workshop of insurance brokers provisions of the prevention of money laundering act and maintenance...
TRANSCRIPT
WORKSHOP OF INSURANCE BROKERS
• PROVISIONS OF THE PREVENTION OF MONEY LAUNDERING ACT AND MAINTENANCE OF RECORD RULES AS APPLICABLE TO INSURANCE BROKERS.
AML/CFT Timeline
198919901991199219931994199519961997199819992000200120022003200420052006
FATF Established at Paris
Egmont Group
Established at
Brussels
FATF Recommendat
ions
APG Set up
Revised FATF Recommendat
ions
2007200820092010
Special FATF Recommendat
ions
US Patriot Act, 2001
9/11 Terrorist Attack
SEBI KYC/AML Guideline
s
FIU-IND set
up
RBI KYC/ AML
Guidelines
IRDA KYC/AML Guideline
s
Prevention of
Money Launderin
g Act, 2002
enacted
PMLA brought
into force
Amendment to
PMLA
Membership of FATF
Defn. Of the “Reporting Entity”
2(wa)“Reporting Entity” means a banking company, financial institution, intermediary
or a person carrying on a designated business or profession.
Defn. Of a “Person carrying on designated business or profession”
means- Person carrying on such other activities as the Central Govt.
may, by notification, so designate......
Notification
Min. Of finance vide notification no.2/2015 dated 15th April,2015 notified that Insurance
Brokers shall be deemed to be “Persons carrying on designated business or profession.
Sec 12 of the PMLA(reporting entity to maintain records)
12. (1) Every reporting entity shall—(a) maintain a record of all transactions, including information relating to transactions covered under clause (b), in such manner as to enable it to reconstruct individual transactions;
(b) furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed;
Contd.
(c) Verify the identity of its clients in such manner and subject to such conditions,as may be prescribed;
(d) Identify the beneficial owner, if any, of such of its clients, as may be prescribed;
(e) Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
Contd.
• (2) Every information maintained, furnished or verified to be kept confidential unless exempted by any law.
• Record of transaction to be maintained for 5 years from the date of transaction and documents of identity to be maintained for 5 years after the business relationship has ended or the account has been closed, whichever is later.
Sec 12A of the PMLA(Access to information)
“12A. (1) The Director may call for from any reporting entity any of the records referred to in sub-section (1) of section 12 and any additional information as he considers necessary for the purposes of this Act.
(2) Every reporting entity shall furnish to the Director such information as may be required by him under sub-section (1) within such time and in such manner as he may specify.
(3) Save as otherwise provided under any law for the time being in force, every information sought by the Director under sub-section (1), shall be kept confidential.".
THE PML (MAINTENANCE OF RECORDS) RULES, 2005
AS AMENDED AND NOTIFIEDON 27TH AUG.2013
RULE 3Maintenance of Records of Transaction(Nature and Value)
• (1)(D)Every Reporting Entity shall maintain the record of all transactions including, as may be applicable, the record of all Suspicious transactions whether or not made in cash and by way of : ...... Any mode of money transfer.
Rule 7. Procedure and manner of furnishing information
Reporting entity to communicate the name, designation and address of the Designated Director and the Principal Officer. The Principal Officer shall furnish the information on the
basis of information available with the reporting entity. A copy of such information shall be retained by the Principal Officer for the purposes of official record.
Every reporting entity shall evolve an internal mechanism having regard to any guidelines issued by regulator, for detecting the transactions referred to in clauses (A),(B),(BA),(C),(D) ((E) and (F) of sub-rule (1) of rule 3 and for furnishing information about such transactions in such form as may be directed by its Regulator.
It shall be the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of furnishing information as specified by its Regulator.
Rule 8. Furnishing of information to the Director
CTR, CCR, NTR, and cross border wire transfer report -by 15th of the succeeding month.
STR- not later than seven working days on being satisfied that the transaction is suspicious.
Property transaction report- every quarter by the 15th day of the month succeeding the quarter.
For the purpose of this rule, delay of each day in not reporting a transaction or delay of each day in rectifying a mis-reported transaction beyond the time limit as specified in this rule shall constitute a separate violation.
Suspicious Transaction Suspicious transaction means a transaction referred to in clause (h), including an attempted transaction, whether or not made in cash which, to a person acting in good faith –
(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona fide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism
STR Detection
• How to ensure objectivity and uniformity while deciding that transaction is suspicious or not.
• The best possible way- out: System of Alert Generation through Red Flag Indicators applicable to a particular Financial Sector.
• It reduces subjectivity to a large extent.
Alert Generation: RFIs
• Alert generation is a process by which certain transactions are flagged on the basis of a set of pre-determined rules or scenarios to enable the Principal Compliance Officer to analyse and review the alerts and conclude whether a transaction is suspicious or not.
RFI- Cash transactions for payment of premium and top-ups
Threshold limit: For monthly reporting: Rs.5 lakhs and above .
For yearly reporting: Rs.25 lakhs and above
*All receipts by cash or combination of cash and DD.
**For both Life and General Insurance.
RFI Multiple DDs each denominated for less than Rs. 50,000/-
• Threshold limit: (i) Monthly: Aggregate value of all the (at least 5) Demand Drafts, drawn on banks (including co-operative banks), is Rs.2 lakhs and above in a calendar month (ii) Financial year: Aggregate value of all the (at least 21) Demand Drafts, drawn on banks (including co-operative banks), is Rs.10 lakhs and above.
• **For both Life and General Insurance.
RFI-Free look cancellations
• Where 3 or more free look cancellation requests are received from a single policyholder in a calendar month, under which the amount refunded under all the 3 policies put together exceeds Rs.1 lakh, an alert is triggered.
• Where under a single policy for which the premiums were paid either by cash or by demand draft or by a combination of both, and the said single policy is cancelled within the free look period and the amount refunded exceeds Rs.3 lakhs, an alert is triggered.-
• **For both Life and General Insurance.
RFI-Assignments to unrelated parties without consideration (or inadequate consideration)
• Sum Assured under the assigned policy(ies) in excess of Rs.50 lakhs or Annualised Premium in excess of Rs.2 lakhs, the alert should be generated
• **For only Life Insurance.
Request for purchase of insurance policy considered beyond one’s apparent need
Where sum assured/rejected/reduced in a calender month (under all the proposals submitted by a single proposer) due to financial underwriting reasons is in excess of Rs. 30 lakhs .
**For only Life Insurance.
RFI- Unusual termination of policies and refunds
• Upon receipt of request for cancellation of policies from a Single Proposer where the aggregate refundable amount is in excess of Rs.2 lakhs in a calendar month and where the Proposal deposit was paid by cash or demand draft(s) or a combination thereof, other than cancellations initiated by the Company and refunds on account of fraud, forgery or misselling.
• **For both Life and General Insurance.
RFI- Frequent requests for change in addresses
• Receipt of request for change of addresses 3
or more times from the same policyholder in a financial year, excluding correction in addresses without any change.
• **For both Life and General Insurance.
RFI-Borrowing the maximum amount under an insurance policy soon after
buying it
• If a request for loan under single premium policies issued to a single person under which the request for loan is received within 3 months of issuance and the aggregate amount of loan requested under all the policies is in excess of Rs.2 lakhs, an alert is triggered.
• **For only Life Insurance.
RFI-Inflated or totally fraudulent claims
Receipt of claims within 2 years of issuance of the policy(ies) on a single Life insured where under the Sum Assured under all the policies is Rs.50 lakhs or above and the any of the documents submitted by the Nominee or the Policy Owner or the Assignee is proved to be forged or fabricated.
**For only Life Insurance.
RFI-Overpayment of premiums
• Refund of premiums or proposal deposits due to excess payment or withdrawing, other than on account of declinature or postponement of insurance cover etc.by the Distributors, under which the total amount refunded in a calendar month is Rs.5 lakhs or above or Rs.25 lakhs or above in a financial year.
• **For both Life and General Insurance.
RFIs
• Customer insisting on anonymity, reluctance to provide identifying information, or providing minimal, seemingly fictitious information. **For only Life Insurance.
• Customer frauds: **For both Life and General Insurance.• Adverse media report about an existing Policyholder .
**For both Life and General Insurance.• Information sought by enforcement agencies. **For
both Life and General Insurance.
RFIs exclusive to Gen. Insurance
• Insurance of Marine Exports in India• Claim settlement exceeding Rs. 10 lakhs on
total loss basis for non- hypothecated assets in first year of policy.
• Claim settlement exceeding Rs. 1 crore for non –hypothecated assets.
Grounds of suspicion
• Is the ‘soul’ of STR and signifies the character of suspicious activity.
• The narration identifies the ‘WHY’ component.• Identify the correct reason of suspicion. The grounds of
suspicion should justify expressly as to why the transaction or activity is unusual, unjustified, does not have economic rationale, or bonafide purpose keeping in mind the business and/or services you offer.
• Explain the relationship between persons (natural & legal), accounts and transactions.
Examples of deficient/ vague GoS• Client had paid Premium of more than Rs.
50000 and not submitted PAN or Form 60/61• Fraud done by Customer.• Customer had surrendered Policy for which he
had paid Premium in cash 4-6 years ago.• Premium paid vide 2 DDs of Rs. 25000 each.• One transaction in cash by said Customer….• High value cash transaction.• Gross total income Rs. 9.56 lakhs Premium paid
through DD Rs. 5,40,508.00.
-
Contd.
• Customer has not provided income document. However, he has applied for policies with total annual Premium of Rs. 5 lakhs.
• Annual income Rs. 50 lakhs. Premium paid Rs.5 lakhs through DD. Later cancelled under freelook option.
• Premium paid through DD, later cancelled under freelook option.
• Resident of Bihar . Has applied for policy from UP.
Sample of Model Grounds of Suspicion
• Mr. X has applied for 4 policies in this financial year for which annual premium is Rs. 10,46,000 . As per IT return copy of last year his annual income is around Rs. 7 lakhs . He has paid 80% of premium in cash . As per KYC papers ,the customer is a trader. Thus premium amount is disproportionate to known sources of income . Hence the STR.
Sample of Model Grounds of Suspicion
• Mr. X has paid Rs. 600000 as premium and later cancelled the policy under free look period. Mr. X is a Doctor. Reason of suspicion : payment of entire premium in cash and through DDs of less than Rs. 50000 and later cancellation under freelook period by a customer who is professional.
Sample of Model Grounds of Suspicion
• Customer Mr. X has given Policy servicing request to assign his policies bearing proposal nos.a,b,c to his Employer Mr. Y. Customer is paying annual premium totaling to Rs 850000 for 3 policies. The reason for assignment mentioned is Employer. However the CDD reveals that Customer is a business owner and therefore, there is no proper reason for assigning policy.Details of both the customers is given ...........
Trade Based Money Laundering