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8/3/2019 AML and KYC (new)
http://slidepdf.com/reader/full/aml-and-kyc-new 1/20
BASICS OF AML & KYCBASICS OF AML & KYCPresentation by
*** p.k.mukherjee
8/3/2019 AML and KYC (new)
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What is Money Laundering?What is Money Laundering? It is a process of making dirty money clean.
Money is moved around the financialsystem again and again in such manner that
its origin gets hidden.
Money generated from illegitimate source is
converted into that derived from legitimate
source
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Money Laundering ProcessMoney Laundering Process PLACEMENT-
entry of funds in bankingsystem
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Money Laundering ProcessMoney Laundering Process
LAYERINGdistancing of funds from
point of entry
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Money Laundering ProcessMoney Laundering ProcessINTEGRATION
usage of funds
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Engaging in transactionsinvolving property derivedfrom criminal activity
Helping to concealOrigin or ownershipof proceeds of criminal activity
Types of Money Laundering
activities
Structuring financialtransactions to avoid
reporting requirements
Handling
funds used
to finance terrorism
MoneyLaundering
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Common sources of moneyCommon sources of money
launderinglaundering 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 organisedcrime leading to eroding of political & social system===
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Techniques used by money launderersTechniques used by money launderers
1. No. of cash deposits in same/numerous a/cs2. 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 information6. Back to back loans
7. Remittance services/hawala
8. Credit /debit card
9. Internet banking10.International trade & finance
11.Shell companies
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Techniques used by money launderersTechniques used by money launderers
12.Gold and diamond market13.Politically exposed persons/ corruption
14.Charities/ non profit organisations
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CONSUMER DUE DELLIGENCECONSUMER DUE DELLIGENCE -- Guiding PrinciplesGuiding Principles
1. Do business only with reputable clients involved inlegitimate and lawful business activities.
2. Determine and record the identity, background and
business of all clients.
3. Identify and know the beneficial owners of allrelationships.
4. Understand the business purposes for which bank¶s
products and services are used.
5. Reasonably estimate types and levels of client¶santicipated transactions to regularly monitor for
unusual or suspicious activity and take appropriate
action when questions or inconsistencies arise.
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RISK BASED PROCESSESRISK 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
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Components of AML programmeComponents 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
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Monitoring of accountsMonitoring 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
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WAYS AVAILABLE FOR EXCHANGEWAYS AVAILABLE FOR EXCHANGE
OF INFORAMTIONOF INFORAMTION
1. Access of information from countries where
Mutual Legal Assistance Treaty is signed
2. Financial Intelligence Unit( FIU) MOU
3. Supervisory gateway
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Criticism of AML ProgrammeCriticism 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
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Bank officersBank officers-- do¶s & don¶tsdo¶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
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What KYC means?What KYC means? Customer?
One who maintains an account, establishes businessrelationship, on who¶s behalf account is maintained, beneficiary of accounts maintained by intermediaries, andone who carries potential risk through one off transaction
Your
?W
ho 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
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What KYC means?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?
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KYC DOES NOT MEANKYC 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
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Thank You
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