Money laundering
Download as PPTX, PDF4 likes2,032 views
Money laundering involves converting illegally obtained money to make it appear legitimate through a three-stage process. The first stage, placement, involves moving dirty money into the financial system. The second, layering, uses complex transactions to obscure the audit trail. The final stage, integration, makes the money appear to come from legal sources. Banks are at risk of reputational, legal, operational, and concentration risks if they allow money laundering. Indian regulations require banks to follow know-your-customer procedures, monitor transactions, and report suspicious activity to authorities to prevent money laundering and comply with anti-money laundering laws.
Money laundering
- 1. MONEY LAUNDERING & ROLE OF BANKS
- 2. Illegally obtained money Conversion Appears to originate from legitimate source Criminal Activity Drugs / Arms Trafficking Terrorism Extortion 2
- 3. Money laundering means acquiring, owning, possessing or transferring any proceeds (of money) of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of crime, within or outside India. It is a process for conversion of money obtained illegally to appear to have originated from legitimate sources. In other words, it is the process used by criminals through which they make “dirty” money appear “clean” 3
- 4. Money laundering generally refers to ‘washing’ of the proceeds or profits generated from: Drug trafficking Arms, antique, gold smuggling Prostitution rings Financial frauds Corruption, or Illegal sale of wild life products and other specified predicate offences 4
- 5. Placement Layering Integration Placement Layering Integration A/c 1 A/c 2 A/c 5 A/c 4 A/c 3 A/c 8 A/c 7 A/c 6 A/c 9 Investment
- 6. The first stage involves the Placement of proceeds derived from illegal activities – the movement of proceeds, frequently currency, from the scene of the crime to a place, or into a form, less suspicious and more convenient for the criminal. Placement Stage - easy to detect start of ML Layering Stage - Relatively Difficult to detect Integration Stage - Almost impossible to detect 6
- 7. 7
- 8. The second stage is called Layering. It involves the separation of proceeds from illegal source through the use of complex transactions designed to obscure the audit trail and hide the proceeds. The criminals frequently use shell corporations, offshore banks or countries with loose regulation and secrecy laws for this purpose. The third stage is called Integration. It represents the conversion of illegal proceeds into apparently legitimate business earnings through normal financial or commercial operations. Integration creates the illusion of a legitimate source for criminally derived funds and involves techniques as numerous and creative as those used by legitimate businesses. For e.g false invoices for goods exported, domestic loan against a foreign deposit, purchasing of property and co-mingling of money in bank accounts. 8
- 9. 9
- 10. What are the risks to banks? Reputational risk Legal risk Operational risk (failed internal processes, people and systems & technology) Concentration risk (either side of balance sheet) All risks are inter-related and together have the potential of causing serious threat to the survival of the bank 10
- 11. Jan. 2006 ABM AMRO US$ 80 mio Aug. 2005 Arab Bank US$ 24 mio Feb. 2005 City National Bank US$750,000 Jan. 2005 Riggs Bank US$ 41 mio Oct. 2004 AmSouth Bank US$ 50 mio Sep. 2004 City Bank Japan License cancelled May. 2004 Riggs Bank US$ 25 mio 11
- 12. August 16, 2002 - The Reserve Bank of India (RBI) released its first circular on “Guidelines on "Know Your Customer" norms and “Cash transactions” January 17, 2003 – Prevention of Money Laundering Act (PMLA) published in the Gazette November 24, 2004 - The first set of comprehensive guidelines on 'Know Your Customer' (KYC) Guidelines – Anti Money Laundering Standards issued July 1, 2005 – PMLA Rules November 27, 2006 – India becomes an 'observer' at the Financial Action Task Force (FATF) March 6, 2009 – Amendment to PMLA, 2002 November 12, 2009 – Amendment to PMLA Rules, 2005 June 25, 2010 – India becomes a member of the FATF 12
- 13. Enterprise - Wide AML Framework Enterprise - Wide AML Framework Know Your Customer (KYC) Due diligence measures •Basic •Enhanced Centralised Account Opening Centers Name Screening •Account opening stage •Legacy customers •Screening of Cross Border Transactions Performed on the basis of pre defined rules based on product , customer and transaction risk Identification of unusual transactions Confirmation of Suspicion Transaction Monitoring Training FIU Reporting* Regulatory Interface Updates to Senior Mgmt Audit * Includes STR, CTR, CCR, NPOR 13
- 14. Large value and volume of cash deposits followed by immediate RTGS payment or transfer. Large value of RTGS or transfer followed by immediate withdrawal/ transfers. Issuing large number of cheques. Cash deposits across various branches followed by withdrawals, transfer. Frequent closure and subsequent opening of accounts. Sudden activity in a dormant account. 14
- 15. Prevention of Money Laundering Money Laundering Prevention Observing Rules for Bankers Identifying Irregular / Suspicious Transactions Compliance with Laws Customer due Diligence 15
- 16. Bank accountants must record all transactions over Rs. 10 Lakhs. Bank accountants must maintain this records for 10 years. Banks also must make cash transaction reports (CTRs) and suspicious transaction reports over RS. 10 Lakhs within 7 days of doubt. They must submit the report to the enforcement directorate and income tax department 16
- 17. 17