prevention of money laundering- lakshmi arun

8/13/2019 Prevention of Money Laundering- Lakshmi Arun

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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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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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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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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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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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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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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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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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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.

prevention of money laundering- lakshmi arun

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