AML/CFT Regime The Indian Response

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AML/CFT RegimeThe Indian Response
FIU-IND Financial Intelligence Unit-India Ministry
of Finance, Government of India
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Presentation Summary

• Spotlight on Money Laundering Some facts
• Indian Response
• Legal Framework
• Institutional Framework
• Common Trends observed in STRs
• Key Issues emerging from Mutual Evaluation

FIU-IND Financial Intelligence Unit-India
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Spotlight on Money Laundering
FIU-IND Financial Intelligence Unit-India
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Spotlight Money Laundering
Tighter AML regulation in the US and Europe is
pushing money laundering activity into Asia
Pacific
Source Celent
FIU-IND Financial Intelligence Unit-India
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Spotlight Money Laundering
The perpetrators money laundering by criminal
sector

• Drugs, smuggling, organized crime?account for
  over ¾ of all money laundering
• Terrorist financing is a drop in the bucket in
  real terms. Nevertheless it is driving todays
  AML and KYC regulations
• White collar crime, including embezzlement and
  internal fraud, is a significant (and growing)
  problem.

Source Celent
FIU-IND Financial Intelligence Unit-India
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Spotlight Money Laundering
The victims Money Laundering by industry sector

• The largest portion of laundered funds are
  processed through banks.
• Investment firmsincluding brokerages, mutual
  fund companies, hedge fundsalso see a
  significant amount of activity, attracting more
  than 1/4 of money laundering.
• Schemes targeting insurance companies are a
  growth sector, now accounting for close to 10 of
  activity.

Source Celent
FIU-IND Financial Intelligence Unit-India
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State of AML in Asia
Intensified AML policies of the US have produced
a ripple effect on the international regulatory
scene Asia still has very low technology
adoption most countries have only recently got
serious about AML Spending on anti-money
laundering solutions in Asia will grow faster
than in Europe or North America
FIU-IND Financial Intelligence Unit-India
Source Celent
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Money Laundering then and now
Continuity and Evolution

• Early 1990s
• Bank-centered techniques collection accounts,
  loan back arrangements bank drafts, money orders
  and cashiers cheques smurfing
• Cash smuggling
• Accounts in relatives names, shell companies
• Hawala, hundi or other underground banking
  systems

• 2010
• Wire transfers
• New electronic payment systems
• Remittance services and money exchange services
• Assistance from Gatekeepers
• Terrorist financing through non-profit
  organizations
• Insurance industry, particularly through
  independent insurance agents
• Politically Exposed Persons (PEPs)

FIU-IND Financial Intelligence Unit-India
Source Celent
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Indian Response
FIU-IND Financial Intelligence Unit-India
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Legal Framework

• AML regime
• NDPS Act 1985 (Section 8 A)
• PMLA 2002 (Section 3)
• CFT regime
• Unlawful Activities(Prevention) Act, 1967

FIU-IND Financial Intelligence Unit-India
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Anti-Money Laundering Legislation

• The Prevention of Money Laundering Act, 2002
  (PMLA) enacted in 2003 to prevent money
  laundering and to provide for confiscation of
  property derived from, or involved in, money
  laundering.
• PMLA and rules notified thereunder came into
  effect from 1st July, 2005.

FIU-IND Financial Intelligence Unit-India
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The Legislative Journey

• The PML bill,1998 introduced in Lok Sabha - 4th
  Aug,1998.
• Referred to Standing committee on finance- 5th
  Aug,1998.
• The committee submitted report - 4th March,1999.
• The bill presented in Rajya Sabha - 8th
  March,1999.
• The PML, Bill 1999 presented in Lok Sabha -29th
  Oct,1999 passed on 2nd Dec,1999.
• Rajya Sabha referred the bill to Select
  committee finalised report on 24th July, 2000.
• The present Act received the assent of the
  President of India on 17th January, 2003.
• The PML Act comes into operation w.e.f 1st July,
  2005
• PML(Amendment) Act 2009 comes into operation
  w.e.f 6th March,2009

FIU-IND Financial Intelligence Unit-India
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Changes in Subordinate Legislation

• Definition of NPO
• Changes in the definition of Suspicious
  Transaction attempted transaction regardless
  of the value involved
• Meaning of transaction involving financing of
  the activities relating to terrorism explained
• Reporting entity to maintain records of all
  transaction which contain all necessary
  information to permit reconstruction of
  individual transaction
• Record of receipt by NPOs of value more than Rs
  10 lakh to be maintained and reported
• Record of cash transaction to be maintained where
  forged or counterfeit currency notes tendered
• No specific mode of maintaining the information
• Period of ten years for retention of records -
  from the date of transaction and not from the
  date of cessation of the transaction

FIU-IND Financial Intelligence Unit-India
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Changes in Subordinate Legislation

• Confidentiality clause added for STR
• Rule 9 regarding KYC of client underwent a
  complete overhaul
• Account based relationship and other cases
• procedure for identity of Beneficial Owner
  more stringent meaning of BO clarified
• On going due diligence to ensure that
  transaction is consistent with the knowledge of
  client, his business , risk profile and source
  of funds-
• No anonymous account or account in fictitious
  names
• Review CDD measures/KYC in case of doubts of ML
  and FT
• Verification of identity of person acting on
  behalf of juridical person
• Copy of CIP not to be forwarded to Director
  FIU-IND
• For purpose of Rule 10, clarification inserted as
  to
• what would include as record of identity of
  client
• what would mean cessation of transaction

FIU-IND Financial Intelligence Unit-India
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Compliance Status

• Collection of Information
• More than 18 million Cash Transaction Reports
  (CTRs) received
• More than 18000 Suspicious Transaction Reports
  (STRs) received
• Analysis and Dissemination of Information
• More than 10000 STRs disseminated
• Collaboration with domestic Law Enforcement and
  Intelligence Agencies
• Regular interaction and exchange of information
• Regional and global AML/CFT efforts
• Exchanged information with 65 foreign FIUs
• 8 MOUs signed with foreign FIUs

FIU-IND Financial Intelligence Unit-India
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Compliance Status

• Increasing awareness about money laundering and
  terrorist financing
• More than 300 seminars and training workshops
  covering more than 15000 participants
• Train the trainer programme for AML/CFT capacity
  building
• Improving compliance to the PMLA
• More than 50 review meetings with Principal
  officers

FIU-IND Financial Intelligence Unit-India
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Common Trends Observed in STRs
FIU-IND Financial Intelligence Unit-India
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Common Trends

• Large Scale fund transfer through RTGS in current
  accounts followed with cash withdrawal
• Cash withdrawals/ deposits just below threshold
  limit of Rs 10 lacs
• Multiple concerns registered on same address and
  share common PAN
• Payment of insurance premium in cash or by
  multiple demand drafts
• Rotation of funds in large number of bank
  accounts controlled by a group of individuals
• Business concerns having large number of accounts
  in the names of employees
• Muti-level marketing schemes mobilizing large
  amounts from investors promising high returns and
  siphoning off the money
• Use of internet for lottery and employment fraud.
  
• Sale of shares through off market transfers

FIU-IND Financial Intelligence Unit-India
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Key Issues Emerging from Mutual Evaluation
FIU-IND Financial Intelligence Unit-India
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Concerns

• Inadequate number of STRs compared with the
  volume of transaction and market size
• Effectiveness concern due to absence of ML
  conviction
• Threshold condition for domestic predicate
  offence
• Risk of TF through foreign NPOs
• Detection of FICN
• Few sanctions that supervisors have applied for
  non-compliance
• DNFBP sector not subjected to PMLA (except
  Casino)
• Risk based CDD obligations
• Improve reliability of identification document
• PEPs/non face to face customers and businesses
• India-Post

FIU-IND Financial Intelligence Unit-India
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