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Prevention of MoneyLaundering
ByMs. Lakshmi Arun
Assistant Director
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Have any of you whohave not experienced
giving bribe directly orindirectly?
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How do you think that the
money earned out ofcorruption, bribery etc is
utilised by Criminals?
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Some taunting facts
According to United Nations office ofDrugs and Crime, the estimated amount ofmoney laundered globally in one year is 2
- 5% of global GDP, or $800 billion - $2trillion in current US dollars.
According to Corruption Perception Index2011 India is in 95th position, where asaccording to doing business report 2012 ofthe world bank India is in 132ndposition.
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Some taunting facts
As many as 62% of all citizens think that corruption isreal and they have in fact have had first hand experienceof paying a bribe orusinga contactto get a job donein a public office India Corruption Study 2005 by
Transparency International. In the book 'Corruption in India: The DNA and RNA'
authored by Professors Bibek Debroy and LaveeshBhandari say that the public officials in India may becornering as much as Rs.92,122 crore ($18.42 billion), or
1.26 per cent of the GDP, through corruption. The booksestimates that corruption has virtually enveloped Indiagrowing annually by over 100 percent (Source :Economic Times Dated December 11, 2011)
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Result.
Black Money and its laundering
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Act of Money Laundering
Process by which illegal funds andassets are converted into legitimatefunds and assets.
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How the process takes place
Entry of illegal funds into the system-Placement
Distancing of funds from its origin-Layering
Laundered funds are made available aslegitimate funds-Integration.
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The Process
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How Does It Work?
Sell cocaine and get a million dollars.
Take the million in cash to the some Islands.
Buy a legitimate company , complete with a board of
directors. Open a bank account in the companys name and deposit
the rest of the money.
Enjoy the islands, get some sun, then go home.
When you get home, borrow $200,000 from the Companyaccount and have it delivered via wire transfer.
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How does it work?
Open a restaurant.
Deposit proceeds from ongoing drug business along with
proceeds from the restaurant every month into a legitimate
bank account. Dont add too much illegal money, just
enough to make it look as though your restaurant is doing a
good, healthy business.
Pay all of your taxes on the restaurant deposits, so the tax
authorities dont start an investigation.
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Parliamentary History of the
Law.
The PML bill, 1998 was introduced in Lok Sabha on 04-08-1998.
Referred to Standing committee on finance on 05-08-1998.
The committee submitted its report on 04-03-1999.
The bill was presented in Rajya Sabha on 08-03-1999.
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Parliamentary History of the
Law.
The PML, Bill 1999 was presented in Lok Sabha on 29-10-1999.
The PML, Bill 1999 was passed in Lok Sabha on 02-12-1999.
Rajya Sabha referred the bill to Select committee. The committee finalised its report on 24thJuly, 2000.
The present act after being passed by both the houses received
the assent of the president on 17thJanuary, 2003.
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What is a FinancialIntelligence Unit?
A financial intelligence unit (FIU) is a central agency of a
government that
1. receives financial information pursuant to country's anti-money
laundering laws
2. analyzes and processes such information and
3. disseminates the information to appropriate national and
international authorities, to support anti-money laundering
efforts.
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Broad Regulatory Framework
The Prevention of Money Laundering Act, 2002 Prevention of Money-laundering (Maintenance
of Records of the Nature and Value ofTransactions, the Procedure and Manner of
Maintaining and Time for FurnishingInformation and Verification and Maintenanceof Records of the Identity of the Clients of theBanking Companies, Financial Institutions andIntermediaries) Rules, 2005.
Guidelines on Anti Money LaunderingStandards/KYC norms/customer identificationprocess issued by SEBI/RBI/IRDA
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The Prevention of Money-Laundering Act, 2002
Director, Financial Intelligence Unit-India The reporting entities to furnish information of specified
transaction to FIU-IND
Analyse and process reports and disseminate to LEAs/IAs
Power to impose fine for non-compliance Director of Enforcement
Powers relating to investigation of and prosecution for money-laundering offences
Power of attachment of property, survey, search & seizure and
retention of property and document Power regarding summons, production of document andrecording of statement
.
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Obligation under PMLA
PMLA impose obligations on
Banking Companies
Financial Institutions
Intermediaries
in respect of
Maintenance of Records
Furnishing of information
Verification of identity of the clients.
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Banking Company includes
Public sector banks
Private sector banks
Private foreign banks Co-operative banks
Regional rural banks
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Financial Institutions includes
Financial Institution as defined under Section45-I of the RBI Act
Insurance Companies
Hire purchase companies
Chit fund Companies
Housing finance institutions
Non-banking financial companies.
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Intermediary includes
Stock Brokers
Sub-brokers
Share-transfer agents Bankers to an issue
Trustees to trust deed
Registrar to an IssueMerchant Bankers.
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Obligation in respect ofmaintenance of records
Maintenance of records includes records of
All cash transactions of the value of morethan rupees ten lakhs or its equivalent inforeign currency
All series of cash transactions which areintegrally connected
All suspicious transactions
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Furnishing of Information
Reporting of cash and suspicioustransactions
Reporting on the appointment/change inthe principal officer etc.
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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 orbonafide purpose
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Illustrative list of suspicioustransactions
False Identification documents
Identification documents which could notbe verified within reasonable time
Multiple Demat Accounts
Multiple Trading Account with the broker
Sudden increase in the transaction ofclient
Huge off-market deals
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Illustrative list of suspicioustransactions
Multiple Bank accounts
Huge withdrawals/deposits Nature of transactions inconsistent with
what would be expected from declared
business Foreclosure of home loan accounts by
substantial cash payments
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Illustrative list of suspicioustransactions
Frequent purchases of drafts or othernegotiable instruments with cash
Large number of accounts with commonaccount holders , introducer or authorisedsignatory
Unexplained transfers between multiple
accounts with no rationale
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Data on cash/suspiciousTransactions (as on 31.07.11)
Collection of Information
30.36 million Cash Transaction Reports (CTRs) received
99.62 % CTRs received in electronic format
46,409 Suspicious Transaction Reports (STRs) received
5.26 lakh Counterfeit Currency Reports (CCR) of face value ofRs.446 million
Analysis and Dissemination of Information
41,934 STRs processed
28,210 STRs disseminated
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Data on SuspiciousTransactions
Category 2008-092009-
102010-
11Total
Banking Company 2,826 7,394 12,287 24,127
Financial Institution 841 1,655 7,006 9,878
Intermediary 742 1,018 1,405 3,902
Total 4,409 10,067 20,698 37,907
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How to increase the Compliancelevel
Spread financial literacy among reportingentities and their clients.
Conduct educational programmes toreinforce the importance of reportingrequirements
Impose more stringent penalties for
money laundering offences.
Training of staff
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KYC norms issued by
RBI,SEBI & IRDA coversCustomer Acceptance
Customer Identification
Transaction Monitoring
Risk Management
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International efforts
1985- The United Nations- Started effortswith the recognition that drugtraffickingand associated money launderingwere truly internationalproblems and could be addressed effectively only on a multinational basis
1988Basel Committee on Banking Supervision - issued astatement on Prevention of Criminal use of Banking System for the purposeof ML
1989Financial Action Taskforce (FATF)-Set up to ensure globalaction to combat money laundering ( subsequently included terroristfinancing )
1995 - Egmont Group-Set up to stimulate international cooperation anddevelop best Practices for exchange of information amongst FIUs
1997-Asia/Pacific Group on money laundering(APG)-FATF-styleregional body (FSRB)-set up to create awareness and encourage adoption
of AML measures in the region. World Bank and International Monetary Fund- have evolved a
comprehensive AML/CFT assessment methodology for evaluating countryscompliance with FATF Standards and provide technical support
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FATF
Mandate : Establish, revise and clarify global standards and measures for combating ML/TF; Promote global implementation of the standards; Identify and respond to new money laundering and terrorist financing threats; Engage with stakeholders and partners throughout the world.
FATF Forty+ Nine Recommendations:
Forty Recommendations - Complete set of counter-measures against money laundering Nine Special Recommendations on Terrorist Financing
Internal Review Mechanisms : Self-assessment exercise based on a standard questionnaire designed by FATF and used by
its members to report on their anti-money laundering system on an annual basis and
Mutual evaluation process in which each country is evaluated by a team of experts drawnfrom other member countries to give ratings with respect to each recommendation of FATF
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FATF Recommendations
Criminalization:To criminalize money laundering and terrorist financing. Thedefinition of money laundering offenses has now expanded to include all seriousoffenses.
Provisional Measures and Confiscation:To put in place measures toidentify, trace, freeze, or seize and finally to confiscate the illegal proceeds.
Customer due diligence:To impose duties on financial institutions to knowtheir customers and to abolish the use of anonymous accounts.
Record keeping:Financial institutions to keep records on all the transactionsthat they conduct. Suspicious transactions reporting:Financial institutions to report all
transactions that raise their suspicion, without alerting the clients. Internal controls:Financial institutions adopt internal mechanisms that allow
them to comply with the regulatory requirements. Implementation:To create regulatory and supervisory agencies that are
capable of implementing the international standards set by theRecommendations.
International cooperation:To put in place a system that allows it tocooperate with other countries on all aspects of law enforcement includingexchange of information, preservation and confiscation of assets and extradition.
KPMG I di A ti M
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KPMG -India Anti-MoneyLaundering Survey 2012
This survey was conducted across the financialservices sector covering public sector banks, privatesector banks, foreign banks, general and lifeinsurance companies, mutual funds, non-banking
financial companies and other institutions in the FSsector covered under PMLA.
The primary target respondents of the survey weresenior and mid management members fromCompliance, Audit, Risk Management and AML
departments. The respondents were also seniormanagement members from the business andoperation functions.
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KPMG -India Anti-MoneyLaundering Survey 2012
Increased focus on money laundering riskby the Senior Management
1. 76%Discuss the AML profile on at
least a monthly or quarterly basis2. 41% Integrate AML in the
business strategy of newproducts/services.
3. 35% Publicize the AMLcompliance programme internally
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KPMG -India Anti-MoneyLaundering Survey 2012
FATF: Membership comes with increasedresponsibilities
84% -Regulatory scrutiny has become morestringent post FATF membership
90%-Regulatory scrutiny is high in thearea of Know Your Customer policy andprocesses
81%- Agree that scrutiny will remain highin the area of Transaction Monitoring /Reporting
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KPMG -India Anti-MoneyLaundering Survey 2012
Laying the foundation: Money launderingrisk assessment
65%Conduct an AML risk assessment on
at least a half yearly or yearly basis32%Conduct an AML risk assessment onthe basis of an event
51% AML policies and procedures arebased on local regulations andbenchmarked against global best practices
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KPMG -India Anti-MoneyLaundering Survey 2012
Drilling down to unearth the core86% -Institution follows a risk based approachin relation to account opening84%-Beneficial owner identified at the time of
opening an account83% -Have procedures for monitoring sanctionslists before account opening81% -Customer documents are collected and
verified before opening an account77%-Have specific procedures in place foridentifying politically exposed persons
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KPMG -India Anti-MoneyLaundering Survey 2012
Testing and monitoring the effectivenessof your controls
71%- Have a formal procedure to test and monitor
the effectiveness of anti-money launderingsystems and controls
80% - Compliance function plays an important rolein the testing and monitoring procedures
76%-Internal Audit plays an important role in thetesting and monitoring procedures.
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KPMG -India Anti-MoneyLaundering Survey 2012
Investment to be made in the area ofAML
44% -Investment will increase by 10 to 20percent.
29%- Investment will increase by 21 to 50percent
ASSOCHAM REPORT 2012
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ASSOCHAM REPORT 2012ON BLACK MONEY MENACE
IN INDIA
Assocham in its recent report on 'Blackmoney menace in India' had suggestedthe government should provide immunityto persons wanting to bring back funds
stashed abroad.
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ROLE OF COMPANYSECRETARIES
As Practising Company Secretary/CompanySecretary in whole time employment, what shall
we do to prevent money laundering?
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Thank you
Disclaimer Clause: Views expressed in this presentation viewsof the author do not necessary reflect those of the Institute.