Anti Money Laundering Archives | Imarticus

Knowledge Series: What is the need of AML and KYC? How is it Monitored?

If you are familiar with the financial sector, then terms like AML (Anti Money Laundering) and KYC (Know Your Customer) would be common to you. For many financial institutions and for organisations working in the financial sectors, AML and KYC are initiatives which have emerged as vital focus areas. Organisations in the financial sectors need to adopt initiatives like AML and KYC, as not doing so could attract hefty penalties. In addition to this, applying initiatives like AML and KYC gives these institutions a chance to overcome the challenges of acquiring the ‘Right’ set of clients, there are certain factors like digitally emerging competitors and low-profit margins that are forcing institutions to rethink their AML and KYC programs. Read on to understand the nature of these programs and their importance in recent times.

What is KYC?

Know your customer as the name suggest is a set of procedures and screening criteria’s that a financial institution invests in, to identify and understand the customer. It is a set of steps as per the law to basically assess and monitor any customer risk and any legal requirement, to comply with anti-money laundering Law (AML). KYC procedures are also important to mitigate any risks of fraud and losses due to illegal funds and their transactions.

Financial institutions take steps like

  1. Putting in place a Customer Identification Program (CIP), under which they can establish a customer identity so that they can evaluate that the source of the customer’s fund is not illegal.
  2. Customer Due Diligence is essentially done to build trust with a potential client. This becomes a critical element for banks to protect themselves from terrorists, criminals and Politically Exposed Persons (PEP).
  3. Continuous Monitoring mitigates risk as ongoing monitoring of the customer and their transactions will identify financial oversights in transactions if any.

An example of KYC according to the Government of India, is the requirement of six Officially Valid Documents as a proof of identity, like Passport, Driving License, Voters Identity Card, Pan Card, Aadhaar Card and NREGA Job Card.

What is AML?

Anti Money Laundering like KYC is also a set of procedures and regulations that have come into existence to eliminate any illegal actions used to generate income. AML essentially targets activities that include any trade of illegitimate goods, market manipulation, tax evasions and corruption of public funds. It also includes any act or effort to hide the aforesaid activities. Illegal activities generate illegal income that further needs to be cleaned, money launderers use series of steps to create a mirage, such that it seems the money is sourced legitimately.

The onus of identifying any potential risk factors is on financial institutions who issue a credit to customers. They need to ensure that the finances are not being used as a part of any money laundering scheme. Financial institutions should not only follow the AML laws but should also guide their customers on it.

Both KYC and AML monitoring is the financial institution’s responsibility. Monitoring differs in the jurisdiction and is country specific. Since the risk of noncompliance is very genuine, there is an increased business pressure on financial institutions to be compliant on AML and KYC.

Advanced analytical solutions using Descriptive, Prescriptive and Predictive Analysis in AML and KYC have emerged thus reducing the costs significantly. There are some obvious and clear benefits of leveraging analytics to support KYC and AML, it is still considered in the nascent stage.

  • November, 8th, 2017
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The Mechanics of Money Laundering

by Zenobia Sethna.

Money Laundering is the act or attempted act to conceal or mask the identity of illegally obtained money or funds so that they appear to have originated from legitimate (legal) sources. Illegally obtained funds are ‘laundered’ and relocated around the world using and abusing ‘shell companies’, ‘intermediaries’ and ‘money transmitters’. In this way, the illegal funds remain concealed and are assimilated into legal business and into the legal economy.

Money Laundering

 

Money Laundering is not a single act but is in fact a process. There are usually three steps involved in the process of laundering money:

  1. Placement: The act of introducing ‘dirty money’ (i.e. money obtained through illegitimate, criminal means) into the financial system in some way. This is the first step of the money-laundering process and the aim of this phase is to transfer the cash from the location of acquisition, so as to not get detected by the authorities. This is done by injecting criminal money into the legal financial system by opening up a bank account in the name of unknown individuals or organizations and depositing the money in that account.
  2. Layering: Layering is the act of hiding the source of that money by way of a series of complex transactions.”Layering” refers to separating banned proceeds from their source by wilfully creating intricate layers of financial transactions. Layering hides the audit trail and provides anonymity. This is achieved by moving money to offshore bank accounts in the name of shell companies, buying high value commodities like diamonds and transferring the same to different jurisdictions.
  3. Integration: The act of acquiring that money in apparently legitimate means. “Integration” refers to the reinjection of the laundered money back into the economy in such a way that they re-enter the financial system as “normal” business funds. The launderers normally accomplish this by setting up unknown institutions in nations where secrecy is guaranteed. New forms of business give a stage for integration exercise. Now a person can launch a business with just a webpage and transform his illegal money to legal by showing profits from the webpage. There are other ways like capital market investments, real estate acquisition, the catering industry, the gold market, and the diamond market.

Imarticus recently concluded its very first executive development program on Anti money laundering on 28th and 29th July at Novotel Hotel, Bangalore. The 2-day workshop was conducted by AML/KYC experts Ratan Postwalla and Sayak Bhanja. The workshop saw active participation from functional executives and managers from Societe General and Viteos. The program was really well received and saw a great deal of engagement from the 10 participants. We garnered a 4+ rating from participants on both trainers and content, with 80% of participants willing to recommend our workshop go their friends and colleagues.

  • August, 22nd, 2016
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Executive Development Program on Anti-money Laundering

Imarticus recently concluded its very first executive development program on Anti money laundering on 28th and 29th July at Novotel Hotel, Bangalore.

EDP

The 2-day workshop was conducted by our resident AML/KYC experts Ratan Postwalla and Sayak Bhanja. The workshop saw active participation from functional executives and managers from Societe General and Viteos. The program was really well received and saw a great deal of engagement from the 10 participants. We garnered a 4+ rating from participants on both trainers and content, with 80% of participants willing to recommend our workshop go their friends and colleagues.

 

Key topics covered in the program:

  1. Key AML Legislations in Principal Markets
  2. How AML fits in Financial Institutions Compliance “Universe”
  3. Challenges Presented to Financial Institutions in Meeting Regulatory Expectations
  4. Risk-based Approach to Combating Money Laundering
  5. Role of Technology as an Enabler in AML
  6. How the Shared Services Model Adopted by the BFSI Industry has Helped in the Context of AML
  7. Methods that will Help Such Shared Services to Move Up the Value Chain and Contribute More to an AML Program
  8. Case Studies in AML

 

EDP

Imarticus Head of Training, Abhinit Kumar with AML experts Ratan Postwalla and Sayak Bhanja

 

Stay tuned for many more executive development programs in the coming months.

 

A sneak peak at our upcoming EDPs

Topics include Fraud Analytics, Best Practices in Operations Management, Market Risk Management and Emergence of FinTech.

 

We look forward to your participation. Email us at [email protected] to learn more.

 

  • August, 6th, 2016
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Money Laundering: A Historical Perspective

Money Laundering

by Zenobia Sethna

The amount of money laundered globally in one year is estimated at 2-5% of the global GDP, or between a staggering USD 800 billion – USD 2 trillion, according to United Nations Office on Drugs and Crime. But how did the term “money laundering” come about? Yes, there is money passing around spuriously but why ‘laundering’?

The expression ‘Money Laundering’ is of a fairly recent origin, with the term first appearing in the US in a newspaper in 1973.

The term “money laundering” owes its existence to laundromats in the United States that were owned by the Mafia. The Mafia, back in those days, was earning massive sums in cash from extortion, prostitution, gambling and bootleg liquor and needed to show a genuine source for their earn1ings. One of the ways in which they were did this was by purchasing outwardly legitimate businesses and mixing their illegal earnings with the legitimate earnings received from these businesses. The gangsters honed in on Laundromats because they were cash-based businesses. This was, no doubt, an advantage to thugs like Al Capone who purchased them. Al Capone was famously prosecuted, though not for money laundering but for tax evasion. However, the conviction of Al Capone may have kicked off the nascent money laundering business and taken it to the new heights we see these days.

But other historians differ from this version. According to them, money laundering is called so, because it perfectly describes how dirty money is put through a cycle of transactions, or washed, so that it comes out at the other end as legal or clean money. In other words, the source of illegally obtained funds is disguised through a series of transfers and deals, such that those same funds can eventually be made to appear as legitimately earned income.
Imarticus Learning is organising it’sEDP-Anti Money Laundering first Executive Development Workshop on Industry Perspective on Anti-money Laundering on 28th and 29th July in Bangalore and 4th and 5th August in Gurugram.

  • June, 30th, 2016
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