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The RBI u/s 35A B R Act issued a directive

to all banks to put I place KYC policy and
Anti Money Laundering measures. The GOI
enacted Prevention of Money Laundering Act2002.

OBJECTIVE: The objective of the policy is to prevent

criminal elements using BANKS as conduit for Money
Laundering activities.

 
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° CHARITY TO FINANCE TERROROSM:
° The bank in UK disclosed from investigatio on
Suspicious Transactions , an individual earning
salary of 12,000 Pound PA had turn over in his
account for Pounds 2.50lacs. It was revealed that
the person did not exist the account fradulently
obtained was linked to Middle East Charity.
Donations were paid in the account and the
additional charity was claimed back from Govt.
The donations were returned to the donor. The
fraud resulted over Pound 8lacs. The money was
used to finance terrorism.

 
  
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REPUTATION RISK:
° The confidence of Depositors, Creditors and the general
market is shaken in case of loss of money by frauds and
also suspicious transactions cause reputation loss for
Bank.

° COMPLIANCE RISK:
° The loss due to procedural & operational lapses degrades
Banks image before Regulatory Authorities and attracts
penalty .

° LEGAL RISK:
° The failure to maintain KYC & AML compliances in the
bank can cause law suits against the bank for financial and
criminal liabilities against bank as well as concern
employees.

 
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° U/S 12 of Prevention of Money Laundering (PML )Act 2002
its mandatory for banking institution to comply with
followings:

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° (1) CUSTOMER ACCEPTANCE POLICY:
°
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° (2) CUSTOMER IDENTIFICATION POLICY.

° (3) MONITORING OF TRANSACTION:

° Monitoring of transaction based on risk profile of the
account and nature of transaction and business.
° (4) RISK MANAGEMENT.:
° High Risk; Medium Risk; Low Risk; Negligible Risk.
° The Auditors will specifically verify compliance of
KYC/AML at branches .The lapses will be put before
Audit Committee in the Board.

  
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° CUSTOMER EDUCATION:
° The bank should spread awareness on KYC and AML
with rationale behind them amongst customers.
° Since the banks have been dealing with many
correspondent banks, the Due Diligence procedure
should be laid down where the bank is located. This
is with a view since there are many high risk
countries.
° The banks to designate Principal Officer (Money
Laundering Reporting) for submission of Suspicious
Transaction Reports and other periodical reports to
Board/Audit Committee/RBI etc.

  
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° CASE -1: ABC Pvt.Ltd. Deals with manufacture of
leather goods as per bankǯs record. The
transactions in the accounts are normal.
° The company receives remittance of INR 15
million as against the company issues several
small value cheques.
° The company explains on inquiry that the
remittance was received as sales proceeds of
export of wrist watches to Singapore but fails to
provide evidence.
° Please discuss the case and whether you would
pass the cheques drawn by the company?

 
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