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AML/CFT Regime The Indian Response

AML/CFT Regime The Indian Response . FIU-IND Financial Intelligence Unit-India Ministry of Finance, Government of India . Presentation Summary . Spotlight on Money Laundering : Some facts Indian Response Legal Framework Institutional Framework Common Trends observed in STRs

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AML/CFT Regime The Indian Response

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  1. AML/CFT RegimeThe Indian Response FIU-IND Financial Intelligence Unit-India Ministry of Finance, Government of India

  2. Presentation Summary • Spotlight on Money Laundering : Some facts • Indian Response • Legal Framework • Institutional Framework • Common Trends observed in STRs • Key Issues emerging from Mutual Evaluation FIU-IND Financial Intelligence Unit-India

  3. Spotlight on Money Laundering FIU-IND Financial Intelligence Unit-India

  4. Spotlight Money Laundering Tighter AML regulation in the US and Europe is pushing money laundering activity into Asia Pacific… Source: Celent FIU-IND Financial Intelligence Unit-India

  5. Spotlight Money Laundering The perpetrators: money laundering by criminal sector… • 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. Source: Celent FIU-IND Financial Intelligence Unit-India

  6. Spotlight Money Laundering The victims: Money Laundering by industry sector • 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. Source: Celent FIU-IND Financial Intelligence Unit-India

  7. High Australia Singapore Progress (Implementation of systems) Japan China Hong Kong South Korea Taiwan Philippines Malaysia Thailand Indonesia India Low High Low Industry Awareness State of AML in Asia 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… FIU-IND Financial Intelligence Unit-India Source: Celent

  8. Money Laundering – then and now Continuity and Evolution • 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) FIU-IND Financial Intelligence Unit-India Source: Celent

  9. Indian Response FIU-IND Financial Intelligence Unit-India

  10. Legal Framework • AML regime • NDPS Act 1985 (Section 8 A) • PMLA 2002 (Section 3) • CFT regime • Unlawful Activities(Prevention) Act, 1967 FIU-IND Financial Intelligence Unit-India

  11. 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. FIU-IND Financial Intelligence Unit-India

  12. 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 FIU-IND Financial Intelligence Unit-India

  13. 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 FIU-IND Financial Intelligence Unit-India

  14. 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” FIU-IND Financial Intelligence Unit-India

  15. 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 FIU-IND Financial Intelligence Unit-India

  16. 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 FIU-IND Financial Intelligence Unit-India

  17. Common Trends Observed in STRs FIU-IND Financial Intelligence Unit-India

  18. 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 FIU-IND Financial Intelligence Unit-India

  19. Key Issues Emerging from Mutual Evaluation FIU-IND Financial Intelligence Unit-India

  20. 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 FIU-IND Financial Intelligence Unit-India

  21. 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 feedbk@fiuindia.gov.in (For feedback) query@fiuindia.gov.in (For general queries) ctrcell@fiuindia.gov.in (For CTR related queries) THANK YOU amitav@fiuindia.gov.in

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