The author Sachin Rao has an industry experience of over 23 years. He is a graduate in commerce with an MBA and CMS certified anti money laundering specialist from AC a Ms. AML. certificate from Henley Business School University of readings UK IC Ma. awareness on international compliance from ICA Manchester Business School UK vi BFS has excellent international exposure of dealing with over 50 regulators worldwide, and has also trained ephi eu Financial Intelligence units of few countries on AML CFT matters and effective regulations anti money laundering and combating terrorist financing. What is money laundering? Money Laundering is the process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecution, conviction and confiscation of the criminal bonds in simple Words.
It's a process through which dirty money is converted to clean money. few examples of dirty money, drugs and arms trafficking, criminal offenses gambling, smuggling, bribe fraud, tax evasion and kidnapping. three stages of money laundering. placement, cash generated from criminal activities are converted into monetary instruments, such as money orders or traveler's checks or even the cash itself is deposited into an account that financial institutions or banks in this phase illegal proceeds get introduced in the financial system. layering of funds are transferred or moved into other or several accounts or even other financial institutions or bank accounts to further separate the money from us criminal origin, thereby making complex layers of transactions to disguise the stores, ownership and audit trail. Integration the funds are reintroduced into the economy and are used to purchase legitimate assets or upon other criminal activities which come under legitimate business.
At this stage, it becomes almost difficult to distinguish between legal and illegal wealth. This stage also provides good opportunity To the money launderer to increase his wealth from the proceeds of crime, terrorist financing. terrorist financing refers to the processing of funds to sponsor or facilitate terrorist activity. For terror groups, funding is lifeblood, no matter how small it may be. The biggest vulnerabilities are finance and communications. From point of origin to point of expense, there are vulnerabilities at each step, terror groups would require secrecy, terror groups would disguise or commingle transactions, and they will always look out for soft targets.
For example, institutions or sectors with weak compliance regimes. terror groups would opt for activities that create maximum impact with minimal input. And a terror groups would like to use facilities which are quick and leave no or minimal paper trail. stages similar in terrorist funding as an anti money laundering, money laundering and terror financing predicate offense to raise money laundering is a predicate about similarly under terrorist funding to raise funds is a predicate about placement, store, placement or raising and storing of bonds and various institutions or negotiable instruments to avoid any detection layering layering bonds to avoid any audit trails and frequently moving the funds from one institution or asset class to avoid any audit trails. Integration use integrating funds into the formal financial system. So it looks as to be genuine and makes the identification of the truth source almost impossible.
Similarly, use of funds for terror groups for the internet. Under the acts of terror, terror financing, straight path to terror action driven by ideology. Early deterrence detection and disruption is the only right way forward. Possible funding flows and requirements of terror groups understand understanding funding requirements of terror groups. organizational level, large funding flows for arms and ammunition acquisition and communication devices. facilitation level, moderate funding flow for logistics, shipment and expenses for terror groups or their members and individual level.
Lesser funding flows for day to day living expenses, travel and more. opportunism up terrorists to exploit systemic vulnerabilities and adaptability of terrorists to circumvent controls. three levels of funding flows terrorist funding organizations might use pending on the target point, from point of origin to organizations, as it starts from hundreds of thousands of dollars going upwards. For example, large funds might get transferred through banks or other financial institutions for procuring arms and ammunitions or weapons etc. From organization to operations in the range of 10s of thousands of dollars and upwards. For example, midscale funding might be used for the purpose of conducting operations like logistics, transportations, or other related expenses for the group members, to individuals, cells or groups.
This could be just a few hundred to a few thousand dollars, for example, small scale fundings for supporting the individual or small group with logistics travel or lodging expenses. What are foreign terrorist fighters on 193 member countries of the United Nations Security Council adopted under Chapter Seven, the resolution to 178 which defines foreign terrorist fighters as individuals who traveled to a state other than their state of residence or nationality for the purpose of the perpetration planning or preparation of, or participation in terrorist acts or the providing or receiving of terrorist training, including in connection with armed conflict. criminal groups can infiltrate financial institutions to provide funding support to FTS identification of key differences between money laundering and terrorist financing. Why are countries and governments concerned consequences of money laundering and terrorist financing can impact and paralyze the entire country unrest crisis and civil wars are forcing populations to migrate and seek refuge.
Also, many without any identities are seeking refuge at the borders. terror groups are no longer limited to just domestic violence. They have complex international networks and are capable of carrying out deadly attacks on innocent people. Drug dealers, terror groups, human traffickers and criminals are constantly finding loopholes to abuse the financial system. What are the risks for banks and financial institutions MTU as a professional reputational damage, you may suffer losses as a result of loss of business seizures of accounts in any way connected to money laundering and fines. future business expansion and success may be affected and operating licenses may be withdrawn or denied by the regulators, especially the banks and financial institutions basis.
Risk. First step, know your customer know your customer. KYC is a customer identification program, which helps banks and financial institutions establish customers identity and details. Know your customer includes gathering details about the customer and his business or profession. To an extent that it helps you assess if the transaction is genuine or not know your customers customer KYC adequate steps to be taken by banks and financial institutions to gather more information to help them understand the customer's business and use the same for onboarding and establish the clear link of various risks posed if the bank had to deal with that specific customer. KYC is a continuous process KYC has two stages identification and verification ask questions.
What is the purpose of deposit withdrawals, remittance or service is the information provided by the customer relevant to the purpose of the service requested and identify the source of income. Collect approved photo ID As per the list provided by the regulators a general list of acceptable IDs would be a government issued national photo ID or a valid passport with a valid visa page. Ensure the ID is a valid photo ID issued by the legitimate government body. When to request ID from the customer collect IDs for outward remittances, deposits and withdrawals, regardless of the amount inward remittance deposits and withdrawals for all amounts. For currency exchange transactions refer to your local regulators for the threshold. In case you have any reasonable grounds to suspect that the transaction involves money laundering or financing terrorism.
ID of the customer should be asked irrespective of the transaction amounts involved, and str is to be raised for attempted transactions. details to be taken from the customer. Full Name of the limiter as it appears on the ID or trade license. full address with contact number of the remoter ID type and ID number of the remoter nationality, other sources of funds. Purpose of remittance and or exchange or customer signature should be similar as in this ID corporate remittance while dealing with corporate entities you should obtain and verify valid trade license, authorized signatory ID, Representative ID with beneficial owners full address details, supporting documents business profile of the customer, whether the customer has a cat generation business, whether the customers business profile matches The funds remitted by them regular corporate business to be conducted and recorded by the compliance officers and branch managers. Enhanced due diligence PDD enhanced due diligence is an extra measure applied besides the usual customer due diligence to know more about the customer and his transactions and his physical business address, to confirm that the purpose and source of funds are legitimate and match the profile of the customer.
When to apply EBD enhanced due diligence has to be applied while dealing with dealers and precious metals and stones, dealers and real estate dealers in luxury items, auction houses, non resident account holders or visitors when dealing with high risk countries customers products services, FP EP born politically exposed person and politically exposed person PvP politically exposed person FP EP, a politically exposed person is defined as senior officials in the executive, legislative, administrative, military or judicial branches of a foreign government, immediate family members and close associates of such members. A branch should obtain written approval from senior management before doing transactions for politically exposed persons. risk based assessment risk based assessment framework should include assessment of the following. Financial institutions should assess the following parameters, assess customer risk, assess geographic or country risk, assess product or service risk and assess sector risk. Ask what kind of industry or sector your customers are involved with?
Prepare a risk rating based on the above parameters and enhance your institution's compliance regime. For example, your internal risk assessment parameters for effective risk based assessment should ideally contain the following including sector risk into the parameters. Customer risk, is the customer a company or individual in or from a high risk industry? Is the customer known as a politically exposed person, a PDP or has a negative reputation in the media or other open sources? Was the account opened face to face? Or was it opened remotely?
Either resident accounts and what is the level of EDI EDI conducted? Is the relationship with a customer more than one year is the customer into cash based businesses, charities or NGOs is the account opened by delegation Are the pianos identified and the period of dormancy and account behavioral patterns, country or geographic risk? customer born residing and or nationality in fiscal paradise, financial offshore happens. illicit drug producing countries medium risk country, sanction country corruption, Transparency International corruption perception index does the customer do business with high risk countries and a territory near to conflict zones. sector risk weapons and metal trading precious metals and metal junk traders, camping adventure sports and material dealers, real estate brokers and agents exchanges and art dealers use car and chemicals trading satellite telephone and communications devices general trading companies and dual use items such as Night Vision items etc. product or service risk?
Does the customer just have an internet account? Does the customer have high number of similar type accounts? Does the customer just have a current account? Does the customer just have a savings account? Does the customer have a mortgage next to other products, services involving bank note and precious metal trading and delivery, suspicious transactions any transaction conducted or attempted by at or through a financial institution if the financial institution knows suspects or has reason to suspect that the transaction involves bonds derived from illegal activities, it is intended or conducted in order to hide or disguise bonds or assets derived from illegal activities. And it is conducted in a manner to avoid any transaction reporting requirements.
The transaction has no business or apparent lawful purpose and does not match the profile of the customer Recording suspicious transactions. It is the duty of all staff and officers to report suspicious and unusual transactions to respect to a compliance officer. failure to report suspicious and unusual transaction to your compliance officer shall attract legal and disciplinary action. The company's officers and employees must not warn or inform their customers when information relating to them are being reported to or investigated by the relevant authorities. Do indicators for money laundering, structuring, structuring is the act of breaking up a potentially large volume transaction into several smaller ones so that the identification requirements are not triggered. new customer attempting large transactions with no supporting documents walk in customers transferring or receiving large sums of money to or from overseas locations with instructions to pay in cash.
If no satisfactory evidence is available, the stranger should or may be turned away, and str to be raised for attempted transactions. disproportionate transfer of funds compared to client background employment. Individuals with low salary may approach us from making a remittance or deposit disproportionate to their income. In such cases, we have to request the customer to provide the source and the purpose of the transfer or deposits. A customer who was defensive to questioning about his remittance deposits or withdrawals, a customer who was reluctant to provide normal information when making a remittance or purchase TC FC or providing minimal information, or defensive about the questioning, rapid and contradictory changes of beneficiaries when a customer makes frequent or contradictory changes to his account, especially when the beneficiary seems to be a third party or a company. Last minute alteration to fund movement instruction.
A customer after giving instruction for remittance to a particular account comes later on or changing the beneficiary so that he should not attract the attention of the staff about his money laundering activity. concealment of beneficial owners of funds a customer who is conducting transactions on behalf of the third party and is trying not to reveal the identity of the third party. The alert always early examples are Only a few. Nowadays money launderers and terrorist financier are adopting new ways and methods. Therefore we have to always be alert and vigilant. Conclusion, compliance is the responsibility of each and every employee.
The government can impose harsh civil and criminal penalties against anyone who violates the anti money laundering laws and regulations. Ignorance is not an excuse before the law. In case of doubt in conducting a transaction, please refer to your AML policies and procedures or contact your compliance officer