Anti%20Money%20Laundering%20and%20Combating%20Terrorist%20Financing:%20Indian%20Initiative%20and%20Global%20Backdrop%20Presentation%20at%20Risk%20and%20Compliance%20Summit%202007%20Mumbai,%209th%20March%202007

1
Anti Money Laundering and Combating Terrorist
Financing Indian Initiative and Global
BackdropPresentation at Risk and Compliance
Summit 2007Mumbai, 9th March 2007

• Arun Goyal
• Director
• Financial Intelligence Unit-India
• (FIU-IND)

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Need for Money Laundering

• Every year, huge amounts of funds are generated
  from illegal activities. These funds are mostly
  in the form of cash. 
• The criminals who generate these funds need to
  bring them into the legitimate financial system.

Avoid Prosecution
Evade Taxes
Hide Wealth
Increase Profits
Become Legitimate
Over 1.5 trillion of illegal funds are laundered
each year
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Consequences of Money Laundering

• Finances Terrorism Money laundering provides
  terrorists with funds to carry out their
  activities.
• Undermines rule of law and governance Rule of
  Law is a precondition for economic development
  Clear and certain rules applicable for all
• Affects macro economy Money launderers put money
  into unproductive assets to avoid detection.
• Affects the integrity of the financial system
  Financial system advancing criminal purposes
  undermines the function and integrity of the
  financial system.
• Reduces Revenue and Control Money laundering
  diminishes government tax revenue and weakens
  government control over the economy.

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Global Framework - Financial Action Task Force

• Established by the G-7 Summit in Paris in 1989 in
  response to mounting concern over money
  laundering.
• A policy making body, having secretariat at
  Organisation for Economic Co-operation and
  Development (OECD).
• Works to generate the necessary political will to
  bring about national legislative and regulatory
  reforms to combat money laundering and terrorist
  financing.
• Members 31 countries, European Commission and
  Gulf Co-operation Council
• India has been accorded Observer status

5
FATF Mandate

• Sets Standards
• Assesses compliance against standards
• Researches money laundering and terrorist
  financing threats

6
FATF Recommendations

• 1990 - Forty Recommendations - Complete set of
  counter-measures against money laundering
  covering
• Criminal justice system and law enforcement
• Financial system and its regulation
• National and international co-operation
• 1996 -Recommendations Revised
• Nine Special Recommendations on Terrorist
  Financing
• 2003 Eight Special Recommendations
• 2004 9th Special Recommendation

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Global Framework -Asia/Pacific Group

• The Asia/Pacific Group on money laundering (APG)
  is a FATF styled regional body
• Established in February 1997 at Bangkok,
  Thailand.
• Facilitates adoption of internationally accepted
  anti-money laundering and anti-terrorist
  financing standards set out in the
  recommendations of the Financial Action Task
  Force (FATF).
• Similar FATF styled regional bodies for other
  regions

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The Global Framework - Egmont Group

• The Egmont Group serves as an international
  network fostering improved communication and
  interaction among FIUs.
• Egmont Group is named after the venue in Brussels
  where the first such meeting of FIUs was held in
  June of 1995.
• FIUs provide support to their respective
  governments in the fight against money
  laundering, terrorist financing and other
  financial crimes
• Best Practices for exchange of information
• Members- 101 FIUs (13 from Asia)

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Why AML/KYC?

• Reduces reputational, operational, regulatory
  risk
• Reduces risk of adverse impact on business
• Share price impact
• Suspension, downgrade or revocation of licence
• Loss of consumer confidence bank run
• they make good business sense.

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FATF Recommendations Criminal Justice System

• Criminalisation of Money Laundering (R.1 2)
• Criminalisation of Terrorist Financing (SR.II)
• Confiscation, freezing and seizing of proceeds of
  crime (R.3)
• Freezing of funds used for terrorist financing
  (SR.III)
• The Financial Intelligence Unit and its
  functions (R.26, 30 32)
• Law enforcement, prosecution and other competent
  authorities (R.27, 28, 30 32)

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Indian Context

• Prevention of Money Laundering Act brought into
  force form 1st July 2005
• to prevent money laundering and
• to provide for confiscation of property derived
  from, or involved in, money laundering.
• Offence of money laundering (section 3 of PMLA)
• Proceeds of crime (section 2(1)(u) of PMLA)
• Scheduled offences
• FIU-IND established in Nov 2004.
• Enforcement Directorate
• Powers to investigate

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FATF Recommendations Financial System
Regulation

• Customer due diligence, including enhanced or
  reduced measures (R.5 to 8)
• Third parties and introduced business (R.9)
• Financial institution secrecy or confidentiality
  (R.4)
• Record keeping and wire transfer rules (R.10
  SR.VII)
• Monitoring of transactions and relationships
  (R.11 21)
• Suspicious transaction reports and other
  reporting (R.13-14, 19, 25 SR.IV)
• Internal controls, compliance, audit and foreign
  branches (R.15 22)
• Shell banks (R.18)
• The supervisory and oversight system - competent
  authorities and SROs (R. 17, 23, 29 30)
• Financial institutions - market entry and
  ownership/control (R.23)
• AML/CFT Guidelines (R.25)
• Ongoing supervision and monitoring (R.23, 29
  32)
• Money value transfer services (SR.VI and SR. IX)

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Indian Context

• Obligations under PMLA on Banking companies,
  financial institutions and intermediaries to
• Appoint of Principal Officer
• Verify identity, address, nature of business and
  financial status of the client
• at the time of opening an account
• and while executing transactions.

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Indian Context

• To furnish information
• Cash transactions of more than Rs.10 lakhs
• Integrally connected cash transactions adding to
  Rs. 10 lakhs in a month,
• Cash transactions where forged or counterfeit
  currency or bank notes have been used,
• Suspicious transactions
• whether or not made in cash.
• Need not involve proceeds of crime
• maintain records

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FATF Recommendations National and International
Cooperation

• National co-operation and coordination (R.31)
• Mutual Legal Assistance (R.32, 36-38, SR.V)
• Extradition (R.32, 37 39, SR.V)
• Other Forms of Co-operation (R.32 40, SR.V)

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Indian Context

• Dissemination of STRs to Enforcement Agencies
• Sharing information with Foreign FIUs
• Egmont Group Membership
• Establish clear mechanism for the exchange of
  information
• Case to case on reciprocal basis
• MOU
• Egmont Groups best practices for information
  exchange

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AML/CFT Timeline
Prevention of Money Laundering Act, 2002 enacted
PMLA brought into force
FATF Established at Paris
Egmont Group Established at Brussels
IRDA KYC/AML Guidelines
9/11 Terrorist Attack
APG Set up
FIU-IND set up by GOI
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
SEBI KYC/AML Guidelines
FATF Recommendations
Special FATF Recommendations
US Patriot Act, 2001
Revised FATF Recommendations
RBI KYC/ AML Guidelines
RBI KYC Guidelines
RBI KYC/AML Circular
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Compliance under PMLA

• Detailed guidelines on AML/KYC by regulators viz
  RBI, SEBI, IRDA, NHB
• Principal officers have been appointed
• More than 15 lakh CTRs have been received
• More than 500 STRs have been received
• After analysis and value addition more than 300
  STRs have already been disseminated to
  enforcement and intelligence agencies

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Expectations from the Financial Sector

• Senior officers to be appointed Principal
  Officers
• KYC norms to be followed uniformly
• CTRs to be submitted regularly, where applicable
• Capacity of the financial institution to
  habitually detect and report suspicious not
  merely reactive filing
• Increase awareness and training of staff new
  roles and responsibilities
• Evaluate and ensure adherence to AML/KYC policies
  

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The way forward

• Manual filing to Electronic filing
• User driven searches to system driven alerts
• Analysis - Report driven to intelligence led
• Feedback
• Enforcement Agency to FIU
• FIU to Reporting Entity
• Money Laundering Typology Report
• Trends in STRs received
• Sanitised money laundering cases
• Indicators for detection of suspicious
  transactions

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Thank Youarun.goyal_at_fiuindia.gov.inwww.fiuindia.
gov.in