AML & KYC

KNOW YOUR CUSTOMER CUSTOMER: one who maintains an account, establishes business relationship, on who’s behalf account is maintained. Know? what you should know? True identity and beneficial ownership of the accounts. Permanent address, registered & administrative address.

What KYC means Making reasonable efforts to determine the true identity and beneficial ownership of accounts. Sources of funds Nature of customer’s business What constitutes reasonable account activity? Who your customer’s customer are?

Knowing your customer means Seeking evidence of identity and address and independently confirming that evidence at the start of a business relationship with the Bank. Seeking information regarding the nature of the business that the customer expects to conduct with the Bank, establishing sources of income and expected patterns of transactions, and keeping that information up to date, to show what might be regarded as normal activity for that customer.

Customer identity- whose identity must be verified? Establishing the identity of anyone who wishes to do business with the Bank is vital. For all applicants the Bank is required to be satisfied that: The genuineness of the person and his/her bona-fide address (current mailing address) is established. The sole traders/proprietors, partnership, company we are dealing with are a legitimate business with a known address and represents legitimate owners. Therefore, in respect of accounts for sole traders/proprietors, partnerships and companies, it is necessary to verify the identity of the business entity PLUS the key individuals who will be operating the account as well as those who are declared as investors to the business (beneficial owners).

Knowing the customer’s business It is not sufficient only to identify the customer, it is also necessary to understand the customer’s business and the use of the account or other banking services. Knowing the customer obviously includes knowing who the customer is and where he / she lives or conduct their business, but KYC is also about what the customer does, his/her/their financial circumstances and how the account will be used.

KYC does not means Denial of service to common person. Intrusive behavior. Use of information for cross selling. Harassment of customers threatening to close down the account arbitrarily.

Advantages of KYC Sound KYC procedures have particular relevance to the safety and soundness of banks, in that They help to protect banks reputation and integrity of banking system by reducing likely hood of banks becoming a vehicle for or a victim of financial crime and suffering consequential reputational damage. They provide an essential part of sound risk management system.

Core elements of KYC Customer acceptance policy Customer identification procedure-customer profile Risk classification of accounts-risk based approach. Risk management Ongoing monitoring of account activity. Reporting of cash and suspicious transactions.

Suspicious transactions Suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or Appears to be made in circumstances of unusual or unjustified complexity; or Appears to have no economic rationale or bonafide purpose.

Suspicious transactions Providing misleading information/ information not easily verifiable while opening an account. Large cash withdrawals from a dormant or inactive account or account with unexpected large credit from abroad. Sudden increase in cash deposits of an individual with no justification. Employees leading lavish lifestyles that do not match their known income sources.

Suspicious transactions Large cash deposits into the same account. Substantial increase in turnover in a dormant account. Receipts or payments of large cash sums with no obvious purpose or relationship to account holder/ his business. Reluctance to provide normal information when opening an account or providing minimal or fictitious information.

FOUR KEY ELEMENTS OF CDD / KYC Bank’s CDD / KYC policy has four major elements: Customer Identification: Establishing the identity of customers is central to the CDD / KYC policy both for the customer acceptance or rejection decision and for the on-going monitoring of customers' accounts and transactions. By identifying customers effectively, you are able to deal with them in the appropriate manner and comfortably. Customer Acceptance: The point at which a new customer is accepted or rejected is the easiest point at which the risk of dealing with illegal money can be avoided. By following good customer acceptance policies, you can avoid dealing with entities and individuals who might engage in illegal transactions.

Accounts & Transactions Monitoring: In an effective CDD / KYC policy, customer accounts and transactions are properly classified in terms of risk and are regularly monitored. Through checks and thresholds, unusual activities or activities by high-risk customers are detected and reviewed. Risk Management: To ensure that the risks posed by money laundering / terrorist financing and other criminal customer activities are consistently dealt with, good risk management practices are essential. In this way the Bank can 'scale' its operations by remaining vigilant about customer-driven risk.

Politically exposed person(PEP) PEP stands for politically Exposed Person. Business relationships with individuals holding important public positions and with persons or companies clearly related to them may expose a bank to significant reputational and / or legal risks. Such politically exposed person (“PEPs”) are individuals who are/or have been entrusted with prominent public functions, including heads of state or of government , senior politicians, senior government judicial or military officials, senior executives of publicly owned corporations and important political party officials. Senior personnel from judiciary, executive, armed forces, administration etc should be reviewed with respect to the possibility of being PEP. Branch / controlling office investigate the source of funds before accepting a PEP.

Politically exposed person “Politically Exposed Person” also means a person who holds or has ever held one of the following offices or positions in or on behalf of state: head of state or head of government; member of the executive council of government or member of legislature; deputy minister or equivalent rank; Ambassador or attaché or counsellors of an ambassador; military officer with a rank of a Brigadier or above; President of a state-owned company or a state-owned bank; Head of government agency; Judge; (all categories of judges e.g. Civil Court (Magistrates of all classes), Additional District Judge (ADJ), District Judge (DJ), High Court Judges, Supreme Court Judges). Also Tribunals, Anti - Corruption Service Tribunals, Environmental Committee Judges. leader or president of a politically party represented in a legislature; or Holder of any prescribed office or position.” The definition also includes any prescribed family member of such a person. PEP will continue to be identified as PEP even though the individual no longer holds the position which basically means that once PEP, always PEP.

Prudential regulations Regulation M-1: know your customer(KYC) Regulation M-2: anti money laundering measures Regulation M-3: Record retention Regulation M-4: correspondent banking Regulation M-5: Suspicious transactions.