ANTI MONEY LAUNDERING

WHAT IS MONEY LAUNDERING

The goal of large number of criminal acts are, to generate a profit for the individual or
group that carries out the act.
Money laundering is the process of these criminal proceeds to disguise their illegal
origin.
This process is of critical importance, as it enables the criminal to enjoy these profits
without jeopardizing their source.

DIFFERENT STAGES OF MONEY LAUNDERING

Money Laundering can be explained in three stages for the
convenience of understanding.

PLACEMENT

LAYERING

INTEGRATION

PLACEMENT
The first time funds derived from criminal activities are used in a legitimate
money transfer are referred to as Placement.

This stage poses

At this stage, the launderer inserts the dirty money into a legitimate financial
institution. This is often in the form of cash bank deposits. This is the riskiest stage of
the laundering process because large amounts of cash are pretty conspicuous, and
banks are required to report high-value transactions.

The physical disposal of cash proceeds derived from illegal activity. The first time funds derived
from criminal activities are used in a legitimate money transfer is referred to as Placement.
This stage poses the greatest risk to Money Services Business (MSBs):
Transactions may be structured to avoid recordkeeping or reporting
thresholds.
False identification and / or information may be provided.

LAYERING
Layering involves sending the money through various financial transactions to
change its form and make it difficult to follow.
Layering may consist of several bank-to-bank transfers, wire transfers between
different accounts in different names in different countries, making deposits and
withdrawals to continually vary the amount of money in the accounts, changing
the money's currency, and purchasing high-value items (boats, houses, cars,
diamonds) to change the form of the money.
This is the most complex step in any laundering scheme, and it's all about
making the original dirty money as hard to trace as possible.

Separating illegal proceeds from their source by creating complex layers of

financial transactions designed to disguise the audit trail and provide anonymity.
Creating a series of transactions to hide the first transaction is referred to as
Layering.

INTEGRATION
At the integration stage, the money re-enters the mainstream economy in
legitimate-looking form - it appears to come from a legal transaction.
This may involve a final bank transfer into the account of a local business in
which the launderer is "investing" in exchange for a cut of the profits, the
sale of a yacht bought during the layering stage or the purchase of a $10
million screwdriver from a company owned by the launderer.
At this point, the criminal can use the money without getting caught. It's
very difficult to catch a launderer during the integration stage if there is no
documentation during the previous stages.
If the layering process has succeeded, integration schemes place the
laundered proceeds back into the economy in such a way that they reenter the financial system appearing to be normal business/legitimate
funds.
The return of funds to legitimate activities is referred to as Integration.

Anti-money laundering (AML) is a term mainly used in the financial and legal
industries to describe the legal controls that require financial institutions and
other regulated entities to prevent or report money laundering activities.
Anti Money Laundering processes and controls helps banks and financial
institutions to protect themselves and their reputation from the criminals.

Key elements of a sound Anti Money Laundering programme

Minimum Standards and Policies, approved by Senior Management, which clearly set
out your philosophy on crime prevention and business requirements.
Strong "Know Your Customer" checks at customer take-on to identify and exclude
known criminals but also to be sure you know the real identity of the customers you do
take on.
Robust training programmes for all staff.
Processes (very often automated) to monitor the activities on customer accounts to
identify suspicious activity and to check incoming and outgoing payments for
unauthorised transactions and to enable reports to be made to relevant authorities.

UAE Exchange & FS AML Compliance Programme

Anti Money Laundering (AML) & Combating of Financing of
Terrorism (CFT) Policy Framework comprises of the following key elements.
1.
2.
3.
4.
5.
6.
7.

AML & CFT Procedures

Appointment of Principal Officer and Compliance Officers
KYC and Monitoring of transactions through internal audit.
Anti-Money Laundering Employee Training Program
Retention of records
Identifying and Reporting of Suspicious transactions
Independent review of Anti-Money Laundering Program

POLICY

GUIDELINES FOR FOREX

KNOW YOUR CUSTOMER (KYC)

ANTI MONEY LAUNDERING (AML)

COMBATING FINANCING OF TERRORISM (CFT)

Why money laundering

Terrorism Financing
Tax Evasion

WHAT IS FINANCING OF TERRORISM

Terrorist financing means providing financial support to terrorists or terrorist
organizations to enable them to carry out terrorist acts.
It is a closely related aspect of money laundering, where apparently legitimate funds
are used to finance terrorist activities.
It is sometimes referred to as reverse money laundering, since it involves source of
funds for committing the crime as against the funds derived from crime.

What is Terrorism?

Terrorism is defined as the calculated use of

violence (or the treat of violence) against
civilians, in order to attain goals that are
political or religious or ideological in nature,
which is done through intimidation or coercion
or instilling fear.

What is financing of terrorism

Terrorist financing means providing financial support to terrorists or terrorist
organizations to enable them to carry out terrorist acts.
It is a closely related aspect of money laundering, where apparently legitimate funds
are used to finance terrorist activities. It is sometimes referred to as reverse money
laundering, since it involves source of funds for committing the crime as against the
funds derived from crime.

What is combating financing of terrorism (CFT)?

Initially, the focus of enforcement efforts for Combating Financing of Terrorism (CFT)
purposes were on charities, unregistered money service businesses (MSBs) ( so called
underground banking or Hawalas), and registered MSBs, that were unregulated for
CFT.
The Financial Action Task Force (FATF),set up in 1989 by the G-7 summit in Paris,
(working with US) brought in 9 special recommendations for CFT, which were
recommended standards applicable to all FATF members, who were expected
to upgrade their laws, regulations and enforcement efforts, including through
Financial Intelligence Units (FIUs) and cross-border sharing of information for CFT
purposes.

FATF Public statement

Paris, 22 October 2010 - The Financial Action Task Force (FATF) is the global
standard setting body for anti-money laundering and combating the financing of
terrorism (AML/CFT).
In order to protect the international financial system from ML/FT risks and to
encourage greater compliance with the AML/CFT standards, the FATF identified
jurisdictions that have strategic deficiencies and, along with the FATF-style
regional bodies (FSRBs), works with them to address those deficiencies that pose
a risk to the international financial system.
The FATF black-list ( Non- co-operative countries and territories (NCCT) list)
mechanism was used to coerce countries to bring about change. All these efforts
have brought about a huge change to global CFT regulations and have ushered in a
new era of information sharing.

What is FIU-IND
Financial Intelligence Unit - India (FIU-IND) is the central, national agency
responsiblefor receiving, processing, analyzing and dissemainating information
relating to suspect financial transactions to enforcement agencies and foreign
FIUs.

In their simplest forms, FIUs are agencies that receive reports of suspicious
transactions from financial institutions and other persons and entities, analyze them,
and disseminate the resulting intelligence to local law-enforcement agencies and
FIUs to combat money laundering.
As government agencies, FIUs must retain sufficient independence to accomplish
their objectives without undue interference or influence.

Functions of FIU-IND
The main function of FIU-IND is to receive cash/suspicious transaction reports,
analyse them and, as appropriate, disseminate valuable financial information to
intelligence/enforcement agencies and regulatory authorities.
The functions of FIU-IND are:
Collection of Information: Act as the central reception point for receiving Cash Transaction reports
(CTRs) and Suspicious Transaction Reports (STRs) from various reporting entities.
Analysis of Information: Analyze received information in order to uncover patterns of transactions
suggesting suspicion of money laundering and related crimes.
Sharing of Information: Share information with national intelligence/law enforcement agencies, national
regulatory authorities and foreign Financial Intelligence Units.
Act as Central Repository: Establish and maintain national data base on cash transactions and suspicious
transactions on the basis of reports received from reporting entities.
Coordination: Coordinate and strengthen collection and sharing of financial intelligence through an
effective national, regional and global network to combat money laundering and related crimes.
Research and Analysis: Monitor and identify strategic key areas on money laundering trends, typologies
and developments.

Reports to be sent FIU-IND/RBI

STR :Suspicious Transaction Report As and when such transactions occur.

CTR :Cash Transaction Report on a monthly basis.
Retention of Records - 10 years.

Examples of Money Laundering and Suspicious Indicators

One receiver collects transactions from multiple senders on the same day
that total more than local Large Cash Transaction Reporting thresholds in
the Send/Receive country.
"U-turn" transactions, e.g. money passes from one person or company to
another, and then back to the original person or company

Deposits followed within a short period of time by wire

transfers of funds
Customer refuses, or is unwilling, to provide explanation of financial activity,
or provides explanation assessed to be untrue
Customer provides suspicious identification document that may have been
altered or do not fit the person presenting it
Customer has an unusual or excessively nervous demeanor

Customer discusses your record-keeping or reporting duties with an

apparent intention of avoiding them
Customer threatens your employee attempting to deter a recordkeeping or
reporting duty

Customer makes large cash transaction without counting the cash

Employees frequently overrides internal controls or established
approval authority or circumvents policy
Transactions where customers make frequent large overseas
remittances within a short period of time, unless they are found
rational in view of their occupation, business details and other
factors

Punishment for money laundering

Whoever commits the offence of money-laundering shall be punishable

with rigorous imprisonment for a term which shall not be less than three years but
which may extend to ten years and shall also be liable to fine which may extend to
five lakhs rupees:

BALANCING AML COMPLIANCE AND BUSINESS

Measures to prevent money laundering & combating of terrorism

1.
2.
3.
4.
5.
6.
7.

Appointment of Principal Officer

Well framed an AML policy for the company.
Training program organized all over India.
Risk categorization developed in system.
STR,CTR,CCR are being submitted to FIU, centrally.
Maintenance of records for all transactions.
Customer Due Diligence carried out at all branches.

PRINCIPAL OFFICER AND COMPLIANCE OFFICER

As per RBI Guide lines one senior most official of the company must be
appointed as Principal Officer.

All Branch Heads are by default the Compliance Officers.

Revised policy guidelines on KYC/AML/CFT

There are two sets of booklets on revised policy guidelines on

KYC/AML/CFT , one on Forex and other on Money Transfer.

This need to be presented at the time of RBI inspection for

verification, if asked.

POLICY

GUIDELINES FOR FOREX and MTSS

KNOW YOUR CUSTOMER (KYC)

ANTI MONEY LAUNDERING (AML)
COMBATING FINANCING OF TERRORISM (CFT)

Which are the circulars of RBI governing the applicability of PMLA for
Money Changing/Money Transfer business?

RBI has published detailed guidelines on KYC/AML/CFT vide its AP

(DIR.Series) Circulars 17 and 18 both dated 27.11.2009 for money
changing/money transfer business. The said Circulars also mandated all
Authorized Persons to:

Have a revised Policy framework on KYC/AML/CFT

Prepare Customer Acceptance Policy/Customer Identification procedure

Appoint Principal Officer in place of MLRO

Place before the Board of Directors compliances on lapses, if any,

reported by the Concurrent Auditors.

Do you categorise the transactions/customers and on what basis?

Typ
e

On the basis of the Due Diligence i.e KYC Norms stipulated by the RBI.
Customer Acceptance Policy.
Customer Identification Program.
Monitoring of Transactions.
Risk Management.

Type of the Customer

Risk

(i)

Regular customers who have been dealing with us for long time

Low

(ii)

Those
introduced
by
our existing
customers,
Sub-Agents,
Commission/Referral Agents, Travel Agents, general walk in customers

Medium

(iii)

General Walk-in customers from countries which are yet to comply

with FATF requirements, Politically Exposed Persons.

High

AML Training Report Model

Please note the following

KYC

does not mean:

Denial of service to the common man
Harassment of customers
Rude behavior
Putting up a body language/questions as if the customer is a suspect

Do not refuse transactions at the face of it without analyzing the

risks involved, except if it is related to sanctions filtering.
If you are not sure of conducting a transaction, please consult with
your Compliance Officer/Branch Head before refusing the
transaction.
When requesting for information or documents from customer, always
be polite in your conversation and frame the questions in such a way
that it will the make the customer to share the required information.
If a customer approaches the counter for a transaction, who is found
to be suspicious, please do not display your suspicion openly, by
whispering to one another behind the counter.

If a transaction is not possible through certain mode, always give alternative

suggestions to the customer for conducting the transaction which are in line
with the AML Compliance policy and procedures. Eg. Trade transactions to
India through RDA is restricted to INR 200,000/-. But if the customer wants
to send a higher amount, you can always advise the customer to send in USD
through SWIFT.
But this does not mean that you can compromise with the guidelines.

AML&CTF Policy & Procedures is not intended for hindering the GROWTH
of the business.
It is not to make us defensive in our business approach
AML&CTF guidelines have been implemented to protect and prevent our
business from being misused for money laundering and terrorist
financing.
The policy of being too cautious is the greatest risk of all.

Please Contact:
R Ratnakumar| | Chief Compliance Officer - Anti-money Laundering (India)
UAE Exchange & Financial Services Ltd,
III Floor, Airlines Building, M.G. Road, Kochi - 682 011, India
Tel: 0091 484 3048179 | Fax: 0091 484 3048176|
Mob: 0091 9747196555
aoinspection@uaeexchange.co.in | www.uaeexchangeindia.com

Thank You..