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					Anti Money Laundering and Combating Terrorist
Financing: Indian Initiative and Global Backdrop

                      Presentation at
             Risk and Compliance Summit 2007
                 Mumbai, 9th March 2007

                                                        Arun Goyal
                                  Financial Intelligence Unit-India
Need for Money Laundering

     Every year, huge amounts of funds are generated
      from illegal activities. These funds are mostly in
      the form of cash.
     The criminals who generate these funds need to
      bring them into the legitimate financial system.

                Hide Wealth      Avoid Prosecution   Evade Taxes

                      Increase Profits   Become Legitimate

      Over $1.5 trillion of illegal funds are laundered each year

Consequences of Money Laundering

         Finances Terrorism: Money laundering provides terrorists with
            funds to carry out their activities.

         Undermines rule of law and governance: Rule of Law is a
           precondition for economic development – Clear and certain
           rules applicable for all

         Affects macro economy Money launderers put money into
            unproductive assets to avoid detection.

         Affects the integrity of the financial system: Financial system
            advancing criminal purposes undermines the function and
            integrity of the financial system.

         Reduces Revenue and Control: Money laundering diminishes
           government tax revenue and weakens government control
           over the economy.

Global Framework - Financial Action Task Force

      Established by the G-7 Summit in Paris in 1989 in
       response to mounting concern over money laundering.

      A policy making body, having secretariat at Organisation
       for Economic Co-operation and Development (OECD).

      Works to generate the necessary political will to bring
       about national legislative and regulatory reforms to
       combat money laundering and terrorist financing.

      Members: 31 countries, European Commission and Gulf
       Co-operation Council

      India has been accorded ‘Observer’ status

FATF Mandate

     Sets Standards

     Assesses compliance against standards

     Researches money laundering and terrorist
      financing threats

FATF Recommendations

      1990 - Forty Recommendations - Complete set of
      counter-measures against money laundering
         Criminal justice system and law enforcement

         Financial system and its regulation

         National and international co-operation

     1996 -Recommendations Revised
     Nine Special Recommendations on Terrorist
           2003: Eight Special Recommendations
           2004: 9th Special Recommendation

Global Framework -Asia/Pacific Group

      The Asia/Pacific Group on money laundering (APG) is a
       FATF styled regional body

      Established in February 1997 at Bangkok, Thailand.

      Facilitates adoption of internationally accepted anti-
       money laundering and anti-terrorist financing standards
       set out in the recommendations of the Financial Action
       Task Force (FATF).

      Similar FATF styled regional bodies for other regions

The Global Framework - Egmont Group

     The Egmont Group serves as an international network
      fostering improved communication and interaction among

     Egmont Group is named after the venue in Brussels where the
      first such meeting of FIUs was held in June of 1995.

     FIUs provide support to their respective governments in the
      fight against money laundering, terrorist financing and other
      financial crimes

     Best Practices for exchange of information

     Members- 101 FIUs (13 from Asia)

  Reduces reputational, operational, regulatory

  Reduces risk of adverse impact on business
    Share price impact
    Suspension, downgrade or revocation of licence
    Loss of consumer confidence: bank run

  they make good business sense.

FATF Recommendations: Criminal Justice System

      Criminalisation of Money Laundering (R.1 & 2)
      Criminalisation of Terrorist Financing (SR.II)
      Confiscation, freezing and seizing of proceeds of
       crime (R.3)
      Freezing of funds used for terrorist financing
       The Financial Intelligence Unit and its functions
       (R.26, 30 & 32)
      Law enforcement, prosecution and other
       competent authorities (R.27, 28, 30 & 32)

Indian Context

     Prevention of Money Laundering Act brought
      into force form 1st July 2005
     to prevent money laundering and
      to provide for confiscation of property derived from,
      or involved in, money laundering.
         Offence of money laundering (section 3 of PMLA)
         Proceeds of crime (section 2(1)(u) of PMLA)
         Scheduled offences
     FIU-IND established in Nov 2004.
     Enforcement Directorate
         Powers to investigate
FATF Recommendations : Financial System & Regulation

    Customer due diligence, including enhanced or reduced measures (R.5 to 8)
    Third parties and introduced business (R.9)
    Financial institution secrecy or confidentiality (R.4)
    Record keeping and wire transfer rules (R.10 & SR.VII)
    Monitoring of transactions and relationships (R.11 & 21)
    Suspicious transaction reports and other reporting (R.13-14, 19, 25 &
    Internal controls, compliance, audit and foreign branches (R.15 & 22)
    Shell banks (R.18)
    The supervisory and oversight system - competent authorities and SROs (R. 17,
     23, 29 & 30)
    Financial institutions - market entry and ownership/control (R.23)
    AML/CFT Guidelines (R.25)
    Ongoing supervision and monitoring (R.23, 29 & 32)
    Money value transfer services (SR.VI and SR. IX)

Indian Context

 Obligations under PMLA on Banking companies, financial
   institutions and intermediaries to

        Appoint of Principal Officer

        Verify identity, address, nature of business and financial status
         of the client
            at the time of opening an account
            and while executing transactions.

Indian Context

  To furnish information
    Cash transactions of more than Rs.10 lakhs
    Integrally connected cash transactions adding to Rs. 10
       lakhs in a month,
      Cash transactions where forged or counterfeit currency or
       bank notes have been used,
      Suspicious transactions
     whether or not made in cash.
     Need not involve proceeds of crime
  maintain records

FATF Recommendations: National and International

      National co-operation and coordination (R.31)
      Mutual Legal Assistance (R.32, 36-38, SR.V)
      Extradition (R.32, 37 & 39, & SR.V)
      Other Forms of Co-operation (R.32 & 40, &

Indian Context

     Dissemination of STRs to Enforcement Agencies

     Sharing information with Foreign FIUs
         Egmont Group Membership
         Establish clear mechanism for the exchange of
         Case to case on reciprocal basis
         MOU
         Egmont Group’s best practices for information

AML/CFT Timeline

                                                                               of Money
                                                                                Act, 2002         PMLA
    FATF                        Egmont                                           enacted       brought into
 Established                     Group                                                             force
   at Paris                    Established                      9/11                                       IRDA
                                             APG Set up
                               at Brussels                     Terrorist                FIU-IND set      KYC/AML
                                                                Attack                   up by GOI       Guidelines

  1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999   2000 2001 2002 2003 2004             2005 2006

        FATF                        Revised FATF                US Patriot         Special FATF         KYC/AML
   Recommendations                Recommendations               Act, 2001        Recommendations        Guidelines

                                                                           RBI KYC      RBI KYC/       RBI
                                                                           Guidelines     AML        KYC/AML
                                                                                        Guidelines    Circular

Compliance under PMLA

   Detailed guidelines on AML/KYC by regulators viz
   Principal officers have been appointed
   More than 15 lakh CTRs have been received
   More than 500 STRs have been received
   After analysis and value addition more than 300 STRs
    have already been disseminated to enforcement and
    intelligence agencies

Expectations from the Financial Sector

    Senior officers to be appointed Principal Officers
    KYC norms to be followed uniformly
    CTRs to be submitted regularly, where applicable
    Capacity of the financial institution to habitually
     detect and report suspicious– not merely reactive
    Increase awareness and training of staff – new roles
     and responsibilities
    Evaluate and ensure adherence to AML/KYC policies

The way forward

     Manual filing to Electronic filing
     User driven searches to system driven alerts
     Analysis - Report driven to intelligence led
     Feedback
       Enforcement Agency to FIU
       FIU to Reporting Entity
   Money Laundering Typology Report
       Trends in STRs received
       Sanitised money laundering cases
       Indicators for detection of suspicious transactions

    Thank You