BASICS OF AML & KYC

Presentation by *** p.k.mukherjee

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

Money Laundering Process

LAYERING distancing of funds from point of entry

Money Laundering Process INTEGRATION usage of funds

Types of Money Laundering activities

Engaging in transactions involving property derived from criminal activity

Helping to conceal Origin or ownership of proceeds of criminal activity

Money Laundering

Handling funds used to finance terrorism

Structuring financial transactions to avoid reporting requirements

Common sources of money laundering

Corruption Fraud Illegal trafficking of drugs, weapons, people Contract killing, extortion, payment to political parties, politicians Terrorism smuggling

== if unchecked ML could lead to shift of power to organised crime leading to eroding of political & social system===

Techniques used by money launderers 1. No. of cash deposits in same/numerous a/cs 2. Cash deposits followed by TT 3. Increase in turnover in dormant a/cs 4. Receipt/Payment of cash from/to unrelated to business 5. Providing fictitious information 6. Back to back loans 7. Remittance services/hawala 8. Credit /debit card 9. Internet banking 10.International trade & finance 11.Shell companies

Techniques used by money launderers

12.Gold and diamond market 13.Politically exposed persons/ corruption 14.Charities/ non profit organisations

CONSUMER DUE DELLIGENCE

- Guiding Principles

1. 2. 3. 4. 5.

Do business only with reputable clients involved in legitimate and lawful business activities. Determine and record the identity, background and business of all clients. Identify and know the beneficial owners of all relationships. Understand the business purposes for which banks products and services are used. Reasonably estimate types and levels of clients anticipated transactions to regularly monitor for unusual or suspicious activity and take appropriate action when questions or inconsistencies arise.

RISK BASED PROCESSES

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

Components of AML programme

Personal accountability at senior level Culture, communication, staff training Good understanding of regulation and global

initiatives Enhanced account opening controls Identification & investigation of high risk payments Identification of suspicious activity Record keeping

Monitoring of accounts
(a) Geography & country (b) business & entity (c) product &

transaction 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

WAYS AVAILABLE FOR EXCHANGE OF INFORAMTION

1. Access of information from countries where Mutual Legal Assistance Treaty is signed 2. Financial Intelligence Unit( FIU) MOU 3. Supervisory gateway

Criticism 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 officers 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

Thank You