BASICS OF AML & KYC

Presentation by
***
Rohit Girdhar
Rishu Yadav
Aman kashyab
Sumit Malik
Abishake bansal
***

What is Money Laundering?

It is a process of making dirty money

clean.
Money is moved around the financial
system again and again in such manner
that its origin gets hidden.
Money generated from illegitimate source
is converted into that derived from
legitimate source

Money Laundering Process

PLACEMENT-

entry of funds in banking system

LAYERING
distancing of funds from point of
entry
INTEGRATION
usage of funds

some ways of ML
Number

of cash deposits in same a/c /

numerous accounts
Increase in turnover in dormant a/c
Receipt & payment of cash from/to unrelated to
business/relationship
Reluctance in providing fictitious/ minimal
/normal information
Deposit of third party cheques
Sudden increase in cash deposit in a/c from
abroad

Financial Institution used as

conduit

By Offshore shell corporations

By Trusts located at multiple jurisdiction with
banking secrecy and corporate secrecy
clauses
By
Directors,
shareholders,
authorized
signatories
Banking secrecy- delay in investigation no
direct information
corporate secrecy- ownership information is not
easily revealed- (FATF- 40 -2003 ?)

AML & CFT PRACTICES

POLICIES
PROCEDURES
CONTROLS
COMPLIANCES
TRAINING
INTERNAL AUDIT

RISK BASED PROCESSES

Use of AML SOFTWARE

Identification of high risk areas such as:

cash intensive businesses,
import Export businesses,
Politically exposed persons (PEPs),
correspondent banking,
non face to face businesses,
charitable institutions
Aim: identification of beneficial ownership of
various accounts

Monitoring of accounts
Linking

of multiple accounts in multiple

jurisdictions with number of people.
Comparing account activity against transaction
history and comparison with peer accounts
<<<Tools>>>
AML transaction trend monitoring software + Link
Analysis software + good data base & name
recognition software

AML skills development

Customer information- building up to

date KYC design
Training & Awareness
Flagging high risk accounts
Transaction monitoring

WAYS AVAILABLE FOR

EXCHANGE OF INFORAMTION
1. Access of information from countries
where Mutual Legal Assistance Treaty is
signed
Financial Intelligence Unit( FIU) MOU
Supervisory gateway

Critical view of AML Programme

Compliance overhead
No value addition
Delivers little
Contributes little to bottom

line
Increased compliance cost
Excessive regulation
Competitive disadvantage
Case of misplaced energies

Bank officers- dos & donts

Exercise

constant vigilance right from opening

of new accounts
Know your customer & know your colleagues
Separate legitimate business & illegitimate
/irregular/ suspicious business
Always think of banks reputation/clean image
Develop risk aware culture- a good customer
today may not be good tomorrow
Do not exercise willful blindness
Involve in public awareness of KYC issues

What KYC means?

Customer?
One who maintains an account, establishes business
relationship, on whos behalf account is maintained,
beneficiary of accounts maintained by intermediaries,
and one who carries potential risk through one off
transaction
Your? Who should know?
Branch manager, audit officer, monitoring officials, PO
Know? What you should know?
True identity and beneficial ownership of the accounts
Permanent address, registered & administrative
address

What KYC means?

Making reasonable efforts to determine

the true identity and beneficial ownership

of accounts;
Sources of funds
Nature of customers business
What constitutes reasonable account
activity?
Who your customers customer are?

KYC DOES NOT MEAN

Denial of Service to the Common Person
Intrusive Behaviour
Use of information for cross selling
Harassment of customers- threatening to

close down the accounts arbitrarily

Advantages of KYC norms

Sound KYC procedures

have particular
relevance to the safety and soundness of
banks, in that:
They help to protect banks reputation and the
integrity of banking systems by reducing the
likelyhood of banks becoming a vehicle for or a
victim of financial crime and suffering
consequential reputational damage;
They provide an essential part of sound risk
management system (basis for identifying,
limiting and controlling risk exposures in assets
& liabilities)

Core elements of KYC

Customer Acceptance Policy
Customer Identification Procedure-

Customer Profile
Risk classification of accounts- risk based
approach
Risk Management
Ongoing monitoring of account activity
Reporting of cash and suspicious
transactions

Measures to deter money

laundering

Board and management oversight of AML risks

Appointment a senior executive as principal
officer with adequate authority and resources at
his command
Systems and controls to identify, assess &
manage the money laundering risks
Make a report to the Board on the operation and
effectiveness of systems and control
Appropriate documentation of risk management
policies, their application and risk profiles

Measures to deter money

laundering

Appropriate measures to ensure that ML risks are

taken into account in daily operations,
development
of
new
financial
products,
establishing new business relationships and
changes in the customer profile
2. Screening of employees before hiring and of
those who have access to sensitive information
3. Appropriate quality training to staff
4. Quick
and timely reporting of suspicious
transactions
1.

SUSPICIOUS TRANACTION
Suspicious transaction

means a
transaction whether or not made in cash
which, to a person acting in good faith
2.

3.

4.

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;

Suspicious Transactions

Providing misleading information / information

not easily verifiable while opening an Account
Large cash withdrawals from: a dormant or
inactive account or account with unexpected
large credit from abroad
Sudden increase in cash deposits of an
individual with no justification
Employees leading lavish lifestyles that do not
match their known income sources

Suspicious Transactions
Large cash deposits into same account
Substantial increase in turnover in a

dormant account
Receipt or payment of large cash sums
with no obvious purpose or relationship to
Account holder / his business
Reluctance to provide normal information
when opening an Account or providing
minimal or fictitious information

Role of cash in money laundering

Disguise the audit trail
Provide anonymity
Concealing true ownership and origin

of money
Control over money
Changing the form of money

DUE DATES
Cash Transaction Report

by 15th of the succeeding month.

Suspicious Transaction Report

within 7 days of arriving at a conclusion that

any transaction is of suspicious nature.

DUE DATES
Cash Transaction Report

by 15th of the succeeding month.

Suspicious Transaction Report

within 7 days of arriving at a conclusion that

any transaction is of suspicious nature.

Summary: Prevention of Money

Laundering
Observing Rules for
Bankers

Compliance with
Laws

Money Laundering
Prevention

Identifying
Irregular / Suspicious
Transactions

Customer
due Diligence

Thank You