Master Circular on ‘Know Your Customer’ (Kyc) Norms free essay sample

The best available evidence of | | |identity should be obtained, having regard to the circumstances of each customer and their country of origin. | | |Some forms of proof of identity are more reliable than others, and in some cases it will be prudent to carry out | | |more than one verification check. | | |Customer Due Diligence (CDD) : | |3. 3 |The customer due diligence may be defined as any measure undertaken by a financial institution to collect and | | |verify information and positively establish the identity of a customer. | |There are 3 types of CDD that can be used in accordance with the risk category of the customer. | | |Basic Due Diligence : | | |Basic Due Diligence means collection and verification of identity proof, address proof and photograph to | |3. 3. 1 |establish the identity of the customer. This is based on documents and forms the basis of the KYC programme of | | |the bank. A different set of documents can be listed for different type of customers as seen in par a 3. We will write a custom essay sample on Master Circular on ‘Know Your Customer’ (Kyc) Norms or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 1. 3. 4 of| | |this circular. | |Simplified Due Diligence : | | |The due diligence applied to establish the identity of the customer involving measures less stringent than Basic | | |Due Diligence, can be termed as Simplified Due Diligence. As per the Reserve Bank of India guidelines, | | |Simplified Due Diligence can be applied to Accounts of people belonging to low income group both in urban and | | |rural areas to enable ‘Financial Inclusion’ to this segment. (e. g. No Frill Accounts in our Bank). | |3. 3. | | | | | | | | | | | | | | | | | | | | | | | | | | 3. 4NO FRILL ACCOUNTS : Although flexibility in the requirements of documents of identity and proof of address has been provided in the circular mentioned above, yet it has been brought to notice that a large number of persons, especially, those belonging to low income group both in urban and rural areas are not able to produce such documents to satisfy the bank about their identity and address. This would lead to their inability to access the banking services and result in their financial exclusion. Accordingly, it has been decided to further simplify the KYC procedure for opening accounts for those persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed rupees one lac (Rs. 1,00,000/-) in a year. In case a person desirous of opening an account is not able to produce the documents as mentioned above, branches may open accounts, subject to – a) Introduction from another account holder who has been subject to full KYC procedure. The introducer’s account with the bank should be at least six months old and should show satisfactory transactions. Photograph of the customer who proposes to open the account and also his address needs to be certified by the introducer. Or b) Any other evidence as to the identity and address of the customer to the satisfaction of the bank. c) Initial Deposit: Account can be opened with initial deposit of Rs. 50. 00. d) Minimum Balance: Minimum balance of Rs. 50. 00 to be maintained. However, no incidental/service charges are to be recovered even in case the balance in the account falls below Rs. 50. 00. e) While opening accounts as described above, the customer should be made aware that if at any point of time, the balances in all his/her accounts with the bank(taken together) exceeds Rupees Fifty thousand (Rs. 0,000/-) or total credit in the account exceeds Rupees One lac (Rs. 1,00,000/-) in a year, no further transactions will be permitted until the full KYC procedure is completed. In order not to inconvenience the customer, the bank must notify the customer when the balance reaches Rupees Fort y thousand (Rs. 40,000/-) or the total credit in a year reaches Rupees Eighty Thousand (Rs. 80,000/-) that appropriate documents for conducting the KYC must be submitted otherwise the operations in the account will be stopped when the total balance in all the accounts taken together exceeds Rupees Fifty thousand (Rs. 50,000/-) or the total credit in the accounts exceeds Rupees one lac (Rs. 1,00,000/-) in a year. ) The accounts shall also be treated at par with the accounts opened in terms of RBI Circular DBOD No. AML BC. 23/14. 01. 064/2005-06 dated 2. 8. 2005 (applicable to Branches in Maharashtra State). However, the maximum balance in such accounts may be permitted as the amount of grant received from the Government or Rupees Fifty Thousand (Rs. 50,000/-) whichever is more and the initial credit of the grant amount shall not be counted towards the total credit. 3. 4. 1Issuance of Cheque Book : Clause No. 6 : One cheque book per annum containing 10 leaves will be issued free of ch arge at the request of the depositor. Additional Cheque Book at the request will be issued at a charge of Rs. 0/- per Cheque Book containing 10 leaves. 3. 4. 2ATM Card : ATM Card is not to be allowed. 3. 4. 3Nomination : Branches will ensure that in all accounts nomination is obtained invariably. 3. 4. 4Transactions in the account : There is no restriction as to the number of deposits in the account. However, total number of withdrawals allowed per year (free of charge) shall be restricted to 50. 3. 4. 5Transfer to normal HSS account : At the request of the customer, after meeting normal KYC requirements, the account will be eligible for migration to normal HSS accounts instead of continuing to remain under this category. 3. 4. 6Execution of undertaking : At the time of opening of account itself, the customer would also execute an undertaking as per â€Å"Annexure A†, wherein he/she undertakes to keep balances not exceeding Rs. 50,000/- in all his/her accounts taken together with the Bank and that total credit in all such accounts taken together would not exceed Rs. 1,00,000/- in a year. The applicant would also undertake that if at any point of time, the balances in all his accounts with the Bank taken together exceeds Rs. 50,000/- or total credit in all the accounts exceeds Rs. 1,00,000/- in a year, then Bank shall be within its rights to stop further transactions in the accounts until full KYC procedure is completed by him/her. Details of his/her other accounts, if any, with our Bank shall also be obtained along with this undertaking. 3. 3. 3Enhanced Due Diligence (EDD) : Additional diligence measures undertaken over and above the Basic Due Diligence can be termed as Enhanced Due Diligence. EDD would be required to be undertaken as per Reserve Bank of India guidelines for the higher risk customers of the Bank. (For e. g. NRI, foreign Nationals, PEP, Non face to face customer, Pooled account, Specific type of business, Customers who live in High risk countries, Trust Accounts, Correspondent Banking). Specific types of relationships where EDD may be required to be applied: 3. 3. 3. 1Client accounts opened by professional intermediaries. When the bank has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. Banks may hold pooled accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. Banks also maintain pooled accounts managed by lawyers/chartered accountants or stockbrokers for funds held on deposit or in escrow for a range of clients. Where funds held by the intermediaries are not co-mingled at the bank and there are sub-accounts, each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such funds are co-mingled at the bank, the bank should still look through to the beneficial owners. Where the Bank relies on the customer due diligence (CDD) done by an intermediary, the Bank should satisfy itself that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements. It should be understood that the ultimate responsibility for knowing the customer lies with the bank. Further, if the professional intermediaries like Chartered Accountant or lawyer etc are unable to disclose the true identity of the owner of the account / funds due to any professional obligation of customer confidentiality, branches should not open or hold accounts of professional intermediaries on behalf of a client. Further, because of such obligation on the part of the professional intermediary, branches are unable to know and verify the true identity of the client on whose behalf account is held or beneficial ownership and / or understand the true nature and purpose of transactions, then branches should not open an account, on behalf of a client, by professional intermediary. 3. 3. 3. 2Accounts of Politically Exposed Persons (PEPs) resident outside India Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e. g. , Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Sufficient information on any person / customer of this category intending to establish a relationship should be gathered and all the information available on the public domain should be checked. Branches should verify the identity of the person and seek information about the sources of funds before accepting the PEP as a customer. The Competent Authority only is authorised to take a decision whether to open an account of a PEP. In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a PEP, the approval of the competent authority should be obtained for continuance or otherwise of the business relationships. Also, such accounts should be subjected to enhanced monitoring. These norms/rules are also applicable, when the PEP is the ultimate beneficial owner and to the accounts of family members or close relatives of PEPs and or where the PEP is the ultimate beneficial owner. Further, such accounts should be subjected to enhanced monitoring on an ongoing basis. 3. 3. 3. 3Accounts of non-face-to-face customers . With the introduction of telephone and electronic banking, increasingly accounts are being opened by banks for customers without the need for the customer to visit the bank branch. In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, there must be specific and adequate procedures to mitigate the higher risk involved. Certification of all the documents presented should be insisted upon and, if necessary, additional documents may be called for. In such cases, banks may also require the first payment to be effected through the customers account with another bank which, in turn, adheres to similar KYC standards. In the case of cross-border customers, there is the additional difficulty of matching the customer with the documentation and the bank may have to rely on third party certification/introduction. In such cases, it must be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place. 3. 3. 3. 4Correspondent Banking Correspondent banking is the provision of banking services by one bank (the â€Å"correspondent bank†) to another bank (the â€Å"respondent bank†). These services may include cash/funds management, international wire transfers, drawing arrangements for demand drafts and mail transfers, payable-through-accounts, cheques clearing etc. Banks should gather sufficient information to understand fully the nature of the business of the correspondent/respondent bank. Information on the other bank’s management, major business activities, level of AML/CFT compliance, purpose of opening the account, identity of any third party entities that will use the correspondent banking services, and regulatory/supervisory framework in the correspondents/respondent’s country may be of special relevance. Similarly, Banks should try to ascertain from publicly available information whether the other bank has been subject to any money laundering or terrorist financing investigation or regulatory action. While it is desirable that such relationships should be established only with the approval of the Board, in case the Boards of some banks wish to delegate the power to an administrative authority, they may delegate the power to a committee headed by the Chairman/CEO of the bank while laying down clear parameters for approving such relationships. Proposals approved by the Committee should invariably be put up to the Board at its next meeting for post facto approval. The responsibilities of each bank with whom correspondent banking relationship is established should be clearly documented. In the case of payable-through-accounts, the correspondent bank should be satisfied that the respondent bank has verified the identity of the customers having direct access to the accounts and is undertaking ongoing due diligence on them. The correspondent bank should also ensure that the respondent bank is able to provide the relevant customer identification data immediately on request. 3. 3. 3. 5Nonresident Indians (NRIs)/Foreign Nationals Indian customers resident overseas and foreign nationals based in India pose a bigger risk from money laundering perspective then ones placed domestically. 3. 3. 3. 6Fiduciary Accounts Bank may exercise enhanced due diligence at the time of opening fiduciary accounts by intermediaries such as guardians of estates executors, administrators, assignees, receivers etc. For e. g. while opening of the account of an administrator of the estate, it may be necessary to examine the Letter of Administration(Authority) as it would give a picture of the assets of the estate. 3. 4Correspondent relationship with a â€Å"Shell Bank† 3. 4. 1Banks should refuse to enter into a correspondent relationship with a â€Å"shell bank† (i. e. a bank which is incorporated in a country where it has no physical presence and is unaffiliated to any regulated financial group). Shell banks are not permitted to operate in India. Further, before establishing correspondent relationship with any foreign institution, appropriate measures should be taken by the Bank to satisfy themselves that the foreign respondent institution does not permit its accounts to be used by Shell Banks. 3. 4. 2Banks should be extremely cautious while continuing relationships with respondent banks located in countries with poor KYC standards and countries identified as non-cooperative in the fight against money laundering and terrorist financing. Banks should ensure that their respondent banks have anti money laundering policies and procedures in place and apply enhanced due diligence procedures for transactions carried out through the correspondent accounts. Branches are advised to refer to International Division, Central Office, for clarification / guidance in the matter. 3. 4. Applicability to branches and subsidiaries outside India The guidelines contained in this master circular shall apply to the branches and majority owned subsi diaries located abroad, especially, in countries which do not or insufficiently apply the FATF Recommendations, to the extent local laws permit. When local applicable laws and regulations prohibit implementation of these guidelines, the same should be brought to the notice of Reserve Bank. In case there is a variance in KYC/AML standards prescribed by the Reserve Bank and the host country regulators, branches/overseas subsidiaries of banks are required to adopt the more stringent regulation of the two. |3. |INTRODUCTION OF ACCOUNTS : | |3. 5. 1 |WHAT IS INTRODUCTION: | | |Obtaining of introduction should not be a mere formality to get protection under Section 131 of the Negotiable | | |Instruments Act, but necessarily to enable proper identification of the person opening the account, as the Banker has | | |to render a number of Banking Services, including collection of cheques in the ordinary course of business. It is | | |therefore essential that the Banker gets to know the true identity of the customer, is aware of the credentials of the | | |prospective customer such as his address, profession/business etc, before establishing a business relationship. | |3. 5. 2 |WHO CAN INTRODUCE AN ACCOUNT? | | | | |3. 5. 2. 1 |An existing account holder of repute and standing, whose account is satisfactorily and actively conducted for a period | | |not less than six months. | |3. 5. 2. 2 |Any respectable person, in the locality, who is well known to the Bank. | | | | |3. 5. 2. |Branch Manager/Deputy Manager or any official of the branch or of other branches of the bank provided they have | | |sufficient knowledge about the identity of the person introduced. When officials of the bank introduce accounts, | | |they should be extremely careful and vigilant. They should make detailed enquiries and satisfy themselves about | | |the identity of the person, his/ her address, his/her profession / occupation, e tc. over and above the customers| | |integrity and bonafides. | |3. 5. 2. 4 |No other staff member should be allowed to introduce an account except with the concurrence of the Branch | | |Manager/Deputy Manager. | |3. . 3 |WHAT IS A PROPER INTRODUCTION? | |3. 5. 3. 1 |It is necessary that the person introducing the applicant to the Banker, must be a respectable person. He / she | | |should also be known to the Banker. | |3. 5. 3. 2 |The introducer should know the intending customer. | |3. 5. 3. 3 |The introducer should sign on bank’s form in token of his/ her verifying the identity of the applicant. Oral | | |introduction of a person desirous to open an account with the bank would not constitute a proper introduction. | |3. 5. 4 |WHAT ARE THE LIABILITIES OF THE INTRODUCER? |3. 5. 4. 1 |While introduction is not a guarantee of the account holders transactions with the Bank by the introducer, the | | |introducer should be in a position to identify/trace the account holder in ca se of need. Therefore, the | | |customers should be advised that they should not introduce any account unless they know the identity of the | | |prospective customer. A notice to this effect may be prominently displayed in the branch. | |3. 5. 5 |PROCEDURE FOR INTRODUCTION : | |3. 5. 5. |FORMALITIES FOR INTRODUCTION AND OPENING OF ACCOUNT | |3. 5. 5. 2 |To verify the residential address given by the prospective customer, banks generally ask for copies of passport, | | |driving license, identity card issued by any institution, copy of electricity or telephone bill, copy of any | | |communication issued by Central/State Government authorities showing residential address or any other evidence in| | |support of the address given in the account opening form. | |3. 5. 5. 3 |Introducer should normally visit the branch for introduction. Discreet enquiries, such as since when and how | | |he/she knows the prospective customer should be made. The introducer should also be advised of his/her/their | | |responsibilities as an introducer. | |3. 5. 5. 4 |A letter of thanks to the introducer, also requesting him/her for his/her confirmation of the introduction be | | |invariably sent by registered post. Further, a letter of thanks should also be sent to the customer by UPC, at | | |the address mentioned in the account opening form. | |3. 5. 5. 5 |The introducer must sign in the place Introduced by provided in the account opening form. | | | | |Following certificate is normally obtained from the introducer: | | | | | |I certify that I know Mr. /Mrs. /Miss __________________ since last _________ months/years and confirm | | |his/her/their occupation and address stated in this application to open the account. | |3. 5. 5. 6 |The introducer must also mention his/her/their type of account (HSS/Current Deposit) and the account nu mber. The| | |signature of the account holder should tally with the specimen signature on record with the Bank. | |3. 5. 5. 7 |Introducers signature in the column introduced by should be verified by the departmental head. The branch | | |official should satisfy himself/ herself beyond doubt as to the genuineness of the signatures and record it under| | |his/ her specimen signature and signature number, as a token of having verified the signature/s. | |3. 5. 5. 8 |In case of introduction of an account by the Manager/Official of ‘another branch’, the confirmation thereof | | |should be sought immediately from the ‘other’ branch and the ‘Manager/Official’ of ‘other’ branch is expected to | | |respond immediately. In case an account is introduced by the â€Å"Manager/Official† of ‘another’ branch, the | | |Manager/Official of the ‘other’ branch should put their ‘signature index number’ beneath their signature/s. | |3. 5. 5. |In cases where an account is introduced by a ‘customer’ of ‘another branch’, the account opening branch should | | |not allow any operations in the account, till such time the signature of the ‘customer’ ‘of the other branch’ is | | |duly verified/certified by the ‘other’ branch. The verifying official of the ‘other’ branch should append his/her| | |signature index number. | |3. 5. 5. 10 |Verification of the residential address provided by the customer is of great importance. While considering loan | | |products, verification is usually done through a visit. However, this is not possible in all the cases of | | |opening of accounts. As such, this may be achieved by mailing a welcome kit containing cheque book, rules and | | |regulations, pamphlets on various products etc. f the Bank, at the address provided by the customer. | |3. 5. 5. 11 |The branches may also contact the customer at the telephone number provided in the account documentation to | | |verify the customer details. When such verification is made, it should be noted in the records and the name, | | |signature, signature index number of the verifying official should be appended thereto. | |3. 5. 5. 12 |While opening accounts of corporate bodies, firms, trusts etc. branches should obtain documentary evidence | | |regarding existence of the entity, powers of the authorized persons to operate the account etc. | |3. 5. 5. 3 |An interview with the prospective customer is recommended, while opening an account, as the interview would help | | |in knowing the customer and preparing the profile. | |3. 5. 5. 14 |When a new branch is opened, it may not be possible to get introduction by existing account holders. Banks | | |generally canvass for accounts of VIPs in the area and key persons in nearby offices and business establishments | | |whose introduction would be available. | |4. ANTI MONEY LAUNDERING STANDARDS | | | | |4. |MONEY LAUNDERING : | | | | | |As per the Prevention of Money Laundering Act (PMLA) 2002, the offence of Money Laundering is defined as : | | | | | |Whoever directly or indirectly attempts to i ndulge or knowingly assists or knowingly is a party or is actually | | |involved in any process or activity connected with the proceeds of a crime and projecting the same as a | | |untainted property – shall be guilty of offence of Money Laundering. Money Laundering is the process by which | | |the criminals attempt to hide and disguise the origin and ownership of the proceeds of their criminal activities | | |like drug trafficking, trafficking in women and children, murder, extortion, child pornography etc. ‘Proceeds of | | |crime’ means any property derived or obtained, either directly or indirectly by any person as a result of | | |criminal activities relating to a scheduled offence or the value of such property. Money Laundering, therefore, | | |besides being a Statutory or Regulatory requirement is also a moral responsibility for all the Bank Employees. | |4. 2 |TERRORIST FINANCING : | | | | | |Terrorists use similar methods for moving their funds. Some of the terrorist groups also indulge in criminal | | |activities for funding their acts. However, there are two major differences between Money Laundering and | | |Terrorist Financing. | | | | |Whereas in the case of Money Laundering, the source of money is always through criminal activities while | | |Terrorist Financing can be from legitimately obtained income. | | | | | |It is difficult to identify terrorist funding transactions as more often terrorist activities require small | | |amounts. | 4. 3WIRE TRANSFERS : Banks use wire transfers as an expeditious method for transferring funds between bank accounts. Wire transfers include transactions occurring within the national boundaries of a country or from one country to another. As wire transfers do not involve actual movement of currency, they are considered as a rapid and secure method for transferring value from one location to another. 4. 3. 1The salient features of a wire transfer transaction are as under: 1. a) Wire transfer is a transaction carried out on behalf of an originator person (both natural and legal) through a bank by electronic means with a view to making an amount of money available to a beneficiary person at a bank. The originator and the beneficiary may be the same person. 2. ) Cross-border transfer means any wire transfer where the originator and the beneficiary bank or financial institutions are located in different countries. It may include any chain of wire transfers that has at least one cross-border element. 1. c) Domestic wire transfer means any wire transfer where the originator and receiver are located in the same country. It may also include a chain of wire transfers that takes place entirely within the borders of a single country even though the system used to effect the wire transfer may be located in another country. 2. d) The originator is the account holder, or where there is no account, the person (natural or legal) that places the order with the bank to perform the wire transfer. 4. 3. Wire transfer is an instantaneous and most preferred route for transfer of funds across the globe and hence, there is a need for preventing terrorists and other criminals from having unfettered access to wire transfers for moving their funds and for detecting any misuse when it occurs. This can be achieved if basic information on the originator of wire transfers is immediately available to appropriate law enforcement and/or prosecutorial authorities in order to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing their assets. The information can be used b y Financial Intelligence Unit India (FIU-IND) for analysing suspicious or unusual activity and disseminating it as necessary. The originator information can also be put to use by the beneficiary bank to facilitate identification and reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing threat posed by small wire transfers, the objective is to be in a position to trace all wire transfers with minimum threshold limits. Accordingly, branches must ensure that all wire transfers are accompanied by the following information: ( A ) CROSS BORDER WIRE TRANSFERS. 1. i) All cross-border wire transfers must be accompanied by accurate and meaningful originator information. 2. ii) Information accompanying cross-border wire transfers must contain the name and address of the originator and where an account exists, the number of that account. In the absence of an account, a unique reference number, as prevalent in the country concerned, must be included. 1. iii) Where several individual transfers from a single originator are bundled in a batch file for transmission to beneficiaries in another country, they may be exempted from including full originator information, provided they include the originator’s account number or unique reference number as at (ii) above. ( B ) DOMESTIC WIRE TRANSFERS 1. i) Information accompanying all domestic wire transfers of Rs. 50000/- (Rupees Fifty Thousand) and above must include complete originator information i. e. name, address and account number etc. , unless full originator information can be made available to the beneficiary bank by other means. 2. i) If a branch has reason to believe that a customer is intentionally structuring wire transfer to below Rs. 50000/- (Rupees Fifty Thousand) to several beneficiaries in order to avoid reporting or monitoring, the branch must insist on complete customer identification before effecting the transfer. In case of non-cooperation from the customer, efforts should be made to establish his identity and Suspicious Transaction Report (STR) should be sent to Nodal Officer / Principal Officer for onward submission to FIU-IND. iii) When a credit or debit card is used to effect money transfer, necessary information as (i) above should be included in the message. 1. 4. 3. 3 EXEMPTIONS Interbank transfers and settlements where both the originator and beneficiary are banks or financial institutions would be exempted from the above requirements. 4. 3. 4Role of Ordering, Intermediary and Beneficiary banks : a) Ordering Bank An ordering bank is the one that originates a wire transfer as per the order placed by its customer. If the branch is an ordering bank, it must ensure that qualifying wire transfers contain complete originator information. The branch must also verify and preserve the information at least for a period of ten years. (b) Intermediary bank For both cross-border and domestic wire transfers, a bank processing an intermediary element of a chain of wire transfers must ensure that all originator information accompanying a wire transfer is retained with the transfer. Where technical limitations prevent full originator information accompanying a cross-border wire transfer from remaining with a related domestic wire transfer, a record must be kept at least for ten years (as required under Prevention of Money Laundering Act, 2002) by the receiving intermediary bank, of all the information received from the ordering bank. If the branch is an intermediary Bank, it must be ensured that all the records as aforesaid are preserved for a period of ten years. For further details, please refer to para 6. 14 â€Å"PRESERVATION OF RECORDS† of this circular. ( c) Beneficiary bank A beneficiary bank should have effective risk-based procedures in place to identify wire transfers lacking complete originator information. The lack of complete originator information may be considered as a factor in assessing whether a wire transfer or related transactions are suspicious and whether they should be reported to the Financial Intelligence Unit-India. The beneficiary bank should also take up the matter with the ordering bank if a transaction is not accompanied by detailed information of the fund remitter. If the ordering bank fails to furnish information on the remitter, the beneficiary bank should consider restricting or even terminating its business relationship with the ordering bank. |5 |MONITORING OF TRANSACTIONS : | |5. 1 |To obviate the scope for frauds and prevent Money Laundering, regular monitoring and supervision of accounts is | | |essential. Monitoring customer activity and transactions throughout the relationship helps the Banks to know their | | |customers, assess risk and provides greater assurance that the Bank is not being used for the purposes of financial | | |crime. However, the extent of monitoring will depend on the non-sensitivity of the account. Very high account turnover | | |inconsistent with the size of the balance maintained may indicate that funds are being ‘washed’ through the account. | | |Special attention should be paid to the complex, unusually large transactions and all unusual patterns which have no | | |apparent economic or lawful purpose. | |5. |MONITORING OF CASH TRANSACTIONS : | | | | | |Branches should closely monitor cash deposits and withdrawals of Rs. 10 lacs and above or its equivalent in foreign | | |currency. | | |All series of cash transactions integrally connected to each other which have been valued below Rupees Ten Lacs or its | | |equivalent in foreign currency where s uch series of transactions have taken place within a month and the aggregate | | |value of such transactions exceeds Rupees Ten Lacs. | |All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any | | |forgery of a valuable security or a document has taken place facilitating the transaction and | | |All suspicious transactions whether or not made in cash and by way of as mentioned in the rules. | | | | |5. 3 |The methods of monitoring may be broadly classified as follows : | | | | |5. 3. |Observation : The staff at the branches may at the time of processing the transaction or otherwise, come across | | |certain transactions not in line with the profile of the customer. Certain behaviour displayed by the customer during | | |their interaction with such customer may also lead to suspicion. The branch staff should exercise caution and report | | |such instances to the principal officers/his representatives so that additional du e diligence may be done on the same. | | |A list of behavioural indicators that should trigger suspicion is mentioned hereunder : | |5. 3. |CUSTOMER BEHAVIOUR INDICATORS : | | | | | |Customers who are reluctant in providing normal information while opening an account, providing minimal or fictitious | | |information or when applying to open an account, providing information that is difficult or expensive for the | | |institution to verify. | | | | | |Customers expressing unusual curiosity about a secrecy of information involved in the transaction. | | | | | Customers who decline to provide information that in normal circumstances would make the customer eligible for banking | | |services. | | | | | |Customers giving confusing details about a transaction. | | | | | |Customers reluctant or refusing to state the purpose of a particular large/complex transaction/source of funds involved| | |or provides a questionable purpose and / or source. | | | | | |Customers who use separate tellers to conduct cash transaction or foreign exchange transactions. | | | | |Customers who deposit cash / withdrawals by means of numerous deposit slips/cheque leaves so that the total of each | | |deposit is unremarkable, but the total of all credits / debits is significant. | | | | | |Customer’s representatives avoiding contact with the branch. | | | | | |Customers who repay the problem loans unexpectedly. | | | | | |Customers who appear to have accounts with several institutions within the same locality without any apparent logical | | |reason. | | | | | | | |Customers seek to change or cancel a transaction after the customer is informed of currency transaction reporting / | | |information verification or record keeping requirements relevant to the transaction. | | | | | |Customer regularly issues large value cheques without balance and then deposits cash. | | | | | | | |5. 3. |Analysis of Exception Reports : There is a system of generation of the exception reports at the branc hes, to examine | | |accounts, based on certain parameters/threshold limits. Branches should exercise suitable due diligence on these | | |accounts and accounts concluded to be suspicious be reported in STR to the Nodal Officer for onward reporting to the | | |Principal Officer. | | | | |5. 3. 4 |The technological advancements have facilitated on line transfer of funds and real time settlement between the | | |Banks across the globe. This has helped money launderers to adopt innovative means and move funds faster across | | |continents making detection and preventive action much more difficult. This calls for a dynamic approach in tracking | | |the crime. The staff members must be vigilant in the fight against money laundering and must not allow the bank to be | | |used for money laundering activities. The Bank should not become a party to violation of law. As such, preventing | | |money laundering activities is the duty and responsibility of the bank staff. An illustrative checklist on preventing | | |money-laundering activities, is given hereunder : | |5. |CHECK LIST FOR PREVENTING MONEY-LAUNDERING ACTIVITIES | | |A customer maintains multiple accounts, transfers money among the accounts and uses one account as a master account | | |from which wire/funds transfer originates or into which wire/funds transfer are received (a customer deposits funds in | | |several accounts, usually in amounts below a specified th reshold and the funds are then consolidated into one master | | |account and wired outside the country. ) | | |A customer regularly depositing or withdrawing large amounts by a wire transfer to, from, or through countries that are| | |known sources of narcotics or where Bank secrecy laws facilitate laundering of money. | |A customer sends and receives wire transfers (from financial haven countries) particularly if there is no apparent | | |business reason for such transfers and is not consistent with the customers business or history. | | |A customer receiving many small incoming wire transfer of funds or deposits of cheques and money orders, then orders | | |large outgoing wire transfers to another city or country. | | |A customer experiences increased wire activity when previously there has been no regular wire activity. | | |Loan proceeds unexpectedly are wired or mailed to an offshore Bank or third party. | |A business customer uses or evidences of sudden increase in wired trans fer to send and receive large amounts of money, | | |internationally and/or domestically and such transfers are not consistent with the customers history. | | | | | |Deposits of currency or monetary instruments into the account of a domestic trade or business, which in turn are | | |quickly wire transferred abroad or moved among other accounts for no particular business purpose. | | |Sending or receiving frequent or large volumes of wire transfers to and from offshore institutions. | | | | |Instructing the Bank to transfer funds abroad and to expect an equal incoming wire transfer from other sources. | | | | | |Wiring cash or proceeds of a cash deposit to another country without changing the form of the currency. | | | | | |Receiving wire transfers and immediately purchasing monetary instruments prepared for payment to a third party. | | | | |Periodic wire transfers from a person’s account/s to Bank haven countries. | | | | | |A customer pays for a large (international or dom estic) wire transfers using multiple monetary instruments drawn on | | |several financial institutions. | | | | | |A customer or a non-customer receives incoming or makes outgoing wire transfers involving currency amounts just below a| | |specified threshold, or that involves numerous Bank or Travelers cheques. | | | | |A customer or a non-customer receives incoming wire transfers from the Bank to ‘Pay upon proper identification’ or to | | |convert the funds to bankers’ cheques and mail them to the customer or non-customer, when | | | | | |The amount is very large (say over Rs. 10 lacs) | | |The amount is just under a specified threshold (Rs. 0 lacs) | | |The funds come from a foreign country or | | |Such transactions occur repeatedly. | | | | | |A customer or a non customer arranges large wire transfers out of the country which are paid for by multiple Banker’s | | |cheques (just under a specified threshold) | | | | | |A non-customer sends numerous wire t ransfers using currency amounts just below a specified threshold limit. | | | | | | | | | | | | | | | | | | |5. 5 |To effectively monitor the cash transactions of Rs. 10 lacs and above (or its equivalent in foreign currency) | | |branches should maintain a separate register to record details of individual cash deposits and withdrawals of Rs. | | |10 lacs and above. The details recorded in the register should include:- | | | | | |Type of account/account no. | |Title of account/Name of the account holder | | |Date of opening the account | | |Date of Transaction | | |Nature of the transaction | | |Amount of Deposit/withdrawal ( currency in which it was denominated) | | |Identity of the person undertaking the transaction | | |Name of the beneficiary of the cheque (in case of withdrawal) | | |Destination of the funds and the form of instruction/authority. | |5. 6 |Cash deposits or withdrawals of Rs. 0 lacs and above should be reported by the Branch Manager to the controlling | | |office on a monthly basis, incorporating the above particulars. | |5. 7 |Whenever the depositor/borrower is depositing/withdrawing cash for Rs. 10 lacs and above, which is inconsistent | | |with the normal and expected activity of the customer, the information gathered from/revealed by the client, may | | |be recorded in the Register and reported in the statement. | |5. 8 |Regional Office, on receipt of these statements from the Branches should immediately scrutinize the details | | |thereof. In case any of the transactions prima-facie appears to be dubious or give rise to suspicion, such | | |transactions should be looked into by deputing officials from the Regional Office. If any of the transactions is| | |found to be of suspicious nature, it should be immediately informed to Zonal Manager/General Manager Central | | |Audit Inspection Department, Central Office. | |6 |Combating Financing of Terrorism | | | | |6. |As and when list of individuals and entities approved by Security Council Committee established pursuant to | | |various United Nations’ Security Council Resolutions (UNSCRs) are received from Government of India / Reserve | | |Bank of India, the same are circulated to all the offices with instructions to ensure the consolidated list of | | |individuals and entities as circulated by Reserve Bank of India is updated. The updated list of such | | |individuals/entities can be accessed in the United Nations’ website at | | |http://www. un. org/sc/com mittees/1267/consolist. shtml. Branches are advised that before opening any new account it| | |should be ensured that the name/s of the proposed customer does not appear in the list. Further, branches should | | |scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals | | |included in the list. Full details of accounts bearing resemblance with any of the individuals/entities in the | | |list should immediately be intimated to Nodal Officer / Principal Officer for onward submission to Reserve Bank | | |of India / FIU-IND. | |6. 2 |In terms of PMLA Rules, suspicious transaction should include inter alia transactions which give rise to a | | |reasonable ground of suspicion that these may involve financing of the activities relating to terrorism. Banks | | |are, therefore, advised to develop suitable mechanism through appropriate policy framework for enhanced | | |monitoring of accounts suspected of having terrorist links and swift identification of the transactions and | | |making suitable reports to the Financial Intelligence Unit – India (FIU-IND) on priority. | |6. 3 |Reserve Bank of India has advised vide their circular dated March 26, 2010 that as per the communication received| | |from the Financial Action Task Force (FATF), the strategic AML / CFT deficient jurisdiction are divided into 3 | | |groups as under : | |6. 3. |Jurisdictions subject to FATF call on its members and other jurisdictions to apply counter measures to protect | | |the international financial system from the ongoing and substantial money laundering and terrorist financing | | |(ML/FT) risks emanating from the jurisdiction : Iran | |6. 3. 2 |Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the | | |FATF to address key deficiencies as of February 2010. The FATF calls on its members to consider the risks | | |arising from the deficiencies associated with each jurisdiction.