist financing NG H1. ,rom the cessation of the date of the transaction, 26262 ban! maintains records of the transaction for a period of N*1 years H*. + ban! which doesnOt have any physical presence in any country is called N.hell ban! H-. 26262 formulated Froup +M) policy in -D1B1B122>. H/. 6ompanies that are set up according to the laws of the land but do not do any real business are called N.hell corporations H<. +bove the +M) framewor! is N+udit committee H>. This is a suspicious transaction N6ustomer ma!es or receives huge deposits or remittances along with pre0closure of loans payments of previous over dues H?. ,+T, guidelines consist of how many regulations N<1 HH. 2nformation of the violation of the provisions of section *- is provided to the director by -D3an4ers.

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