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AML/CFT RegimeAML/CFT RegimeThe Indian Response The Indian Response

FIU-INDFinancial Intelligence Unit-India

Ministry of Finance, Government of India

Presentation Summary

FIU-INDFIU-INDFinancial Intelligence Unit-India

• Spotlight on Money Laundering : Some facts

• Indian Response

• Legal Framework

• Institutional Framework

• Common Trends observed in STRs

• Key Issues emerging from Mutual Evaluation


Spotlight on Money Laundering

Spotlight Money Laundering


Tighter AML regulation in the US and Europe is pushing money laundering activity into Asia Pacific…

Totally Funds Laundered Worldwide

$800

$900

$1,000

$1,100

$1,200

2004 2005 2006 2007 2008 2009

US

$ bi

llion

s

Money Laundering by Region(Total = $950 billion in 2006)

Asia-Pacific31%

Americas38%

Europe26%

MiddleEast -Africa5%

Source: Celent



The perpetrators: money laundering by criminal sector…

Source: Celent

Money Laundering by Activity

Terroristgroups

1% Drugs26%

OtherOrganized

Crime23%

Smuggling29%

Embezzle-ment/WhiteCollarCrime21%

• 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.



The victims: Money Laundering by industry sector

Source: Celent

Money Laundering by Industry Sector

InsuranceFirms9%

CreditCards

5%

MoneyServices

4%Brokerage

&Investment

Firms27%

Banks55%

• 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.

State of AML in Asia


Source: Celent

Low

High

Industry AwarenessLow

Pro

gre

ss(I

mp

lem

enta

tio

n o

f sy

stem

s)

High

Australia

Hong Kong

JapanIndia

China

Taiwan

Malaysia

Singapore

South Korea

ThailandIndonesia

Philippines

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…

Money Laundering – then and now


Continuity and Evolution

Source: Celent

Early 1990s• 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

2010• Wire transfers• New electronic payment

systems• Remittance services and money

exchange services• Assistance from “Gatekeepers” • Terrorist financing through

non-profit organizations• Insurance industry, particularly

through independent insurance agents

• Politically Exposed Persons (PEPs)


Indian Response

Legal Framework


• AML regime

– NDPS Act 1985 (Section 8 A)

– PMLA 2002 (Section 3)

• CFT regime

– Unlawful Activities(Prevention) Act, 1967

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.

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

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

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”

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

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


Common Trends Observed in STRs

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


Key Issues Emerging from Mutual Evaluation

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 non-

compliance • 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

Address

Financial Intelligence Unit - India

6th Floor, Hotel Samrat

Kautilya Marg, Chanakyapuri

New Delhi -110021, India

Telephone

91-11-26874365 (For Queries)

FAX

91-11-26874459

Website

http://fiuindia.gov.in

Email

[email protected] (For feedback)

[email protected] (For general queries)

[email protected] (For CTR related queries)

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