Aml presentation

Aml presentation

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  AMLAML ANTI MONEYANTI MONEY LAUNDERINGLAUNDERING
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  INTRODUCTION : Money Launderingrefers to the conversion or "Laundering" of money which is illegally obtained, so as to make it appear to originate from a legitimate source. Money Laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drug / arms trafficking, terrorism and extortion. But in simple terms it is the Conversion of Black money into white money. Money laundering is the criminal practice of filtering ill-gotten gains or “dirty” money through a series of transactions, so that the funds are “cleaned” to look like proceeds from legal activities. Money laundering is driven by criminal activities and conceals the true source, ownership, or use of funds. The International Monetary Fund has stated that the aggregate size of money laundering in the world could be somewhere between 2 and 5 percent of the world’s gross domestic product. Banks and financial institutions are vulnerable from the Money Laundering point of view since criminal proceeds can enter banks in the form of large cash deposits. Bank officials therefore need to exercise constant vigilance in opening of accounts with large cash deposits and in checking suspicious transactions.
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  Why is moneylaundered? There are several reasons why people launder money. These include: • Hiding wealth: criminals can hide illegally accumulated wealth to avoid its seizure by authorities; • Avoiding prosecution: criminals can avoid prosecution by distancing themselves from the illegal funds; • Evading taxes: criminals can evade taxes that would be imposed on earnings from the funds; • Increasing profits: criminals can increase profits by reinvesting the illegal funds in businesses; • Becoming legitimate: criminals can use the laundered funds to build up a business and provide legitimacy to this business.
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  WHAT IS PMLA? PMLA refers to the Prevention of Money LaunderingAct.  The Prevention of Money Laundering Act, 2002 came into force with effect from 1st July, 2005. The Act was amended by the Prevention of Money Laundering (Amendment) Act 2009 w.e.f. 01.06.2009. The Act was further amended by the Prevention of Money- Laundering (Amendment) Act, 2012 w.e.f. 15-02-2013.  It extends to the whole of India including the state of Jammu & Kashmir.  OBJECT OF PMLA: As stated in the Preamble to the Act, it is an Act to prevent money laundering and to provide for confiscation of property derived from, or involved in, money-laundering and to punish those who commit the offence of money laundering.
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  • In thePMLA, 2002, money laundering has been defined as- “any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property.”
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  How does MoneyLaundering actually take place? (Process & Methods): • Money laundering is not a single act but is in fact a process that is accomplished in three basic steps. These steps can be taken at the same time in the course of a single transaction, but they can also appear in well separable forms one by one as well. The steps are explained hereunder –
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  1) Placement : Thefirst stage is the physical disposal of cash. The launderer introduces his illegal profits into the financial system. This placement is accomplished by depositing the cash in domestic banks or in other types of formal or informal financial institutions. This is done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.). The cash is usually siphoned off across borders for deposit in foreign financial institutions, or used to buy high-value goods, such as artwork, aeroplanes, and precious metals and stones, that can then be resold for payment by cheque or bank transfer.
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  2) Layering : TheSecond stage in money laundering is layering. The launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sale of investment instruments such as bonds, stocks, and traveller’s cheques or the launderer might simply wire the funds through a series of accounts at various banks across the globe, particularly to those jurisdictions that do not cooperate in anti-money laundering investigations. In some instances, the launderer might disguise the transfer as payments for goods or services, thus giving them a legitimate appearance. A number of rotations to slush funds are given through banks and this complex layer of financial transactions are carried out to divorce the illicit proceeds from their source and mislead the investigating agencies. The high-value goods and monetary instruments are resold and the proceeds are invested in real estate and legitimate businesses, particularly in the leisure and tourism industries. Shell companies i.e. paper companies/bogus companies) serve as front and are registered in offshore havens. They are a common tool in the layering phase.
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  3) Integration : Thisis the stage where the funds are returned to the legitimate economy for later extraction. Examples include investing in a company, purchasing real estate, luxury goods, etc. This is the final stage in the process.The launderer makes it appear to have been legally earned and accomplishes integration of the “cleaned” money into the economy. By this stage, it is exceedingly difficult to distinguish legal and illegal wealth. It involves making the wealth derived from crime appear legitimate.
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  OBLIGATIONS OF BANKINGCOMPANIES, FINANCIAL INSTITUTIONS AND INTERMEDIARIES : Section 12 of the Prevention of Money Laundering Act, 2002 lays down the following obligations on banking companies, financial institutions and intermediaries. Every banking company, financial institution and intermediary should – • Maintain a record of all transactions, the nature and value of which may be prescribed, whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; • Furnish information of such transactions to the Director; • Verify and maintain the records of the identity of all its clients.
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  Monetary Penalties forNon Maintenance of Records 46 • Monetary penalties can be imposed on defaulting reporting entity or its designated Director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure [Section 13(2)(d)].
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  • Examples ofsuspicious transactions for a banking company -  Identity of client : • False identification documents • Identification documents which could not be verified within reasonable time • Accounts opened with names very close to other established business entities  Background of client : • Suspicious background or links with known criminals  Multiple accounts : • Large number of accounts having a common account holder, introducer or authorized signatory with no rationale • Unexplained transfers between multiple accounts with no rationale
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   Activity inaccounts : • Unusual activity compared with past transactions • Sudden activity in dormant accounts • Activity inconsistent with what would be expected from declared business  Nature of transactions : • Unusual or unjustified complexity • No economic rationale or bonafide purpose • Frequent purchases of drafts or other negotiable instruments with cash • Nature of transactions inconsistent with what would be expected from declared business  Value of transactions : • Value just under the reporting threshold amount in an apparent attempt to avoid reporting • Value inconsistent with the client’s apparent financial standing
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  Russian Money LaunderingScandal- This scandal became public during the summer of 1999, with media reports of $7 billion in suspect funds moving from two Russian banks through a U.S. bank to thousands of bank accounts throughout the world. Two Russian banks deposited more than $7 billion in correspondent bank accounts at a New York bank. After successfully gaining entry for these funds into the U.S. banking system, the Russian banks transferred amounts from their New York bank correspondent accounts to commercial accounts at the bank that had been opened for three shell corporations. In February 2000, guilty pleas were submitted by a bank employee and spouse and the three corporations for conspiracy to commit money laundering, operating an unlawful banking and money transmitting business in the United States.
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  CONCLUSION Money Laundering isa serious threat to financial system of all countries and it leads to destruction of the country’s sovereignty and character. The combating of money laundering has assumed an urgent impetus at both national and international levels as a result of the scale that money laundering has begun to assume, especially with respect to the financing of terrorist acts. The efforts being made to combat money laundering are beginning to bear fruits in that it is now taking centre stage in all jurisdictions. No one wants to be left behind mainly due to the consequences of such a situation – those lagging behind might find it difficult to transact and do business with the rest of the complying world. We have to understand that it is problem not only for the government of the country but for the people at large. Public awareness is necessary as masses do not understand the problem itself. Our education system should be able to inculcate the ideologies that our future generation does not get involved in this process. There needs to be a vigilant mechanism and our judiciary needs to punish these criminals early to send out a message that money laundering is not tolerable to this democratic society.
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  THANK YOU...THANK YOU...