ANTI MONEY

LAUNDERING
Money Laundering
 Money Laundering‘ is the process by which
money derived from criminal activities is brought
into the financial system as to conceal its illicit
origin and to make it appear to be from licit
origin.

 Processes-
a) Placement - Physically placing
b) Layering - Distancing the funds from their
origins
c) Integration - Accumulating the funds scattered
Terrorism Financing Stages
Raising

Terrorism
Using Moving
financing

Storing
Financing of Terrorists
There are three types of principal sources for
terrorist financing:
a) State – financing
b) Legitimate Modes
c) Private Funding
COMMON SOURCES OF ILLEGAL
MONEY
 Drug trafficking
 Organised crime
 Slush funds maintained by big corporations,

e.g., bribery, payment to political parties,

politicians, etc
 International trafficking in arms
 International trafficking in human beings
 Smuggling
METHODS/MODES USED FOR MONEY
LAUNDERING/TERRORISM FINANCING
 Deposit Structuring/Smurfing
 Multiple Tier of Accounts
 Funnel Accounts
 Contra Transactions
 Bank Drafts and Similar Instruments
 Cash Deposits followed by Transfers
 Front Companies
 Dormant Accounts
 Wire Transfers
Shell Companies
 A shell company is just that - a shell where
no real business is conducted. They appear
on paper, but may not physically exist. If at
all any of these exists physically, they may
not be engaged in manufacturing or trading
operations. They are used to create the
appearance of legitimate transactions
through false invoices and financial
statements.
Hawala System
 It is an alternative remittance system that
operates outside the control of the government
allowing for undocumented deposits,
withdrawals, and transfers. These are trust based
systems that leave no paper trail. Money is
transferred via a network of hawala brokers. A
customer approaches a hawala broker in one city,
and gives a sum of money to be transferred to a
recipient in another, usually a foreign city. The
hawala broker calls another hawala broker in the
recipient‘s city, gives disposition instructions of
the funds.
Financial Intelligence Unit – India
(FIU-IND)
 Financial Intelligence Unit - India (FIU-IND) is
the central national agency responsible for
receiving, processing, analyzing and
disseminating information relating to suspect
financial transactions to enforcement
agencies and foreign FIUs. It is also
responsible for coordinating and
strengthening efforts of national and
international intelligence, investigations and
enforcement agencies in pursuing the global
efforts against money and related crimes.
Functions of FIU-IND
 Collection of Information
 Analysis of Information
 Sharing of Information
 Act as Central Repository
 Coordination
 Research and Analysis
Processing/ Sharing of Information
 Suspicious Transactions Reports (STRs)
 Cash Transactions Reports (CTRs)
 Cross Border Wire Transfer Reports (CBWTRs)

more than Rs 5.00lac

 NPO Transaction Reports (NTRs)
 Counterfeit Currency Reports (CCRs
Directorate of Enforcement (ED)
 The Directorate of Enforcement was
established in 1956 and has been responsible
for enforcement of the Foreign Exchange
Regulation Act, 1973, and later Foreign
Exchange Management Act, 1999. After
promulgation of the Prevention of Money
Laundering Act, 2002, enforcement of certain
provisions of the Act was entrusted with the
ED. It is under the control of the Department
of Revenue.
Serious Frauds Investigation Office
(SIFO)
 Serious Frauds Investigation Office (SIFO) has
been set up under Ministry of Corporate
Affairs for detecting and prosecuting or
recommending for prosecution white-collar
crimes/frauds. It is therefore consisting of
experts in the field of accountancy, forensic
auditing, law, information technology,
investigation, company law, capital market
and taxation.
What is Transaction Monitoring?
 Banks should exercise ongoing due diligence
with respect to the business relationship with
every client and closely examine the
transactions in order to ensure that they are
consistent with their knowledge of the client,
his business and risk profile and where
necessary, the source of funds.
What is a suspicious transaction
As per PMLA Rule 2 (g) suspicious transaction means
a transaction whether or not made in cash which to a
person acting in good faith –
a. gives rise to reasonable ground of suspicion that
it may involve the proceeds of crime or
b. b. appears to be made in circumstances of
unusual or unjustified complexity or
c. c. appears to have no economic rationale or
bonafide purpose
d. d. gives rise to a reasonable ground of suspicion
that it may involve financing of the activities
relating to terrorism
What are the essentials of transaction
monitoring process?
 Identification of Exceptional Transactions
 Analysis of transactions / available customer

information
 Enhanced Due Diligence
Who should perform transaction
monitoring
Depending on the structure of the Bank,
transaction monitoring may be either be based
at branches or at centralized location. Alerts /
exceptions generated may be filtered by a
central unit and then forwarded to business
units / branches having knowledge about the
customer.
What is white listing? How does a
bank manage white listing?
 With threshold-based alerts, there may be
instances where the same customer accounts
repeatedly hit the threshold limit to generate
alerts. This results in a large number of
repeated alerts involving the same accounts.
To deal with such situations the AML software
provide a false positive manager which allows
accounts to be white listed for a specified
period of time if they are found to be non-
suspicious after due diligence.
Do banks need to File repeat STR?
In case one STR has already been filed for a
particular account and fresh alerts pertaining
to the same account are observed, the Bank
needs to exercise judgment as to whether it
requires to be reported considering following
factors:
• Has any additional ground of suspicion which
has not been reported earlier, been discovered.
• Is the Alert value / volume / frequency
substantially high as compared to the earlier
STR?
How can bank carry out due diligence
without tipping off the customer?
Tipping off would mean informing/
communicating to the customer that his
account has been or would be reported for
suspicious activity to the regulators / FIU-IND.
Is it necessary to have software for
AML transaction monitoring?
As per RBI bank should have suitable software
to throw alerts for transaction monitoring.
Thus it is an important requirement for robust
transaction monitoring system, especially in
view of the high number of transactions that
the banks handle every day, which is making it
increasingly difficult to monitor these through
manual methods.
THE FINANCIAL ACTION TASK FORCE
(FATF)
 FATF was established at the G-7 Economic
Summit held in Paris in 1989. It is an inter-
governmental body whose purpose is to set
standards and promote effective
implementation of legal, regulatory and
operational measures for combating money
laundering, terrorist financing and other
related threats to the integrity of the
international financial system.
Functions of FATF
 Identifying/ analysingthreats to the integrity
of the international
 Developing/ refining International Standards

for combating Ml/ FT / PF and responding to

new threats to the financial system
 Identifying/ engagingwith highrisk and
noncooperative jurisdictions
 Assessing/ monitoring how well members

have implemented the FATF

FATF Recommendations
1. Assessing risks & applying a risk-based
approach
2. Customer due diligence
3. Record keeping
4. Politically exposed persons
5. Correspondent banking
6. Wire transfers
7. Reliance on third parties
8. Internal controls and foreign branches and
subsidiaries
9. Tipping-off and confidentiality
1. What is Money Laundering?
(a) Money Laundering is type of investment to
earn good returns.
(b) People use this process for ensuring long
term gains.
(c) Phrase Money Laundering is described for
conversion of dirty money to clean money.
(d) Money Laundering is the process followed
by Corporates to make bulk payments.
 What is meant by TBML?
(a) Tangible Basis of Money Lending
(b) Trader‘s Bank for Multiple Lending
(c) Trade Basis for Money Laundering
(d) Trade Based Money Laundering
The traditional methods for ML, still in use for
illegal funds, are ---------------.
(a) Avoiding banking channels
(b) Maintaining bank accounts in fictitious
names
(c) Placement, Layering and Integration of
funds
(d) Using cash operations without banking
facility
Money laundering is a matter of serious concern;
it affects a country‘s economy adversely. Which
one of the following statements is incorrect?
(a) It affects a country‘s revenue.

(b) It affects the social structure, and also leads

to corruption and organised crimes.
(c) It affects the political system as criminals try
to get support from leaders who are in
power.
(d) It increases money flow in the country to
push middle level economic activities.
Initial steps at international level for prevention
of money laundering were taken by _____.
(a) International Monetary Fund- IMF
(b) Non Aligned Movement- NAM
(c) United Nations
(d) Group of Allied Countries
Which is the organisation that sets the global
standards for managing ML/TF/FC risks?
(a) International Monetary Fund
(b) The Wolfsberg Group
(c) Basel Committee on Banking Supervision
(d) Financial Action Task Force
FATF standards now include _____
recommendations.
(a) 39
(b) 40
(c) 26 for banks & 12 for FIs
(d) 30 principals and 8 special
FATF reviews periodically selected countries
posing high risk and having weak AML/ CFT
jurisdiction which are grouped in _____Lists.
(a) White & Red
(b) Grey & Red
(c) Red & Green
(d) Black & Grey
The operational instructions regarding the
obligations of the Reporting Entities stipulated
under the Prevention of Money Laundering Act
have been primarily laid down in __________.
(a) Prevention of Money laundering
(Maintenance of Records) Rules
(b) RBI Master Direction – Know Your Customer
(c) IBA Guidelines on AML/ KYC
(d) None of the above
FIU- IND reports to _________.
(a) Central Bureau of Investigation
(b) Financial Action Task Force (FATF)
(c) Economic Intelligence Council headed by
Finance Minister
(d) Reserve Bank of India
Which one of the following categories is not
reporting entities under PMLA?
(a) Public Sector Banks
(b) Self-help Groups
(c) Regional Rural Banks
(d) Payment Banks
THANK YOU