Anti money laundering laws elicit high level of cooperation

Creation and implementation of Anti Money Laundering (AML) and Combating Financing of Terrorism (CTF) laws and the resultant Know Your Customer (KYC) related regulations has elicited high level of voluntary international cooperation.

AML laws have subsequently been adopted on a national level by the majority of nation states, with non-compliant countries effectively counting themselves out from the international economy.

BASEL FRAMEWORK

Various accords issued by the Basel Committee on Banking Supervision serve as a regulatory framework for strengthening the stability of the international banking system. They also include explicit measurement criteria for operational risk, and essentially serve to foster a stronger risk mitigation and AML compliance culture within the financial services sphere.

In India, the KYC guidelines have been revisited in the context of the recommendations made by the Financial Action Task force (FATF) on AML standards and on CFT.

The Department of Banking Operations and Development of the Reserve Bank has issued detailed guidelines in this regard which are equally applicable to non-banking financial companies.

SBT's effort

Banks in India have generally made a good account of themselves in their preparedness to adhere to AML/CFT/KYC regulations.

For instance, State Bank of Travancore has put in place a related policy not just in line with the guidelines issued by the RBI but also in alignment with that of the parent, State Bank of India.

A dedicated KYC-AML cell at the head office oversees compliance of AML/CFT/KYC measures. The Deputy General Manager (Compliance) is the designated Principal Officer.

The branches are to obtain photograph, suitable identity proof and address proof while opening new accounts. Customer acceptance and customer identification are the most important prerequisites in the opening of new accounts. Branches also have been advised to update the identity proof and address proof of the existing customers at regular intervals.

NEW ACCOUNTS

During their visits to branches, controllers, auditors and concurrent auditors, verify compliance of KYC norms while opening accounts.

Monitoring of transactions is done with a view to submitting the required reports to Financial Intelligence Unit-India (FIU-IND) mandated by the Prevention of Money Laundering Act 2002. The bank has deployed ‘Amlock' software (used by all associate banks) which processes all transactions handled on a day-to-day basis. After ‘end of the day' operations in core banking, daily transaction data is pushed to the Amlock server.

The same is processed and alerts generated are made available to the KYC/AML cell for disposal. The alerts are analysed and scrutinised for finalisation and submission of Suspicious Transaction Report (STR) to the FIU-IND.

MONTHLY REPORT

The software also generates a Cash Transaction Report (CTR). A monthly report is submitted to the FIU-IND on a regular basis. Hard/soft copies of monthly CTRs are retained as branch records for verification by auditors/officials of RBI.

Branches also verify CTRs and, in case of any suspicious transaction, the same will be raised as STR and advised to KYC/AML cell. Counterfeit Currency Reports (CCRs) too are submitted to FIU-IND as and when detected.

The Bank has also established appropriate framework covering proper management oversight, systems, controls and other related matters.

Its policy on internal audit of compliance with KYC/AML provides an independent evaluation of the same including legal and regulatory requirements. Concurrent/ Internal auditors specifically check and verify the application of KYC/AML procedures at branches and comment on lapses, if any. Compliance in this regard is placed before the audit committee of the Board at quarterly intervals.

The designated Deputy General Manager (Compliance), Principal Officer, has the overall responsibility for maintaining oversight and coordinating with various functionaries in the implementation of KYC/AML/CFT policy.

STAFF TRAINING

Training on KYC/AML is being given on an ongoing basis at the bank's two Learning Centres. At least 13 seminars/staff awareness programmes have been conducted at various centres across the country covering almost all branches.

Presently, the Department is rolling out Phase-II seminars on KYC/AML/CFT. Officials in the KYC-AML Cell have visited all zonal offices and various branches to provide guidance.

“There is a need to have unique customer identification number to control money laundering,” says Mr Ramnath Pradeep, Chairman and Managing Director of Corporation Bank.

GREY AREA

According to him, all banks may have gone on core banking, but they don't necessarily go by customer identities (Ids) since all transactions are still running on the branch account. For instance, if a customer has 10 live accounts but at different locations and he is able to withdraw and deposit cash or otherwise, the banks may not be in a position to track him at one go.

Terming this as a grey area, he said the bankers should look to plug this lacuna. There is also a need to have a uniform customer number or customer Id. This will help prevent money laundering throughout the system, as the banks will get a ‘single view' of customer transactions. “Today we are not able to do that. This area needs to be addressed,” he adds.

Betting big on the unique identification (UID) number programme of the Government of India, Mr Pradeep said, it provides only one number to an individual, which can be verified from the central server of UID. He hoped that such a system would help control money laundering activities, and help banks track down every single transaction.

Corporation Bank has been reporting cases of suspicious transactions to the authorities concerned whenever they have come to its notice. Strict adherence to KYC norms is a must to control money laundering, Mr Pradeep adds.

KARNATAKA BANK's view

Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank, says that his bank is very strict as far as compliance to KYC norms is concerned.

The Risk Management Department of the bank monitors all transactions in the bank at the centralised level. Software being used in the bank helps monitor cash transactions and suspicious transactions on a continuous basis.

“As per instructions of the Financial Intelligence Unit, we are reporting suspicious transactions every month. This we have been doing regularly which underpins our efforts at combating money laundering,” he says.

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