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8/10/2019 Presentataion Money Laundering
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Mahajan
&
ibara
1A TATAEnterprise
1
Presentation On Money Laundering
8/10/2019 Presentataion Money Laundering
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Mahajan
&
ibara
2A TATAEnterprise
Table Of Contents
1. Overview
2. Meaning / Definitions3. Stages/Process
4. Techniques
5. Indicators
6. Risks
7. Impact
8. Relationship with Terrorism
9. Combating Measures
10. Role Of Chartered Accountants
11. Inference
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Mahajan
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Overview
Seen This Somewhere ?????? ????????
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Meaning / Definitions
Drugs/Arms Trafficking
Terrorism
Extortion
Conversion Criminal Activities
Illegally Obtained
Money
Appears To Originate
From Legitimate Source
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Meaning / Definitions (Cont.)
Money Laundering is the practice of disguising illegally obtained funds so that
they may seem legal and is the main operation of the underground economy
According Swiss Bank MoneyLaundering is a process whereby the origin of
funds generated by illegal means is concealed (drug trafficking, gun smuggling,
corruption, etc)
Sec.3 of PML Act, 2002 defines money laundering as: whosoeverdirectly 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 projecting it as untainted property shall be guilty of the offence ofmoney-laundering
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Stages / Process
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Stages / Process (Cont.)
The physical disposal of cashproceeds derived from illegal activities
Placement
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Stages / Process (Cont.)
The separation of illicit proceeds from their source by creating complex layersof financial transactions
To confuse the audit trail by creating complex layers of financial transactionswhich appear, individually, to be legitimate
Layering
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Stages / Process (Cont.)
Putting laundered proceeds into the legitimate economy so that the proceedsappear to be from normal business activities.
Reinjecting laundered proceeds into economy so that they reenter financial system as normal
business funds Provides an apparently legitimate explanationto criminally derived wealth
Integration
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Stages / Process (Cont.)
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Techniques Employed
1. Smurfing/ Deposit structuring
2. Shipping Money Abroad
3. Credit/ Debit cards
4. Use Of PassThroughOr PayableThroughAccounts
5. Electronic Wire Transfers
6. Loan Back Arrangement7. Correspondent Banking
8. Trading And Other Business Activities
9. Lawyers, Accountants & other Intermediaries
10. Placement Using Insurance Products
11. Placement Using Investment Related Transactions
12. Misuse of Non Profit Organisations (NPOs)
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Indicators
Suspic ious Transact ions
Suspicious transaction means a transaction whether or not made incash and whichGives rise to a reasonable ground of suspicion that it may involve
the proceeds of crime
Appears to have no economic rationale or bonafide purposeLarge cash withdrawals from: a dormant or inactive account or
account with unexpected large credit from abroadSudden increase in cash deposits of an individual with no
justificationReceipt or payment of large cash sums with no obvious purpose
or relationship to Account holder / his business
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Indicators (Cont.)
Suspic ious Behavior Indicators
Ac coun t Opening Stage
Customer appears to be acting as agent for another person or entitybut declines/evades or is reluctant to provide information inresponse to questions about that person or entity
Customersname appears in negative list circulated by regulators
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Indicators (Cont.)
Transaction Stage
Customer requests for avoiding Banksnormal documentation requirements.
Customer refuses to provide information necessary for Banks to make report /records as per regulatory requirements
Customer provides information that Bank determines to be false
Customer splits transactions involving cash deposits in order to avoidthreshold limit reporting requirements
Customer seeks to change or cancel a transaction after informing of currencytransaction reporting, information, verification or record keeping requirements
Customer exhibits unusual concern about secrecy or requests information
regarding how to conceal transactions from government authorities
Customer exhibits unusual curiosity about banks internal systems, controlsand policies
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Indicators (Cont.)
Trade Finance
Wire transfers
Other Inward/Outward remittances
Review Letter of Credits, Shipment of items inconsistent with customersbusiness
Irregular pricing of goods Excessively amended letters of credit Transactions designed to avoid home country legal restrictions
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Indicators (Cont.)
Red/Warning Flags
High activity and low balances Insensitivity to transaction charges
Credits by different people into same account
Immediate turnaround (ins and outs)
Refusal to provide identification or other information Desires unnecessarily complex transactions
Reference by persons impossible to contact/ difficult to verify
Inadequate or unusual documentation
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Risk
1. Reputational
2. Operational
3. Legal
4. Concentration
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Risk (Cont.)
Reputational
The potential that adverse publicity regarding a banks business
practices, whether accurate or not, will cause a loss of confidence in
the integrity of the institution
A major threat to banks as confidence of depositors, creditors andgeneral market place to be maintained
Banks vulnerable to Reputational Risk as they can easily become a
vehicle for or a victim of customersillegal activities
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Risk (Cont.)
Operational
The risk of direct or indirect loss resulting from inadequate or failed
internal processes, people and systems or from external events
Weaknesses in implementation of banksprograms, ineffective control
procedures and failure to practice due diligence
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Risk (Cont.)
Legal
The possibility that lawsuits, adverse judgments or contracts that turn
out to be unenforceable can disrupt or adversely affect the operations
or condition of a bank.
Banks may become subject to lawsuits resulting from the failure toobserve mandatory KYC standards or from the failure to practice due
diligence
Banks can suffer fines, criminal liabilities and special penaltiesimposed by supervisors
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Risk (Cont.)
Concentration
Mostly applies on the assets side of the balance sheet: Information
systems to identify credit concentrations; setting prudential limits to
restrict banks exposures to single borrowers or groups of related
borrowers
On liabilities side: Risk of early and sudden withdrawal of funds by
large depositors- damages to liquidity
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Impacts
International Consequences and Foreign Investment
Weakened Financial Institutions
Compromised Economy and Private Sector
Short Tax Collection
Increased Crime and Corruption
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Impacts (Cont.)
Penalty Imposed On Banks
Jan 06 ABN Amro US$ 80 Million
Aug 05 Arab Bank US$ 24 Million
Feb 05 City National Bank US$ 0.75 Million
Jan 05 Riggs Bank US$ 41 Million
Oct 04 AM South Bank US$ 50 Million
Sep 04 City Bank - Japan US$ 25 Million
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Relationship With Terrorism
Do you remember September 11, 2001?
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Relationship With Terrorism (Cont.)
Terrorist FinancingAs per the Monograph on Terrorists Financing
(issued by the 9/11 enquiry commission),
preparations for the 9/11 attacks cost between
US$400,000 and US$500,000-of which aboutUS$300,000 was spent in the United States.
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Relationship With Terrorism (Cont.)
Terrorist groups need money to finance their activities and that these are often
raised from other criminal activity which have tragic effects:- 80% of the heroin on the streets in United Kingdom originates from
Afghanistan and the proceeds often end up in the coffers of Islamist terror
groups;
Both Protestant and Catholic terrorist paramilitaries in Northern Ireland derive
income from smuggling and extortion;
Bank robbery is a preferred form of fund raising for terrorists in both Italy and
Spain.
Globally
- estimated US$800 billion 1 trillion of illicit funds is circulatingworldwide
- about US$400 - 500 billion is associated with drug trade
- about US$200 - 250 billion are associated
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Combating Money Laundering
Money LaunderingPrevention
Observing Rules for
Bankers
Customer
due Diligence
Identifying
Irregular / Suspicious
Transactions
Compliance withLaws
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Combating Money Laundering (Cont.)
Ind ian Init iat ives
PMLA Act, 2002
Maintenance of Records of transactionsEvery banking company or financial institution or intermediary, as the case
may be, shall maintain a record of
All cash transactions of the value of more than rupees ten lakhs or its
equivalent in foreign currency ;
ll series of cash transactions integrally connected to each other having a
value below rupees ten lakhs or its equivalent in foreign currency where such
series of transactions have taken place within a month
All cash transactions where forged or counterfeit currency notes or banknotes have been used as genuine and where any forgery of a valuable
security has taken place
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Combating Money Laundering (Cont.)
All suspicious transactions whether or not made in cash and by way of :Cheques, Travelers Cheques, A/c Transfer, Credits or debits into or from any
non-monetary accounts, Money transfer or remittances, Loans and Advances,Collection Services
Procedure and manner of furnishing informationAny suspicious activity should be reported to the FIU within 7 days of its
occurrence. Monthly information should be submitted by the 7th of thesucceeding month to the Director of FIU.
Verification & Maintenance of the records of the identity of clients:Records to be maintained for ten years.
RBI issued a circular on Feb 16, 2006 reiterating the above rules. With regard toaccounts for which a SAR has been filed with the authorities, Banks may not putany restrictions on operations in those accounts. However, it should be ensuredthat there is no tipping off to the customer at any level.
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Combating Money Laundering (Cont.)
Income Tax Regulat ions
Income Tax - Rule 114B : "Every person shall quote his PAN in alldocuments pertaining to the following transactions with a bankingcompany, namely (among others) :
A time deposit or an account (not being time deposit), exceeding
INR 50,000; Payment in cash for purchase of bank drafts or pay orders or
bankers cheques from a banking company for an amount
aggregating INR 50,000 or more during any one day;
Deposit in cash aggregating INR 50,000 or more, with a banking
company during any one day;
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Combating Money Laundering (Cont.)
Internat ional Effor ts
The International Criminal Police Organisation (INTERPOL)
The Vienna Convention-1988
British Commonwealth
Financial Action Task Force
Asia / Pacific Group on Money Laundering (APG)
The Financial Crimes Enforcement Network (FinCEN)
Software solutions
R l Of Ch d A
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Role Of Chartered Accountants
Development of Accounting & Auditing Standards
Monitoring Mechanism
Enforcement Directorate
Adjudicating Authority
Member to Appellate Tribunal Legal representation
Others
I f
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Inference
Money laundering is serious threat to global financial system and
good governance. It is also boosting international crimes andterrorist activities.
Bottom LineBillions of dirtypounds are mistakenly cleanedby financial institutions and
professional advisers, or received by businesses turning a blind eye to largecash payments. As a consequence, money laundering represents a seriousthreat, not just to sound economic and financial development but to thepolitical integrity and stability of our nation. Thus we as informationprofessionals should play their part in ensuring that the right systems are in
place to help businesses to know their clients better and hence combatinternational crime and protect the assets of the business and its customers.
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Thank You