2. What is Anti-Money Laundering?
RBI Circular on Anti-Money Laundering
Anti-Money Laundering refers to a set of regulations, laws and procedures that detect & prevent
criminals from disguising illegal funds as legitimate income. It helps banks and financial institutions
combat financial crimes.
AML regulations require banks to collect customer information, monitor and screen their transactions
and report suspicious activity to financial regulatory authorities.
3. Stages of Money Laundering?
1. Placement 2. Layering/Structuring 3.Integration/Extraction
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4. Placement – Sniffing out illegitimate sources of funds
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Money laundering begins by moving the criminal proceeds into a legitimate source of
income. It might be moved into financial instruments or bank accounts.
Typical tactics of doing it-
• Creating false invoices.
• Putting money into cash-based businesses
• Opening foreign bank accounts
• Creating offshore companies
• Moving small amounts of money at a time
5. Layering – also known as structuring
Once the money has been put in place, the second stage is breaking down large bulk funds into a
series of smaller transactions. The idea is that these smaller transactions fall under the threshold of
anti-money laundering regulations and won’t set off any alarms.
Tactics might include:
• Trading in international markets
• Purchasing foreign money orders
• Trading in foreign currencies
• Purchasing and selling luxury assets
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6. Integration – Final stage in money laundering
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At the final stage of money laundering, the funds are integrated back into the criminal’s
legitimate financial accounts. As with earlier stages, this typically involves a series of smaller
transactions.
They use tactics like:
• Putting fake employees on the payroll
• Purchase a luxury assets such as jewelry or property
• Paying out loans to directors of a shell company
• Paying dividends to shareholders of criminal-controlled companies
7. How Money Laundering Happen in Banking?
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• Technological shift & rise of online payments add fuel in the entire process.
• Banks are at higher risk of financial crimes like AML because they mediate millions
of transactions throughout the day.
• In fact, Criminal organizations often carry out their money laundering activities
through banks and financial organizations.
• Banks must identify the risks by fulfilling their AML obligations and taking necessary
precautions.
8. Controls for Money Laundering in Banks
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Know Your Customer(KYC)
Customer Due Diligence
Customer and Transaction Screening
Scrutiny and activity Reporting
9. 1. Know Your Customer (KYC)
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• KYC is the first critical step in an AML program
• Banks make sure that a customer’s digital identity matches their real-world identity, proving
they are who they say they are.
• This process can be done using ID document verification, face verification and proof of
address (bills or bank statements).
10. 2. Customer due diligence (CDD)
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• Customer information is checked and screened against several online databases, including politically
exposed persons (PEPs), government records, watchlists and sanctions screening.
• Relevant information of a customer’s profile is collected and assessed for potential money laundering
or terrorist financing risk
• The people included in these lists carry high risks for money laundering and terrorist financing.
11. 3. Customer and Transaction Screening
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• Throughout the day average-sized bank mediates thousands of money transfers. Banks are obligated
to monitor and control the people involved in money transfer transactions.
• The consequences of the crimes brought about by the uncontrolled transaction between the sender
and the receiver include severe administrative fines. The banks could also lose their credibility and
good reputation.
• With today’s technology, manual money laundering controls are outdated and inefficient. Banks need
an automated transaction screening process to carry out customer transactions per AML policies.
12. 4. Suspicious Activity Reporting
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• In the current regulatory environment, extensive records are kept on every significant
financial transaction to help law enforcement trace a crime to its perpetrators.
• It’s critical for banks to have an immutable audit trail that regulators can trust. But it’s also
important that compliance analysts at financial institutions can easily investigate and close
cases quickly and efficiently.
13. Case Study : ICICI - Videocon Case
• The matter is about Chanda Kochhar, former MD and CEO of the ICICI Bank and her husband, Deepak
Kochhar.
• The ED had filed its charge sheet in early November 2020 in relation to its investigation concerns transactions
between Videocon Group and NuPower Renewables Pvt. Ltd., operated by Deepak Kochhar.
• In 2016, Arvind Gupta, an investor in both ICICI Bank and Videocon Group, identified the dealings between
the companies and wrote a letter to the authorities on account of potential conflict of interest.
• A second whistle-blower raised similar allegations against Chanda Kochhar, in 2018
• Investigating authorities apprehended Kochhar having identified her sanction of certain loans of INR 1875
crores (approx. USD 243 million) from ICICI Bank to Videocon Group, in exchange for kickbacks through her
husband's business entities.
• The ED provisionally attached over INR 78 crores (approx. USD 10.1 million) worth of moveable and
immoveable assets of the Kochhars, which was followed by the arrest of Deepak Kochhar and Chanda Kochhar
in September 2020 under the PMLA,2002.
14. Trends in Money Laundering
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Sector-Wise market size of money laundering activities in India
