Anti Money Laundering
Money Laundering
Money laundering is the practice of engaging in a specific financial transaction to conceal the identity, source and/or destination of money and is the main operation of underground economy.
The offence of money laundering has been defined in Section 3 of the Prevention of Money laundering Act, 2002 (PMLA) as:
"Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and is projecting it as the untainted property shall be guilty of the offence of money-laundering"
Money laundering can also be considered as a process by which money or other assets obtained as proceeds of crime are exchanged for clean money or other assets with no obvious link to the origins of crime.
Money laundering occurs in three stages –
- Placement: refers to the initial point of entry for funds derived from any criminal activities.
- Layering: refers to the creation of a complex network of transactions which attempts to obscure the link between the initial entry point and the end of the laundry cycle
- Integration: refers to the return of funds to the legitimate economy for later extraction.
Anti-Money Laundering guidelines
The purpose of prescribing the Anti-Money Laundering [AML] guidelines is:
- To prevent the banking system engaged in the purchase and/or sale of foreign currency notes/ Travelers cheques from being used for money laundering by criminals.
- To not allow sophisticated methodologies for transfers to be used to hide the transfer trail.
- To track those who misuse banks, financial institutions, or intermediaries for carrying out illegal activities.
AML measures
AML measures should include:
- Identification of customer according to KYC norms
- Recognition, handling and the disclosure of suspicious transactions
- Appointment of Money Laundering Reporting Officer [MLRO]
- Staff training
- Maintenance of records
- Audit of transactions
Identification of customer according to KYC norms
All transactions are to be undertaken only after proper identification of the customer. Photocopies of proof of identification should be verified against the original documents. Full details of the name and address as well as the details of ID documents should also be kept on record.
Recognition, handling and the disclosure of suspicious transactions
The financial service providers must ensure that they are vigilant against money laundering transactions at all times. An important part of AML measures is determining whether a transaction is suspicious or not. A transaction may be of suspicious nature irrespective of the amount involved.
Appointment of Money Laundering Reporting Officer [MLRO]
A MLRO may be appointed by every bank, financial institutions, or intermediaries for monitoring transactions to ensure compliance with the AML guidelines issued by the RBI from time to time. It is the responsibility of MLRO to report suspicious transactions to the Financial Intelligence Unit [FIU]. Any suspicious transaction/s, if undertaken, should have the prior approval of the MLRO. The MLRO shall have reasonable access to all the necessary information/documents, which would help effectively discharge responsibilities.
Staff Training
All the managers and staff must be trained to be aware of the policies and processes relating to prevention of money laundering, provisions of the PMLA and the need to monitor all the transactions. This can ensure that no suspicious activity is being undertaken under the guise of money changing.
Audit/Compliance
He concurrent auditor should check all transactions to verify that they have been done in compliance with the AML guidelines and have been reported as required. A certificate from the Statutory Auditor on the compliance with AML guidelines should be obtained at the time of preparation of the Annual Report and kept on record.
Maintenance of Records
The following documents should be preserved for a minimum of five years:
- Records including identification should be obtained in respect of all transactions, Statements/Registers prescribed by RBI from time to time and all the Inspection/Audit/Concurrent Audit Reports
- Annual reports of the MLRO should be submitted to the senior management of the bank, financial institutions, or intermediaries. The details of all the suspicious transactions should be reported in writing or otherwise to the MLRO
- Details of all the transactions that involve purchase of foreign exchange against payment in cash exceeding Indian Rupees 10, 00,000 from inter-related persons during one month should be submitted
- All correspondences and reports in connection with suspicious transactions with the appropriate authority should be submitted
- The references from the Law Enforcement Authorities, including FIU, should be preserved until the cases are adjudicated and closed
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