AML/CFT Regime
The Indian Response
FIU-IND
Financial Intelligence Unit-India
Ministry of Finance,
Government of India
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
Spotlight on Money Laundering
FIU-IND
Financial Intelligence Unit-India
Spotlight Money Laundering
Tighter AML regulation in the US and Europe is
pushing money laundering activity into Asia
Pacific…
Totally Funds Laundered Worldwide
Money Laundering by Region
(Total = $950 billion in 2006)
$1,200
US$ billions
$1,100
Europe
26%
$1,000
AsiaPacific
31%
$900
Middle
East Africa
5%
Americas
38%
$800
2004
Source: Celent
2005
2006
2007
2008
2009
FIU-IND
Financial Intelligence Unit-India
Spotlight Money Laundering
The perpetrators: money laundering by criminal
sector…
Money Laundering by Activity
Other
Organized
Crime
23%
Smuggling
29%
Source: Celent
Terrorist
groups
1%
Drugs
26%
Embezzlement/
White
Collar
Crime
21%
• 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
today’s AML and KYC
regulations
• White collar crime, including
embezzlement and internal
fraud, is a significant (and
growing) problem.
FIU-IND
Financial Intelligence Unit-India
Spotlight Money Laundering
The victims: Money Laundering by industry sector
Money Laundering by Industry Sector
Insurance
Firms
9%
Credit
Cards
5%
Money
Services
4%
Source: Celent
Brokerage
&
Investment
Firms
27%
Banks
55%
•
The largest portion of laundered
funds are processed through
banks.
•
Investment firms—including
brokerages, mutual fund
companies, hedge funds—also
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.
FIU-IND
Financial Intelligence Unit-India
State of AML in Asia
High
Progress
(Implementation of systems)
Australia
Singapore
Hong Kong
Philippines
India
Japan
South Korea
Malaysia
China
Taiwan
Indonesia
Thailand
Low
Low
Source: Celent
Industry Awareness
High
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
Money Laundering – then and now
Continuity and Evolution
Early 1990s
2010
• Bank-centered techniques:
collection accounts, loan
back arrangements bank
drafts, money orders and
cashier’s cheques smurfing
• Cash smuggling
• Accounts in relatives’
names, shell companies
• Hawala, hundi or other
“underground banking”
systems
• Wire transfers
• New electronic payment
systems
• Remittance services and money
exchange services
• Assistance from “Gatekeepers”
• Terrorist financing through nonprofit organizations
• Insurance industry, particularly
through independent insurance
agents
• Politically Exposed Persons
(PEPs)
Source: Celent
FIU-IND
Financial Intelligence Unit-India
Indian Response
FIU-IND
Financial Intelligence Unit-India
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
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
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
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
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
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
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
Common Trends Observed in STRs
FIU-IND
Financial Intelligence Unit-India
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
Key Issues Emerging from
Mutual Evaluation
FIU-IND
Financial Intelligence Unit-India
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 noncompliance
• 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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