By

Vishnu M V
 Money laundering can be described as the
process by which a person conceals or
disguises the identity or the origin of illegally
obtained proceeds so that they appear to
have originated from legitimate sources.
 The financing of terrorism can be described
as the process by which a person tries to
collect or provide funds with the intention
that they should be used to carry out a
terrorist act by a terrorist or a terrorist
organization
 exploit economic and financial globalization
 have serious social consequences
 provide drug traffickers
 grow organized criminal groups
 grow arms dealers and other criminals
 strike at the integrity of a country's financial
institutions.
 It distorts the operation of markets
transactions
 Placement
Getting Currency into the
financial system so as to
convert illicit funds from cash
straight into a financial
instrument or bank account
Layering
The movement of funds from
institution to institution to hide
the source and ownership of
the funds, obscure the audit
trail and sever the link with the
original crime

Integration
The reinvestment of those
funds in an ostensibly
legitimate business so that no
suspicion of its origins remains
and to give the appearance of
legitimizing the proceeds
 Placement Layering Integration
• Smurfing
• Tax Havens & • Use of haven bank
• Shipping Money Offshore Banks credit cards
Abroad • Receiving as
• Bank Secrecy Law as
• Placement through a layering tool consulting or
directors fee
Banks
• Corporations & Shell • Arrangement of
• Use of “Pass Companies as a corporate loans
Through” or layering tool
• Proceeds of
“Payable Through”
• Use of trusts gambling
Accounts
• Use of walking • Real estate
• Electronic Wire transactions
accounts
Transfers • Stock Purchase
• Establishing self
• Insurance Products • Use of business
owned bank
• Investment Related • International
• Use of intermediaries
Transactions importing and
exporting
•
 Acceptance of flight capital by western countries
 Laws and limitations of other countries
 Jurisdictional conflicts and lack of international
coordination
 Tax heavens as sanctuaries
 Offshore corporations
 Having to prove fraudulent transfer
 Bankings’ role in facilitation of the activity
 Bank Secrecy
 Volume and complexity of international transfers of
funds
 Internet based banking
 Shortfall of reporting requirements
 Criminals influencing Government and Bank
support
 The widespread use and acceptance of trade mis-
pricing
 Bank Fraud Business Loans Internet Services

Cheque Fraud Counterfeiting Cramming

Fake Ads & Directories Fraudulent Orders Supply Scams

 A money launder's objective in laundering ill is
to : Get it out; cover it up; bring it back
• Undue Delay in Processes
• Excessive intervention by Judiciary
• Very less time in law making
• Considering of problem rather than cause of the problem
• More interest before investigation but no interest in
concluding the cases
• Understand the need for creation / modification of laws to curb /
eliminate opportunities for scams / frauds based on the study
of global scenario
• Ensure appropriate powers to law enforcement agencies
• Provide facility for 2/3 levels of appeal before any one approach
the judiciary
• Ensure time bound completion for the cases / designating case
officer
• Announce very severe punishment for committing the crime
• Introduction of Compulsory Operations Audit on a periodical
basis
 Utilize services of professionals such as Chartered
Accountants, Advocates & Company Secretaries for
conducting pre-enquiries with regard to various indicators
available from news media

 Be independent from every business not only on paper but

otherwise
 Money to fund terrorist activities moves through the global
financial system via wire transfers and in and out of personal
and business accounts. It can sit in the accounts of illegitimate
charities and be laundered through buying and selling
securities and other commodities, or purchasing and cashing
out insurance policies.
 Although terrorist financing is a form of money laundering, it doesn’t
work the way conventional money laundering works. The money
frequently starts out clean i.e. as a ‘charitable donation’ before
moving to terrorist accounts. It is highly time sensitive requiring
quick response.
 Legal Sources of terrorist financing
 Collection of membership dues
 Sale of publications
 Cultural of social events
 Appeal to wealthy members of the community
 Donation of a portion of personal savings
 Illegal Sources
 Kidnap and extortion;
 Smuggling;
 Fraud including credit card fraud;
 Misuse of non-profit organizations and charities fraud;
 Thefts and robbery; and
 Drug trafficking
 What are the risks to banks?

 Reputational risk
 Legal risk
 Operational risk (failed internal processes, people and systems
& technology)
 Concentration risk (either side of balance sheet).
 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
 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?
 Customer Acceptance Policy.
 Customer Identification Procedure- Customer Profile.
 Risk classification of accounts -Risk based
Approach
 Risk Management.
 On-going monitoring of account activity.
 Reporting of cash and 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;

 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.
 Large cash deposits into same 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
 Board and management oversight of AML risks.
 Appointment a senior executive as principalofficer
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
 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.
 Performing customer due diligence (CDD) is one of the most important
components of any AML/CFT regime. In order to identify and
address money laundering and terrorist financing risks, companies must be
able to establish that their clients are who they say they are and have been
transparent about the nature of their business.

 Customer due diligence sometimes referred to as Know Your

Customer (KYC), is a process of background checks run in accordance with
legislation and in relation to the level of risk presented by the customer.
 Money Laundering process can be prevented on following various
guidelines.

1) Observing and following rules for bankers.

2)Compliance with laws.

3) Identifying irregular/Suspicious transactions.

4) Effective Customer Due Diligence.

Thank You