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

Contents

Background

About FIU-IND

Legal Framework

Verification of identity

Furnishing information

AML and Tax Compliance

FIU-IND

Background

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.

Forty Recommendations - Complete set of counter-measures against money

laundering
Nine Special Recommendations on Terrorist Financing

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

Background of FIU-IND
Set up vide Government of Indias 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

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

10

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:

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

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.

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:

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

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

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

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

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

Process

Selection of appropriate AML solution and analytical tools

Money laundering typologies

People

New Roles and Responsibilities

Identity matching with hot list of individuals and entities
Mechanism to verify financial details

Technology

Decentralized databases
Data not captured in electronic form

Awareness
Training

Compliance Cost
Confidentiality and Privacy

FIU-IND

Data Quality of Reports

Significance

Meet data requirements of data mining, identity matching

Reduce false positives

Validation of data files

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

26

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

sanjeev.singh@fiuindia.gov.in

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