Anti Money Laundering in Banking

What is Anti Money Laundering?

“Money laundering” is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding Prosecution, conviction and confiscation of the criminal funds. The term “Money Laundering” is also used when the funds are used for terrorist financing though the origin of the funds may be legitimate.

Terminologies:

• AML – Anti Money Laundering
• PMLA – Prevention of Money Laundering Act

KYC – Know your Customer

PMLA came into effect from July 1, 2005 Notification has been issued by Department of Revenue, Ministry of Finance & Government of India

Evidences for Avoiding Money Laundering:

The following documents need to be submitted along with the Account Opening form:

• Proof of Identity of all applicants (including joint holders).
• Proof of Address provided in the application form.
• Photographs of all applicants shall be obtained.

As proof of identity following documents may be obtained.

• Passport
• Photo PAN card
• Voter’s Identity Card
• Driving License
• UIN/DIN Card
• Photo Debit Card issued by Banks
• Ration Card with photograph of the investor

OR

Photo identification issued by Bank Managers of Scheduled Commercial Banks, Gazetted Officers or Elected Representatives to the Legislative Assembly or Parliament.

As Proof of Address any one of the following may be obtained

• Proof of identity and address can also be established by any document containing the photograph, address and signature, duly attested by a manager of a scheduled commercial bank ( the designation seal should be affixed), notary public or gazetted officer.
• Copy of bank Account Statement/Passbook ( for Foreign address)
• Any other document duly certified by local authority in the country of residence Foreign address ( in case given by NRIs /FIIs)- In case the documents are in foreign language the same to be translated to English and certified by Government authority in country of residence or the Indian Embassy.
• In Case of Minor the ID proof should be that of the guardian and the address proof submitted should match with the address on the application form.
• Applications under a Power of Attorney must be accompanied by the original Power of Attorney or a duly notarized copy thereof. A copy of the proof of identity and address of the POA holder must be obtained in addition to the proof of identity and address of the applicants.
• All the joint holders need to submit the Proof of identity and address.
• Any Change of Bank mandate in future will be carried out only on submission of proof of Bank Passbook or Bank Account statement.

Mutual Funds shall also obtain the following additional information relating to all Applicants:

• Nationality
• Occupation – Private Sector Service, Public Sector/ Government Service, Politically exposed Person, retired, Business, Professional, Housewife, Student, and Agriculturist, Current/ Former Head of State/ Forex dealer.
• Financial information under Broad Income Brackets – Annual Income (summation of all the joint applicants)- Rs. 0-5L, 5-25L ,25L-1CR, 1-5CR, and 5CR & above.
• Date of Birth

Who can attest the documents?

For certain transactions, the Manager of a Commercial Bank (the designation and seal to be affixed) or a Notary Public or a Gazetted Officer should attest the documents as otherwise self attested documents are duly accepted.

Prevention of Money Laundering Act 2002

• Following transactions require monitoring
• All series of cash transactions integrally connected to each other, which have been valued below Rs. 10L or its equivalent in foreign currency where such series of transactions take place within one calendar month.
• All suspicious transactions viz credits or debits into from any non monetary account such as D-mat account, security account maintained by the registered intermediary.

PMLA: Prevention of Money Laundering Act

• Any Change of address in future will be carried out only on submission of proof of new address.
• Any Change of Bank mandate in future will be carried out only on submission of proof of Bank Passbook or Bank Account statement

Bankers’ Obligations:

• The financial institutions including securities market intermediaries must establish procedures of internal control aimed at preventing money laundering and terrorist financing.
• Fulfilling these requirements, there is also a need for registered intermediaries to have a system in place for identifying, monitoring and reporting suspected money laundering or terrorist financing transactions to the law enforcement authorities.
• A separate cell at the Central Apex level of any banking institution shall carry out the above activity on a regular basis and report to RBI and other regulatory any irregularities observed from time to time.
• Develop general awareness amongst staff members.

Policy for acceptance of Clients:

• No account is opened in a fictitious / Benami name or on an anonymous basis.
• Factors of risk perception of the client are clearly defined having regard to clients’ location, nature of business activity, trading turnover etc. and manner of making payment for transactions undertaken.
• Documentation requirement and other information to be collected in respect of different classes of clients depending on perceived risk and having regard to the requirement to the PMLA, guidelines issued by RBI and SEBI from time to time.

Clients of Special Category (CSC): Following are the normal client catetory

• Non resident clients.
• High net worth clients.
• Trusts, Charities, NGOs and organizations receiving donations.
• Companies having close family shareholdings or beneficial ownership.
• Politically Exposed Persons (PEP) of foreign origin.
• Current / Former Head of State, Current or Former Senior High profile politicians and connected persons.
• Companies offering foreign exchange offerings.
• Clients in high risk countries. Countries active in narcotics production, Countries where corruption is highly prevalent, Countries against which government sanctions are applied, Countries reputed to be any of the following – Havens / sponsors of international terrorism, offshore financial centres, tax havens, countries where fraud is highly prevalent.
• Non face-to-face clients.
• Clients with dubious reputation as per public information available etc.

Designation of an officer for reporting of suspicious transactions:

He should ensure that the registered intermediaries properly discharge their legal obligations to report suspicious transactions to the authorities; the Principal Officer would act as a central reference point in facilitating onward reporting of suspicious transactions and for playing an active role in the identification and assessment of potentially suspicious transactions.