KYC Norms / Anti Money Laundering / Ombudsman

SUDHEENDRAN.MSUDHEENDRAN.MSCMS - COCHINSCMS - COCHIN

KYC ?

What you should know?What you should know?

o True identity and beneficial ownership of the a/cTrue identity and beneficial ownership of the a/co Permanent address, registered & administrative Permanent address, registered & administrative

addressaddress

Who should know?Who should know?

Who is a customer?Who is a customer?

Core elements of KYC Policy

Customer Acceptance PolicyCustomer Acceptance Policy

Customer Identification Procedure- Customer Customer Identification Procedure- Customer ProfileProfile

Risk classification of accounts- risk based approachRisk classification of accounts- risk based approach

Risk ManagementRisk Management

Ongoing monitoring of account activityOngoing monitoring of account activity

Reporting of cash and suspicious transactionsReporting of cash and suspicious transactions

Risk based approach

The potential risk that a customer carries depends on:The potential risk that a customer carries depends on:

Identity of the customer including beneficial ownershipIdentity of the customer including beneficial ownership

The nature of customer’s business and his product The nature of customer’s business and his product profile-jewels, precious metals, arms, antiquesprofile-jewels, precious metals, arms, antiques

Location of businessLocation of business

Products and services offeredProducts and services offered

Customer’s customer or clients; their location & businessCustomer’s customer or clients; their location & business

High risk countries

Drug producing, transshipment & using nationsDrug producing, transshipment & using nations

Secrecy jurisdictions and tax havens Secrecy jurisdictions and tax havens

Countries with high degree of public corruptionCountries with high degree of public corruption

Countries linked to terrorist financingCountries linked to terrorist financing

Non Cooperative Countries and TerritoriesNon Cooperative Countries and Territories

High risk customers

NBFCs, Travel agencies / Property dealers/ buildersNBFCs, Travel agencies / Property dealers/ builders

Exporters or importers of goods and servicesExporters or importers of goods and services

Cash intensive business e.g. second hand car Cash intensive business e.g. second hand car dealerships etc.dealerships etc.

Non-profit organisations e.g charities, trustsNon-profit organisations e.g charities, trusts

Politically Exposed Persons (PEPs).Politically Exposed Persons (PEPs).

High risk products & services

Wire transfersWire transfers

Electronic banking servicesElectronic banking services

Private banking relationships Private banking relationships

Reasons for “Suspicion”

Identity of clientIdentity of client

– False identification documentsFalse identification documents– Identification documents which could not be Identification documents which could not be

verified within reasonable timeverified within reasonable time– Accounts opened with names very close to other Accounts opened with names very close to other

established business entitiesestablished business entities

Background of clientBackground of client

– Suspicious background or links with known Suspicious background or links with known criminalscriminals

Reasons for Suspicion.

Multiple accountsMultiple accounts

Large number of accounts having a common account Large number of accounts having a common account holderholder

Unexplained transfers between multiple accounts Unexplained transfers between multiple accounts with no rationalewith no rationale

Activity in accountsActivity in accounts

Unusual activity compared with past transactionsUnusual activity compared with past transactions Sudden activity in dormant accountsSudden activity in dormant accounts Activity inconsistent with what would be expected Activity inconsistent with what would be expected

from declared businessfrom declared business

Reasons for Suspicion

Nature of transactionsNature of transactions– Unusual or unjustified complexityUnusual or unjustified complexity– No economic rationale or bonafide purposeNo economic rationale or bonafide purpose– Nature of transactions inconsistent with what Nature of transactions inconsistent with what

would be expected from declared businesswould be expected from declared business

Value of transactionsValue of transactions– Value just under the reporting threshold amount Value just under the reporting threshold amount

in an apparent attempt to avoid reportingin an apparent attempt to avoid reporting– Value inconsistent with the client’s apparent Value inconsistent with the client’s apparent

financial standingfinancial standing

Indicative parameters:Indicative parameters:“Suspicion”“Suspicion”

General IndicatorsGeneral Indicators Knowledge indicatorsKnowledge indicators Identity indicatorsIdentity indicators TransactionsTransactions indicatorsindicators Activity in accountActivity in account Account IndicatorsAccount Indicators

Indirectly states of his/her involvement in criminal Indirectly states of his/her involvement in criminal activities.activities.

Vaguely aware about the amount of funds in a/c.Vaguely aware about the amount of funds in a/c.

Shows extra curiosity about internal checks & balances, Shows extra curiosity about internal checks & balances, reporting system.reporting system.

Getting close with staff.Getting close with staff.

Offers bribe or other incentives for irregular activity. Offers bribe or other incentives for irregular activity.

GeneralGeneral IndicatorsIndicators

Tries to convince staff not to complete the formalitiesTries to convince staff not to complete the formalities

Thoroughly aware of legal position on suspicious Thoroughly aware of legal position on suspicious transaction reporting. transaction reporting.

Seems very conversant with money laundering or Seems very conversant with money laundering or terrorist activity financing issues. terrorist activity financing issues.

Is quick to volunteer that funds are clean or not being Is quick to volunteer that funds are clean or not being laundered.laundered.

Knowledge indicatorsKnowledge indicators

Identity indicatorsIdentity indicators

Customer provides Customer provides doubtful or vague information doubtful or vague information

Customer gives false identification or identification Customer gives false identification or identification that appears to be counterfeited, altered or that appears to be counterfeited, altered or inaccurate.inaccurate.

All Identity documents presented are not verifiable All Identity documents presented are not verifiable i.e. Foreign documents etc. i.e. Foreign documents etc.

All identification documents appear to be recently All identification documents appear to be recently acquired.acquired.

TransactionsTransactions indicators indicators

Frequent cash transactions in large amounts Frequent cash transactions in large amounts which is not normally done by the customer. which is not normally done by the customer.

Small denominations frequently changed for large Small denominations frequently changed for large onesones..

Dirty/smelly notes depositedDirty/smelly notes deposited.. Consistent cash transactions that are just under Consistent cash transactions that are just under

the reporting threshold amountthe reporting threshold amount

Activity in accountActivity in account

Account activity inconsistent with nature of Account activity inconsistent with nature of business. business.

Transactions & stated activity of NGOs & Transactions & stated activity of NGOs & TrustsTrusts

Transaction is unnecessarily complexTransaction is unnecessarily complex. .

AccountsAccounts Indicators Indicators

A long distance customer opening an account.A long distance customer opening an account. Account/s with names closer to established industrial Account/s with names closer to established industrial

houses/groups.houses/groups. Intra bank transfer of funds - accumulated into one Intra bank transfer of funds - accumulated into one

account for foreign remittanceaccount for foreign remittance.. Opening of several accounts simultaneously, some of Opening of several accounts simultaneously, some of

which remain dormant for long periods.which remain dormant for long periods. A third party appears to be using the account of A third party appears to be using the account of

customer. customer. Customer frequently using different locations other Customer frequently using different locations other

than the place of account opening to deposit funds.than the place of account opening to deposit funds.

ANTI MONEY LAUNDERINGANTI MONEY LAUNDERING

Bad Money to Legitimate Money.Bad Money to Legitimate Money. Concealing & disguising true ownership Concealing & disguising true ownership Integrating the same to financial systemIntegrating the same to financial system Process : Process :

1. 1. Structuring:Structuring: Placement in fictitious a/cs Placement in fictitious a/cs 2. 2. Layering :Layering : Transferring thru series of complex Transferring thru series of complex

transtrans 3. 3. Integration :Integration : Mingling illegal with legitimate Mingling illegal with legitimate

propertyproperty

AML - Measures

POML Act 2002, Rules in 2005.POML Act 2002, Rules in 2005.

FIU – INDFIU – IND

CTR & STRCTR & STR

Principal Officer (AML) in banksPrincipal Officer (AML) in banks

EDED

Fine for non-adherence to KYCFine for non-adherence to KYC

OMBUDSMAN

The Banking Ombudsman Scheme 2006The Banking Ombudsman Scheme 2006

Resolve complaints on deficiency of services in banksResolve complaints on deficiency of services in banks

Quasi Judicial Authority – Can summon banksQuasi Judicial Authority – Can summon banks

CBs/RRBs/Scheduled PCBsCBs/RRBs/Scheduled PCBs

Nodal Officer by banks in ZO/RONodal Officer by banks in ZO/RO

RBI Ombudsman CGM/GM – 3 YearsRBI Ombudsman CGM/GM – 3 Years

THANK YOUTHANK YOU