Anti Money Laundering : How to Safeguard

Anti Money Laundering

1. ANTI MONEY
LAUNDERING

2. PREVENTION OF MONEY
LAUNDERING ACT (PMLA 2002)
•The Parliament enacted a special Act called
PMLA 2002 ON 17.01.2003 and later PMLA
Amendment Bill 2011, on December 27, 2011

3. ANTI MONEY
LAUNDERING (AML)
•The Prevention of Money Laundering Act,
2002, brought into force w.e.f.1.7.2005
•This Act is applicable to Life and Non-Life,
Public sector and Pvt. Sectors. in modified
form w.e.f.1.1.2007
•IRDAI issued regulatory Guidelines to all
Insurance Companies on 31.3.2006 and
thereafter circulars suggesting
amendments.

4. Bodies to govern Money
Laundering
•Directorate General of Economic
Enforcement
•It is a Law Enforcement Agency and
Economic Intelligence Agency.
•It is a part of Dept. of Revenue,
Ministry of Finance and established
on 01.06.2000 by the Central
Government.

5. Enforcement
Directorate’s role
•Foreign Exchange Management
Act 1999 (FEMA)
•Prevention of Money Laundering
Act 2002 (PMLA)

6. Financial Intelligence
Unit (FIU-Ind)
•It is Started on 18
th
November 2004
•It is a Central Agency, which is
responsible for receiving,
processing, analysing and
disseminating information.
•It is an independent body reporting
directly to the Economic Intelligence
Council (EIC) headed by the Finance
Minister.

7. Organisational Structure
•Head Quarter is at New Delhi
• 5 Regional Offices
• 16 Zonal Offices
• 6 Sub Zonal Offices
Head Quarter –Director of enforcement
• RO – Special Directors,
• Zone – Joint Directors,
• Sub zone – Deputy Directors

8. Definition of Money
Laundering
•It is defined as moving illegally
acquired cash through financial
systems, so that it appears to
be legally acquired one.

9. In other words, it is also defined as :
A set of procedures laws or regulations
designed to stop the practice of generating
income through illegal actions. In most
cases money launders hide their actions
through series of steps that make it look like
money coming from illegal or unethical
source was earned legitimately.

10. MONEY LAUNDERING

11. Some of the Popular Places from where
Money is laundered through…
Stock Markets
Agricultural Products (as there is no income tax
and mostly the transactions are on cash basis)
Property Market
Creating Bogus Companies
Showing Loans
False Export Import Invoices

12. STAGES OF MONEY LAUNDERING

13. MONEY LAUNDERING CYCLE

14. Stages of Money Laundering
1. Placement
Physical disposal or deposit of cash
1. Generation of cash from illegal activities ex. Street
dealing
2. Monies are placed in the retail economy, financial
systems (or) smuggled out of country
3. Aims in removing the cash from the location of
acquisition to avoid detection
4. Transformation into other asset forms e.g. DDs,
TCs(Transfer of Cheque/ Pay Order

15. Stages of Money Laundering
2. Layering
It is separating illicit proceeds from their source by
creating complex layers of financial transactions
designed to disguise the source of money, subvert
the audit trial and provide anonymity Examples:
•Through wire Transfer
•Every day Rs.5,00,000/- wire transfers globally
transferring 1 trillion dollars daily
•Through complex dealings with stock commodity
and brokers

16. 2. Layering contd….
Examples:
•Through wire Transfer
•Every day Rs.5,00,000/- wire transfers
globally transferring 1 trillion dollars daily
•Through complex dealings with stock
commodity and brokers

17. Stages of Money Laundering
Examples: Creating the impression of
apparent legitimacy to criminally derived
wealth.
•1. Loans from Fixed Deposits
•2. Tax exemptions
•3. False Export import invoices
•4.Through Electronic Fund Transfer to a
legitimate bank from the bank owned by
Launderers.

18. KEY ELEMENTS OF AML
PROGRAMME IN OUR COMPANY
•Framing Internal policies, procedures, and
controls;
•Appointment of a Principal compliance
officer;
•Recruitment and training of
employees/agents;
• Internal Control/Audit;

19. INTERNAL POLICIES, PROCEDURES AND
CONTROLS
Know Your Customer (KYC):
Three criteria :-
•Identification of name
•Identification of residence
•Identification of source of funds / net worth.

20. HOW TO EXERCISE KYC NORMS BY US
Provisions:
•At the stage of Underwriting ::
•Not to transact any business with banned entities and
reported to have links with terrorists or terrorist
organizations.
•To be extra cautious when demand for insurance is
more than net / real/known worth of the client.
•Assignment of policies to unrelated persons to be
closely examined.
•Copy of PAN number is must for individual policies for
which ,premium exceeding Rs. One lakh.

21. Banned Entities – Web site
•Refer to UN website for the latest
list of banned entities and reported
to have links with terrorists or
terrorist organisations before
underwriting.
•http://www.un.org/Docs/sc/committees

22. HOW TO EXERCISE KYC NORMS BY US

23. DOCUMENTARY REQUIREMENT FOR
AML COMPLIANCE FOR INDIVIDUAL
Any one of the documents – a photocopy to be
obtained.
i. Passport ii. PAN Card iii. Voter’s Identity Card
iv. Driving License v. Adhaar Card
vi. NREGA’s Job Card
vii. Letter from a recognized Public Authority (as
defined under Section 2 (h) of the Right to
Information Act, 2005) or Public Servant (as defined
in Section 2(c) of the ‘The Prevention of Corruption
Act, 1988’) verifying the identity and residence of
the customer
viii. Personal identification and certification of the
employees of the insurer for identity of the
prospective policyholder.

24. AML COMPLIANCE - Documentary
requirement for Proof of Residence
•Any one of the documents – a photocopy of the same to be
obtained.
•i. Telephone bill pertaining to any kind of telephone
connection like, mobile, landline, wireless, etc. provided it is
not older than six months from the date of insurance
contract
•ii. Current Passbook with details of permanent/present
residence address (updated up to the previous month)
•Iii. Current statement of bank account with details of
permanent/ present residence address (as downloaded)
•iV. Letter from any recognized public authority
•v. Electricity bill
•vi. Ration card
•vii. Valid lease agreement along with rent receipt, which is
not more than three months old as a residence proof.
•Viii. Employer’s certificate as a proof of residence
(Certificates of employers who have in place systematic
procedures for recruitment along with maintenance of
mandatory records of its employees are generally reliable)

25. AML COMPLIANCE DOCUMENTARY PROOF
FOR COMPANIES
•Any one of the documents – a photocopy of
the same to be obtained.
•a. Certificate of incorporation and
Memorandum of Articles of Association
•b. Resolution of the Board of Directors to
open an account and identification of
those who have authority to operate the
account.
•c. Power of Attorney granted to its
managers, officers or employees to
transact business on its behalf.
•d. Copy of PAN allotment letter.

26. AML COMPLIANCE DOCUMENTARY PROOF
FOR PARTNESHIP FIRM
•Proof of identity
•Any one of the documents – a photocopy of the same
to be obtained.
•a. Registration Certificate, if registered.
•b. Partnership deed.
•c. Power of Attorney granted to a partner or
employee of the firm to transact business on its
behalf.
•d. Any officially valid document identifying the
partners and the persons holding the Power of
Attorney and their addresses.

27. AML COMPLIANCE DOCUMENTARY PROOF
FOR TRUST AND FOUNDATIONS.
•Proof of identity
•Any one of the documents – a photocopy of the
same to be obtained.
•a. Certificate of Registration, if registered.
•b. Power of Attorney granted to transact business
on its behalf.
•c. Any officially valid document to identify the
trustees, settlers, beneficiaries and those holding
Power of Attorney, Founders/Managers/Directors
and their addresses.
•d. Resolution of the managing body of the
foundation / association.

28. EXEMPTED FROM THE
PURVIEW OF AML REQUIREMENTS
•i. Earlier it was exempted and now, Standalone medi-
claim/health insurance policies shall also be brought
under the purview of AML/CFT requirements based on
the assessed risks associated with each of the product
profile.
•ii. Reinsurance and retrocession contracts where the
treaties are between insurance companies for
reallocation of risks within the insurance industry and
do not involve transactions with customers.
•iii. Group insurance businesses which are typically
issued to a company, financial institution, or
association and generally restrict the ability of an
individual insured or participant to manipulate its
investment.

29. AML COMPLIANCE - MONITORING AND
REPORTING OF CASH TRANSCATIONS
•Remittances of premium by cash should not exceed
Rs. 50,000/-.
•i. Premium/proposal deposits beyond Rs. 50,000
should be remitted only through cheques, demand
drafts, credit card or any other banking channels.
•ii. For integrally related transactions, premium
amount greater than Rs. 50,000 in a calendar month
should be monitored more closely.
•iii. Insurance companies have to report STR
irrespective of amount (integrally connected cash
transactions above Rs. 10 lakhs per month) to FIU-
IND by 15th of next succeeding month

30. AML COMPLIANCE - REPORTING OF
SUSPICIOUS TRANSACTIONS (STR)
Customer insisting on anonymity, reluctance to provide identifying
information, or providing minimal, seemingly fictitious information
•Cash based suspicious transactions for payment of premium /
multiple DDs each denominated for less than Rs. 50,000/-
Overpayment of premiums with a request for a refund of the
amount overpaid
Request for a purchase of policy in amount considered beyond his
apparent need;
•Unusual terminating of policies and refunds;
• Inflated or totally fraudulent claims e.g. by arson or other means
causing a fraudulent claim to be made to recover part of the
invested illegitimate funds

31. SHARING OF INFORMATION
Sharing of information on customers may
be permitted between different
organizations such as banks, insurance
companies, Income tax authorities, local
government authorities on request.

32. AML COMPLIANCE FOR RECORD
KEEPING
•The insurer/agents/corporate agents are required to
maintain the records of the Cash/Suspicious
Transactions reports submitted to FIU as well as
those relating to the verification of identity of
clients for a period of 10 years. Now it has been
reduced to 5 years.
•Records can also be in electronic form.
•Records of claims policy cancellation,
investigations, customer account files and business
correspondence to be retained for a period of 10
years.

33. AML COMPLIANCE - RECRUITMENT TRAINING
•Selection of agents / corporate agents should be
monitored carefully.
•Supervisory authority would monitor Rules & Regulations
for performance of agents / corporate agents,
implementation of KYC norms, monitoring of sales
practices of agents, action for non-compliance by agents.
•Proper screening procedures for hiring of employees
would be put in place.
•In-house training curriculum reg. AML program for all
employees including agents at Corporate Training Centre
& RTC, ROs.
•Records of training imparted to staff in the various
categories are required to be maintained.

34. Role of Insurance Companies on AML
•1. Duty to make a disclosure to the
authorized officer when knowing or
suspecting that any property in whole or in
part, directly or indirectly, representing the
proceeds
•2. Disclosures are protected by law,
enabling the person with information to be
able to disclose the same without any fear
•3. Emanate proper AML program

35. Internal Control / Audit:
•Insurance companies’ internal audit /
inspection departments would verify on a
regular basis, compliance with policies,
procedures and controls relating to money
laundering activities.
•Make constructive suggestions where
necessary, to strengthen the policy and
implementation aspects.
•Exception reporting under AML policy should
be done to Audit Committee of the Board

36. LATEST AMENDMENTS
•KYC process is initially to be done as per
the existing guidelines.
•Any change in the customers’ recorded
profile that comes to the notice of the
insurer and which is inconsistent with the
normal and expected activity of the
customer should attract the attention of
the insurer for further ongoing KYC
processes and action as considered
necessary.

37. Contd…
•Principal Compliance Officer for AML
guidelines should be at senior level and
preferably not below the Head
(Audit/Compliance) /Chief Risk Officer level
and should be able to act independently
and report to senior management .
•Principal Compliance Officer for AML
guidelines and staff assisting him in
execution of AML guidelines should have
timely access to customer identification
data, other KYC information and records.

38. Contd…
When Annual contracted premium per policy basis, exceeds
Rs. One lakh ::-
•All insurers have to collect PAN details.
• Persons with only agricultural income, NRIs with no
assessed income under the IT Act, 1961 etc are exempted
from the requirement of PAN.
• Insurers shall however collect a signed declaration from
persons exempted from the requirement of PAN, stating the
provisions of the IT Act under which they have been
exempted.
•In cases where a proposer has applied for PAN but has still
not received the same, a copy of form 49A (application for
PAN), duly acknowledged by the agency authorized to
collect applications for PAN, can be accepted by insurers
in lieu of PAN, with an undertaking from the proposer that
the PAN shall be submitted as soon as it is received.

39. Contd…
•Proposals of Politically Exposed Persons (PEPs) in
particular requires approval of senior management, not
below Head (underwriting) /Chief Risk Officer level.
•special attention is paid to all complex, unusually large
transactions and all unusual patterns which have no
apparent economic or visible lawful purpose and
transactions.
•Background including all documents /office records
/memorandums pertaining to such transactions, as far as
possible, be examined by the Principal Compliance officer
for recording his findings.
• Directors, officers and employees (permanent and
temporary) shall be prohibited from disclosing the fact that
a Suspicious Transactions Report or related information of
a policyholder/prospect is being reported or provided to the
FIU-IND.

40. CIRCULARS ON AML ISSUED
BY HEAD OFFICE

41. CIRCULARS ON AML ISSUED
BY HEAD OFFICE

42. CIRCULARS ON AML ISSUED
BY HEAD OFFICE