BASICS OF AML & KYC

Presentation by
***
Team BANKEDGE

***
 What is Money Laundering?
➢ Itis 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- do’s & don’ts
➢ 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 bank’s 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 who’s 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 customer’s 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
➢ Screening of employees before hiring and of
those who have access to sensitive information
➢ Appropriate quality training to staff
➢ Quick and timely reporting of suspicious
transactions
 SUSPICIOUS TRANACTION
➢ 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;
 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 Customer

Money Laundering
Laws due Diligence
Prevention

Identifying
Irregular / Suspicious
Transactions
 


Thank You