Anti Money Laundering Practices

Course Objective At the end of the Session, you will learn the following : What is Money Laundering Process of Money Laundering Anti Money Laundering regulations Consequences of Money Laundering List of Documentations required

What is Money Laundering? Definition: “Money laundering is the process of moving illegally acquired cash through financial systems so that it appears to be legally acquired”. Money Laundering is the processing of DIRTY MONEY in order to disguise their illegal origin. Dirty Money - proceeds derived from criminal conduct where criminals want the money to look like it came from a legitimate source. There are three common stages of money laundering: Placement Layering Integration

Process of Money Laundering 1. Placement is the process by which bulk cash is disposed into the banking system by: - Small but regular deposits or investments - Bulk-shipping cash to an offshore location where banking secrecy protects them and then wiring the cash to another location to launder funds. 2. Layering complicates the audit trail, effectively "laundering“ the dirty funds and giving them bona-fide status. Involves: Large volume of transactions or transfers between accounts in different jurisdictions. Use of a range of instruments and currencies. 3. Integration involves the use of layered funds to purchase "clean, legitimate" assets such as investment products, fixed assets, etc.

Money Laundering - Regulations In India Anti Money Laundering (AML) measures are controlled through The Prevention of Money Laundering Act, 2002 which was brought in force with effect from 1st July 2005. RBI, SEBI and IRDA have been brought under the provisions of Prevention of Money Laundering Act. Therefore, it will be applicable to all the financial institutions, banks and financial intermediaries including mutual funds & brokers. The agency monitoring Anti Money Laundering activities in India is called Financial Intelligence Unit (FIU IND) and compliance is required by all insurance companies. IRDA has made the AML guidelines mandatory for all Insurance companies with effect from 1st August 2006.

Consequences of Money Laundering The Prevention of Money Laundering Act, 2002 provides “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in the process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of money laundering” Under the Act, offences will be punished with rigorous imprisonment for a term from three to seven years (upto ten years for drug related offences) and a fine upto Rs. 5 lacs. Prevention of money laundering protects the interests of not only the company but also consultants, intermediaries i.e. IA/CIFs , partners & employees.

Anti Money Laundering requirements - Operations Know Your Customer To meet the Know Your Customer (KYC) requirements, documents to prove name and residence must be collected from individual prospects. It is mandatory to collect: any one of the following documents to establish proof of name and any one of the documents listed below as proof of residence. However, if the document of identity (like Passport, Driving Licence, etc.) also contains the address, the said document can be accepted for both Identity and address proof. For all policies, it is mandatory to obtain identity proof and residence proof..

Anti Money Laundering requirements - Operations Features : Type of Contracts Documents Insurance Contracts with individuals Proof of name (Legal name and any other names used) Passport PAN Card Voter’s Identity Card Driving License Letter from a recognized public authority or public servant verifying the identity and residence of the customer (meaning of public authority & public servant separately circulated) If none of the above documents are available, a personal identification and certification of the concerned of the SBI Life branch employee heading the channel through which the business is sourced for identity of the prospective policyholder along with a photograph of the customer. Annexure I (separately circulated). Job Card issued by National Rural Employment Guarantee Act, duly signed by an officer of State Government. Where the premium amount exceeds Rs. 10,000/- a self attested recent photograph of the customer has to be submitted with the proposal form.

Anti Money Laundering requirements - Operations Features : Type of Contracts Documents Insurance Contracts with individuals Proof of Residence Telephone bill (Telephone bill pertaining to any kind of telephone connection like, mobile, landline, wireless etc is a valid proof of residence, provided it is not older than six months from the date of insurance contract.) Bank account statement (Bank account statement includes any bank account opened by the customer wherein his permanent/ present residence address is available updated up to the previous month) Letter from any recognized public authority Electricity bill Ration card Valid lease agreement along with rent receipt, which is not more than 3 months old. Proof of existence of Employer (e.g. certificate of incorporation for a Company) and Employers certificate evidencing that proof of residence. (Sole proprietorships certificates will not be accepted). Format attached as Annexure II (separately circulated) In case the customer is residing in Rural areas where it may not be possible to obtain the standard address proof, voter id card will be accepted as address proof provided the address mentioned in the proposal form and the Voter Id card are same.

Anti Money Laundering requirements - Operations Features : Type of Contracts Documents Insurance Contracts with individuals Alternate Documents towards both identity and residence Current passbook with details of permanent / present residence address (updated up to the previous month) Current statement of bank account with details of permanent / present residence address (as downloaded) are considered as Proof of Address (PoA) and also Proof of Identity (PoI) provided they are supported by officially valid documents carrying photograph, issued by any regulated entity/ Government, like debit card, credit card, kisan card etc. to all the insurance products.

Anti Money Laundering requirements - Operations List of KYC documents for insurance contracts with legal entities like companies, organizations, institutions, etc. Details required on Letter Head of the Company Documents Insurance Contracts with Companies Name of the company, Principal place of business, Mailing address of the company, Telephone/Fax Number. Name of the person controlling the ownership interest, his/her name, address, telephone, fax number. Certificate of incorporation and Memorandum & Articles of Association Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account Power of Attorney granted to its managers, officers or employees to transact business on its behalf Copy of PAN allotment letter. Address of the main office of the company. Share holding pattern of the company Names of all the directors.

Anti Money Laundering requirements - Operations List of KYC documents for insurance contracts with partnership firms , trusts and foundations Details required on Firm’s / Trust’s/ Foundation’s Letter Head Documents Partnership Firms Legal name Address Names of all partners and their addressee Telephone numbers of the firm and partners Registration certificate, if registered Partnership deed Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses Percentage Holding of the capital and profits sharing by the partners. Trusts & Foundations Names of trustees, settlers beneficiaries and signatories Names and addresses of the founder, the managers/directors and the beneficiaries Telephone/fax numbers Certificate of registration, if registered Power of Attorney granted to transact business on its behalf Any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders/managers/directors and their addresses Resolution of the managing body of the foundation/association

Anti Money Laundering requirements - Operations Photograph/Photo Identity It is mandatory to collect a photograph and a photo identity of customers at the proposal stage for all proposals having annualized premium more than Rs. 10, 000/-. Sources of Funds The customer’s source of funds, his estimated net worth etc., should be documented properly and income proofs** be taken in case where total annual premium paid by customer is more than Rs 1 lakh. Single premiums above Rs 1 lakh should also be backed by documentation, to establish source of funds.

Anti Money Laundering requirements - Operations **Illustrative list of income proofs: Standard Income proofs: Income tax assessment orders/Income Tax Returns Employer’s Certificate/ Form 16 Audited Company accounts Audited firm accounts and Partnership Deed Non-standard Income Proofs: Chartered Accountant’s Certificate Agricultural Income Certificate Agricultural-land details & Income assessments Bank Cash-flows statements, Pass-book

Anti Money Laundering requirements - Operations No third party cheques should be accepted. However, third party cheques in the following cases can be accepted. Cheques issued by parents for their children. Cheques issued by husband for wife and vice versa. Employer cheques for employee policies and cheque for keyman policies Cheques issued by grandparents to their grandchildren (Life Assured) as a gift by father being the proposer. Cheques issued by parents in the name of their adopted child. (Proposal form should be accompanied with the adoption deed) The Agent/CIF must verify that : He has completed all KYC norms, He has taken all possible precautions to ensure compliance with the Anti Money Laundering Guidelines and the Anti Money Laundering Policy of the Company, and He has verified that the person is not an anonymous /fictitious /benami person.

Anti Money Laundering requirements - Operations The Agent/CIF must sign the Confidential Report: Till such time that the requisite details are incorporated in the ACR form, the following words should be affixed on the ACR and the signature of the Agent CIF be taken. “I hereby confirm that I have followed and completed all the Know Your Customer (KYC) norms as prescribed in the Anti Money Laundering Policy of SBI life and in the IRDA Anti Money Laundering Guidelines. I also certify that I have taken all possible precautions to ensure compliance with the Anti Money Laundering Guidelines and the Anti Money Laundering Policy of the Company and have verified to the best of my knowledge that the prospect is not an anonymous, fictitious and / or a benami person. Further, I certify that I have not accepted any premium or deposit towards procuring insurance in cash. Agent/CIF signature”

Key message for our Advisors & CIFs Insurance is all about UTMOST GOOD FAITH, but don’t just take a leap of faith, really “Know Your Customer”. Identify your customer, Verify his credentials, help us Monitor and Identify any suspicious transactions. Ensure that you have completed the KYC Norms as prescribed in the Anti Money Laundering Policy of SBI LIFE. “Know Your Customer” is the corner stone of an effective Anti Money Laundering Policy.