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Anti Money Laundering -- KYC nroms

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 http://www.sbank.in/search?q=kyc

TO KNOW ABOUT KNOW YOUR CUSTOMER (KYC norms)

QUOTE
. What is KYC?
KYC is an acronym for “Know your Customer”, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc which in turn helps the banks to manage their risks prudently. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.
KYC has two components - Identity and Address. While identity remains the same, the address may change and hence the banks are required to periodically update their records.
2. Is there any legal backing for verifying identity of clients?
Yes. Reserve Bank of India has issued guidelines to banks under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.
3. I want to keep a fixed deposit in a bank. Is KYC - applicable to me?
Yes. KYC is applicable to customers of the bank. For the purpose of KYC following are the ‘Customers of the bank.
  • a person or entity that maintains an account and/or has a business relationship with the bank;
  • one on whose behalf the account is maintained (i.e. the beneficial owner);
  • beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
  • any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value

Anti money laundering can be avoided if a Bank follws KYC norms.  Invariably such flouting of norms takes place only with the knowledge of Bank Manager/bank staff.  It is because a Bank manager wants to improve his business and in his desire he is willing to go away from the norms.  Manager does it thinking what if I do this on a small scale.  country is so big.  our banking system is so big and what violation I do is very minimum and will not be known to others and will not affect me.

recently three private sector banks axis bank, icici, hdfc they were held responsible for violating the norms and helping money laundering.

Helping a customer to keep his un accounted money -- money received as bribe or as black money (tax not paid) --and keep it safe -- help him earn interest on that --this is done by bankers who are violating knowingly. 

If you are asked to talk -- tell about what is KYC.  why it is followed?  what are the advantages of it?  what are the proof we can insist? 

With all that if we have conniving government employees then they can help such individuals get fake ids and help them generate money laundering.

,
Dictionary Says

Definition of 'Anti Money Laundering - AML'

A set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately.

Investopedia Says

Investopedia explains 'Anti Money Laundering - AML'

Though anti-money-laundering laws cover only a relatively limited number of transactions and criminal behaviors, their implications are extremely far reaching. An example of AML regulations are those that require institutions issuing credit or allowing customers open accounts to complete a number of due-diligence procedures to ensure that these institutions are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not the criminals or the government.
http://www.investopedia.com/terms/a/aml.asp

Money laundering is the process of concealing the source of money obtained by illicit means. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. However, the Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, stated that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard".[1] Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.[2]
Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions (US dollars) and poses a significant policy concern for governments.[2] As a result, governments and international bodies have undertaken efforts to deter, prevent and apprehend money launderers. Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputational risk involved.

Methods

Money laundering often occurs in three steps: first, cash is introduced into the financial system by some means ("placement"); the second involves carrying out complex financial transactions in order to camouflage the illegal source ("layering"); and, the final step entails acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.[2]
Money laundering takes several different forms, although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".[3]
  • Structuring: Often known as "smurfing", is a method of placement by which cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.[4]
  • Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will be deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.[5]
  • Cash-intensive businesses: A business typically involved in receiving cash will use its accounts to deposit both legitimate and criminally derived cash, claiming all of it as legitimate earnings. Best suited is a service business. As such business has no variable costs, it is hard to detect revenues-costs discrepancies. Examples are parking buildings, strip clubs, tanning beds or a casino.
  • Trade-based laundering: Under- or over-valuing invoices in order to disguise the movement of money.[6]
  • Shell companies and trusts: Trusts and shell companies disguise the true owner of money. Trusts and corporate vehicles, depending on the jurisdiction, need not disclose their true, beneficial, owner.[7]
  • Round-tripping: Money is deposited in a controlled foreign corporation offshore, preferably in a tax haven where minimal records are kept, and then shipped back as a Foreign Direct Investment, exempt from taxation.
  • Bank capture: Money launderers or criminals buy a controlling interest in a bank, preferably in a jurisdiction with weak money laundering controls, and then move money through the bank without scrutiny.
  • Casinos: An individual will walk into a casino with cash and buy chips, play for a while and then cash in his or her chips, for which he or she will be issued a check. The money launderer will then be able to deposit the check into his or her bank account, and claim it as gambling winnings.[5]
  • Real estate: Real estate may be purchased with illegal proceeds, then sold. The proceeds from the sale appear to outsiders to be legitimate income. Alternatively, the price of the property is manipulated; the seller will agree to a contract that under-represents the value of the property, and will receive criminal proceeds to make up the difference.[7]
  • Black salaries: Companies might have unregistered employees without a written contract who are given cash salaries. Black cash might be used to pay them.[8]
  • Fictional loans

Enforcement

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, detect and report money laundering activities. Anti-money laundering guidelines came into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti-money laundering standards.[9] These standards began to have more relevance in 2000 and 2001 after FATF began a process to publicly identify countries that were deficient in their anti-money laundering laws and international cooperation, a process colloquially known as "name and shame".[10][11]
An effective AML program requires a jurisdiction to have criminalized money laundering, given the relevant regulators and police the powers and tools to investigate; be able to share information with other countries as appropriate; and require financial institutions to identify their customers, establish risk-based controls, keep records, and report suspicious activities.[12]

Criminalizing money laundering

The elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and Convention against Transnational Organized Crime. It is knowingly engaging in a financial transaction with the proceeds of a crime for the purpose of concealing or disguising the illicit origin of the property.

The role of financial institutions

Today, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit in the respective country. For example, a bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as KYC – "know your customer". This means, to begin with, knowing the identity of the customers, and further, understanding the kinds of transactions in which the customer is likely to engage. By knowing one's customers, financial institutions will often be able to identify unusual or suspicious behavior, termed anomalies, which may be an indication of money laundering.[13]
Bank employees, such as tellers and customer account representatives, are trained in anti-money laundering and are instructed to report activities that they deem suspicious. Additionally, anti-money laundering software filters customer data, classifies it according to level of suspicion, and inspects it for anomalies. Such anomalies would include any sudden and substantial increase in funds, a large withdrawal, or moving money to a bank secrecy jurisdiction. Smaller transactions that meet certain criteria may also be flagged as suspicious. For example, structuring can lead to flagged transactions. The software will also flag names that have been placed on government "blacklists" and transactions involving countries that are thought to be hostile to the host nation. Once the software has mined data and flagged suspect transactions, it alerts bank management, who must then determine whether to file a report with the government.

Value of enforcement costs and associated privacy concerns

The financial services industry has become more vocal about the rising costs of antimoney laundering regulation, and the limited benefits that they claim it appears to bring.[14] One commentator wrote that "[w]ithout facts, [anti-money laundering] legislation has been driven on rhetoric, driving by ill-guided activism responding to the need to be "seen to be doing something" rather than by an objective understanding of its effects on predicate crime. The social panic approach is justified by the language used – we talk of the battle against terrorism or the war on drugs..."[15] The Economist magazine has become increasingly vocal in its criticism of such regulation, particularly with reference to countering terrorist financing, referring to it as a "costly failure", although concedes that the rules to combat money laundering are more effective.[16]
However, there is no precise measurement of the costs of regulation balanced against the harms associated with money laundering,[17] and, given the evaluation problems involved in assessing such an issue, it is unlikely the effectiveness of terror finance and money laundering laws could be determined with any degree of accuracy.[18] Government-linked economists have noted the significant negative effects of money laundering on economic development, including undermining domestic capital formation, depressing growth, and diverting capital away from development.[19]
Data privacy has also been raised as a concern. A European Union working party, for example, has announced a list of 44 recommendations to better harmonize, and if necessary pare back, the money laundering laws of EU member states to comply with fundamental privacy rights.[20] In the United States, groups such as the American Civil Liberties Union have expressed concern that money laundering rules require banks to report on their own customers, essentially conscripting private businesses "into agents of the surveillance state".[21]
In any event, many countries are obligated by various international instruments and standards, such as the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the Convention against Transnational Organized Crime, and the United Nations Convention against Corruption, and the recommendations of the FATF to enact and enforce money laundering laws in an effort to stop narcotics trafficking, international organised crime, and corruption. Other countries, such as Mexico, which are faced with significant crime problems believe that anti-money laundering controls could help curb the underlying crime issue.[22]

Organizations working against money laundering

Formed in 1989 by the G7 countries, the FATF is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. The FATF Secretariat is housed at the headquarters of the OECD in Paris. In October 2001, FATF expanded its mission to include combating the financing of terrorism. FATF is a policy-making body, which brings together legal, financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Currently, its membership consists of 34 countries and territories and two regional organizations. In addition, FATF works in collaboration with a number of international bodies and organizations. These entities have observer status with FATF, which does not entitle them to vote, but permits full participation in plenary sessions and working groups.[23]
FATF has developed 40 Recommendations on money laundering and 9 Special Recommendations regarding terrorist financing. FATF assesses each member country against these recommendations in published reports. Countries seen as not being sufficiently compliant with such recommendations are subjected to financial sanctions.[24]
FATF’s three primary functions with regard to money laundering are:
  1. Monitoring members’ progress in implementing anti-money laundering measures.
  2. Reviewing and reporting on laundering trends, techniques and countermeasures.
  3. Promoting the adoption and implementation of FATF anti-money laundering standards globally.

http://en.wikipedia.org/wiki/Money_laundering

Anti Money Laundering -- KYC nroms Reviewed by sambasivan srinivasan on 6:58:00 AM Rating: 5

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