1. 1 Presented by: L.K.Barathi. Advisor – American Express Bank Ltd Mumbai

2. 2 Objectives of the session: Basics & Background RBI mandated framework Q & A

3. 3 Engaging in transactions involving property derived from criminal activity Engaging in transactions involving property derived from criminal activity Helping to conceal Origin or ownership of proceeds of criminal activity Helping to conceal Origin or ownership of proceeds of criminal activity What is Money Laundering ? Structuring financial transactions to avoid reporting requirements Any funds used to finance terrorism Money Laundering

4. 4 Client Due Diligence To detect and deter attempts against the bank or any of its products and services by criminal elements for ML or other illegal purposes. To detect and deter attempts against the bank or any of its products and services by criminal elements for ML or other illegal purposes. to enable banks to know/understand their customers and their financial dealings better to manage their risks prudently to enable banks to know/understand their customers and their financial dealings better to manage their risks prudently

5. 5 CDD - Guiding Principles 1.Do business only with reputable clients involved in legitimate business activities and whose income and wealth are derived from legitimate sources. 2.Determine and record the identity, background and business of all clients; identify and know the beneficial owners of all relationships; and understand the business purposes for which bank’s products and services are used. 3.From the information gathered, reasonably estimate the types and levels of the client’s anticipated transactions, be alert to and regularly monitor the relationship in order to identify unusual or suspicious activity, and take appropriate action when questions or inconsistencies arise.

6. 6 Essence of Client Due Diligence Document Document that knowledge through complete Client Profiles. Know Know To be satisfied with legitimacy of wealth and source of funds Apply Apply common sense test to all transactions. Review & Update Review & Update

7. 7 1.Customer Acceptance Policy 2. Customer Risk rating / categorization 3. Customer Identification Procedures 4. Monitoring of Transactions 5. Risk management. 6. Staff Education and 7. Customer awareness Outline of the framework

8. 8 1. Customer Acceptance Policy Only relationships with clients known & convincing information No anonymous or fictitious/ benami accounts Accounts are operated by a mandate holders or intermediaries No clients with criminal background, bad reputation, potential to cause embarrassment. Not to open an account if unable to verify identity, obtain required documents, or due to non-cooperation of customer or non reliability of information.

9. 9 2. Customer Risk rating / categorization Risk rating of customers into low, medium and high risk categories based risk perception Individuals (other than High Net Worth) and entities whose identities and sources of wealth can be easily identified and transactions in whose accounts conform to the known profile – Low Risk Only verifying identity and location of customer is adequate Customers likely to pose a higher than average risk are medium or high risk depending on customer's background etc. Enhanced due diligence based on risk assessment, requiring more intensive 'due diligence' for higher risk customers Documentation depending on risk rating System of periodical review of risk categorization of accounts.

10. 10 3. Customer Identification Procedures Identifying the customer and verifying his/her identity by using reliable, independent source documents Must be able to satisfy the competent authorities that due diligence was conducted For individual customers - obtain sufficient identification data to verify identity of customer, his address/location, and also recent photograph For customers that are legal persons or entities - verify legal status through relevant documents, (ii) verify identity of any person purporting to act on behalf of the legal person/entity and understand the ownership and control structure of the customer Identify beneficial owners and verify and document their identity

11. 11 4. Monitoring of Transactions To effectively control and reduce the KYC risk and identify transactions outside the regular pattern of activity Pay special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose High-risk accounts have to be subjected to intensified monitoring Review and maintain proper record of all cash transactions (deposits and withdrawals) of Rs.10 lakh and above. Report such transactions and those of suspicious nature to controlling/head office on a fortnightly basis

12. 12 5. Risk management. Effective management oversight, systems and controls, segregation of duties, training etc Concurrent/Internal Auditors should specifically check and verify compliance of KYC procedures Lapses observed should be put up before the Audit Committee of the Board on quarterly intervals Ongoing employee training programs System & technology support most critical

13. 13 6. Staff Education and 7. Customer awareness Literature/pamphlets to educate customers about the objectives of KYC program Front desk staff should be specially trained to handle KYC related customer queries Money laundering threats from new or developing technologies like internet banking Issuance of electronic cards that are used by customers for buying goods and services, drawing cash from ATMs, and can be used for electronic transfer of funds Bank’s marketing agents should also be trained in KYC procedures

14. 14 Other important aspects Mandatory for banks to put in place a board-approved KYC policy framework and achieve full compliance before 31st December 2005 KYC guidelines will apply to all existing customers on the basis of materiality and risk Also apply to branches and majority owned subsidiaries located abroad A senior management officer should be designated as Principal Officer at the head/corporate office with responsibility for monitoring and reporting of all transactions and sharing of information. He will maintain close liaison with enforcement agencies, banks and any other institution involved in the fight against money laundering and combating financing of terrorism. Legal obligation to submit monthly Cash Transaction Report (CTR) and Suspicious Transaction Report (STR) to Financial Intelligence Unit of Govt of India at New Delhi.

15. 15 Q & A

16. 16 Contact Details : L.K. Barathi. Phone No: 022 -6632 1018 Email : l.k.barathi@aexp.coml.k.barathi@aexp.com or l.k.barathi@gmailcom