Banker-Customer + +

KYC

RELATIONSHIP AML

DHRUV KUNAL SAKSHI SHADAB SHRADHA UDAY

Contents

Relationship Anti-money
Between KNOW YOUR
laundering CUSTOMER
bank and and its
customer prevention

Let us see how important is the relationship between bank and customer
ENDLESS ACTIVITIES PERFORMED BY BANK ESTABLISHING VARIOUS
KINDS OF RELATIONSHIPS WITH CUSTOMERS

Borrowing and lending of money.

Collecting Negotiable instruments on behalf of the
customer.
Dealing in foreign exchange.
Granting Letter of Credit to customers.
Providing Safe custody facility / lockers.
Acting as an agent on behalf of the customer.
Underwriting & dealing in stocks, shares on behalf of
the customer.
Issuance of Guarantees.
Dealing with property that may come to it as security in
satisfaction of its outstanding claims.
Offering different value added services like ATM, Online
banking and internet banking.
Issuance of currency notes.
TYPES OF RELATIONSHIPS

Debtor Creditor

Trustee Beneficiary

Agent Principal

Lessor Lessee

Bailee Bailor
MONEY LAUNDERING
and its prevention
MONEY LAUNDERING

•
Appears to
Illegally Conversion originate from
obtained money legitimate
source

Drugs / Arms Trafficking

Criminal Activity
Terrorism
Extortion
Sec.3 of PML Act, 2002 defines the offense
of‘money laundering’ as:
“ Whosoever directly or indirectly attempts to
indulge or knowingly assists or knowingly is a
party or is actually involved in any process or
activity connected with the proceeds of crime
and projecting it as untainted property shall
be guilty of the offence of money-laundering”
Money laundering generally refers to ‘washing’ of
the proceeds or profits generated from:
(i) Drug trafficking
(ii) People smuggling
(iii) Arms, antique, gold smuggling
(iv) Financial frauds
(v) Corruption, or
(vi) Illegal sale of wild life products and other specified
predicate offences
STAGES
OF MONEY
LAUNDERING
 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 Layering: Use of multiple Integration: Laundered funds are
are first brought into the financial accounts, banks, intermediaries, made available as apparently
system corporations, trusts, countries to legitimate funds.
disguise the origin.

Important: All money laundering transactions need not go through this three-stage process.
Topologies/ Techniques employed

• Connected Accounts
• Payable Through Accounts
• Forex Money Changers
• Credit/ Debit cards
• Investment Banking and the Securities Sector
• Insurance and Personal Investment Products
• Lawyers, Accountants & other Intermediaries
• Misuse of Non-Profit Organisations
One of the biggest threats

 Financing of Terrorism

Legal sources Illegal sources

Money Laundering Risks

Reputational Operational Legal Concentration

 High risk areas of AML
High risk countries
 Drug producing countries
 Countries with high levels of corruption
 Countries linked to terrorist financing

High risk customers

 Private money transmitters
 Money changers
 Real estate dealers
 Casinos, gambling outfits
 Non profit organizations –charities

High risk services

 Wire transfers
 Private banking
 Correspondent banking
 Electronic banking services-internet, debit/credit cards
MONITORING

SUSPICIOUS
TRANSACTIONS

CASH
TRANSACTIONS

Is a very important step

MEASURES TO DETER ML
 Board and management oversight of AML risks
 Appointment a senior executive as principal officer with
adequate authority and resources at his command
 Systems, controls & Documentation - identify, assess & manage
the money laundering risks
 Make a report to the Board on the operation and effectiveness of
systems and control
 Creating customer profiles
 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
 Observing Rules for
Bankers

Compliance with Customer

Money Laundering
Laws due Diligence
Prevention

Identifying
Irregular / Suspicious
Transactions
Indian Scenario/Initiatives
Prevention of Money Laundering Act, 2002
 Under the PMLA 2002, rules were framed in 2005 & 2009
 Setting up of the FIU-IND in 2004
 Section 12 of the Act casts certain obligations on banking
companies/Financial Institutions/Intermediaries in
regard to reporting of customer account information and
preservation of records
 Maintenance of record of all cash transactions above Rs
10 lakhs
 All series of cash transactions of value less than Rs 10
lakhs integrally connected if they have taken place within
a month (aggregate value above Rs 10 lakhs)
 All cash transactions here forged or counterfeit notes
have been used.
 All suspicious transactions made in cash or otherwise.
Mandates banks to report certain transactions
to the nominating agency under instructions
issued by RBI in consultation with the Indian
Government and Indian Bank’s Association
 Demand drafts, mail transfers and travelers cheques for Rs. 50,000/- and
above can be issued only by debit to customer’s account or cheque etc,
and not against cash payment
 Demand drafts, mail transfers and travelers cheques for Rs. 50,000/- and
above can be paid by banks only by credit to customer’s account or
through other banking channels and not cash
FIU-preservation and reporting
requirements
Preservation of records for 10 years
Reporting to FIU
Manual reporting of cash transactions
(CTR) & suspicious transactions (STR)
Consolidated reporting of cash
transactions
ONE OF THE MOST IMPORTANT MEASURES TO CURB THIS
MENACE

 To enable the Bank to have positive identification of

its relationship

 Is in the interest of customers to safeguard their

hard earned money
Elements of KYC
Customer Acceptance Policy
Customer Identification Procedure- Customer
Profile
Risk classification of accounts- risk based
approach
Ongoing monitoring of account activity
Reporting of cash and suspicious transactions
Customer Acceptance - Ensure that only
legitimate and bona fide customers are
accepted.

Customer Identification- Ensure that

customers are properly identified 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.

Guidelines issued by RBI, SEBI & IRDA

Customer Acceptance -.
• Ensure acceptance of only legitimate and bona fide customers
– Issue of mechanism to verify ID
– Issue of Multiple IDs
– Issue of list of suspects/criminals/unwanted elements
– Awareness and training of staff

Customer Identification-
• Ensure that the customers are properly identified to understand the risks they
may pose.
– Background check of new customer
– Background check of existing clients
– Issue of List of suspects/criminals/unwanted elements
– Awareness and training of staff
Transactions Monitoring-
• Monitor customers accounts and transactions to prevent or detect illegal
activities.
– Issue of Mechanism to verify financial details
– Transactions inconsistent with customers profile (business)
– Unexplained transfers between multiple accounts with no rationale
– Sudden activity in dormant accounts

Risk Management-
• Implement processes to effectively manage the risks posed by customers trying
to misuse facilities.
– Categorization of customers: high/medium/low risk : a dynamic concept
– Constant interaction between front desk and the compliance team required
– Awareness and training of staff
Three risk categories : Know your customer

Risk Category Accounts opened/Certificate

purchased with initial deposit

Low Risk below Rs.50,000

Medium Risk between Rs.50,000 to Rs.10 lakh

High Risk above Rs.10 lakh

List of KYC DOCS FOR VARIOUS CUSTOMERS

RBI HAS LAID DOWN
SPECIAL EMPHASIS ON
KYC NORMS BEING
STRICTLY FOLLOWED
TO PREVENT MONEY
LAUNDERING THUS BANKER
STRENGTHENING
RELATIONSHIP
BETWEEN CUSTOMER
AND BANKS