CAIIB HRM A-Z GUIDE

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CAIIB RETAIL A-Z GUIDE

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Frequently asked Questions on Prevention On Money Laundering.

Here Sharing a link of PDF on Frequently asked Questions on Prevention On Money Laundering.

Very useful for the basic knowledge

Relevancy : AML/KYC, JAIIB

Frequently Asked Questions Regarding Anti-Money Laundering (AML)

1) What is Money Laundering?

Money Laundering is the process by which, criminals attempt to make the proceeds of crime appear legitimate with no obvious links to their criminal origins. This is achieved by three processes:

1. Placement – Placing of the proceeds of crime
2. Layering – Hiding of the proceeds from their criminal origin by ‘layers’ of transactions
3. Integration – Creating a legitimate explanation for the proceeds

2) Who needs to perform Anti-Money Laundering checks?
Solicitors, accountants, tax advisors, insolvency practitioners, financial institutions, credit institutions, estate agents, chartered surveyors, trust/service providers, gaming companies and high value dealers with the potential for a business relationship worth over 15,000 Euros, such as automotive dealers and jewellers.

3) Why do I need to perform Anti-Money Laundering checks?

The Anti-Money Laundering regulations are governed by 4 Acts: The Proceeds of Crime Act, The Serious Organised Crime and Police Act, The Terrorist Act and the Money Laundering Regulations. . Failure to report suspicious activity can carry a criminal sentence and lead to substantial fines from the relevant regulatory body.

4) I have dealt with my clients for many years , do I still need to carry out Customer Due Diligence?

You need to keep CDD up-to-date for all your clients. You may  have sufficient documentary ID details on your files but if there has been any subsequent change to their circumstances or risk profile, you should update your CDD. It is advised to review clients’ CDD on a regular basis.

5) Who enforces the Anti-Money Laundering regulations?

The AML regulations are enforced by a range of regulatory bodies. Guidelines are set by the JMLSG (Joint Money Laundering Steering Group) and enforced by the FCA/PRA (Financial Conduct Authority/ Prudential Regulation Authority), the SRA (Solicitors Regulation Authority in England), OFT (Office of Fair Trading), HMRC (HM Revenue & Customs), ICAEW (Institute of Chartered Accountants in England & Wales, plus other Accountancy bodies), RICS (Royal Institute of Chartered Surveyors) and more.

6) What is Electronic Verification?

In order to prevent fraud and money laundering it is important to verify individuals carrying out financial transactions. Previously documentary evidence was relied on to verify an individual. These may not always be available and they can also be easily forged or altered therefore electronic verification provides extra security and reduces risk against money laundering and fraud.

Electronic verification removes the need for the customer to be present, this saves time and helps support customer relationship building. The risk of money laundering is reduced as several data sources are called upon to verify the customer rather than just relying on documentary evidence.

7) If I collect Passports and Driving Licences, why do I need to check anything else?
EV can check a wider range of information, thus providing a more thorough knowledge of your client (KYC – Know Your Customer). In addition, it can also enable you to check other data sets such as PEPS and Sanctions lists, which is advisable and specified by the 3rd European Money Laundering Directive. 
With fraudulent documentation on the rise, there is a need to refocus efforts on identifying them. Electronic verification is designed to remove the risk of receiving potentially fraudulent documents; therefore you can have a greater level of confidence in their authenticity. Various checks are carried out on the documents to confirm as much as possible, therefore reducing the risk of ID fraud.

8) Online systems are too expensive, what if I cannot afford it?

There are often hidden costs associated with taking paper documents, which are not always immediately recognisable. For example, if dealing with a client at distance, the posting through of important documents by recorded delivery in order to ensure they do not get lost carries a charge, which is often more than the cost of an electronic search. If the documents are then lost, there is then the cost of replacing the documents for your potential client. This may also be more time-consuming as a process, but by performing a quick electronic search, could this then allow for more searches to be performed and in turn, increase the number of clients taken onboard?

9) Why are you allowing me to see sensitive information?

The information held in electronic systems is consented for use in these systems. For an AML check, the Full Electoral Roll is allowed for this purpose and this is covered in the Representation of the People Act (2002). When a Credit Reference Agency (CRA) utilises financial records in an AML check, it does not show any financial details, apart from the information necessary to ID someone.

10) What are Politically Exposed Persons, Specially Designated Nationals and Financial Sanctions and why do I need to check them?
It is recommended by the 3rd European Money Laundering Directive  to have a procedure in place to check PEPs, SDNs and the HMT Financial Sanctions.  A PEP is a Politically Exposed Person, and is someone who holds a prominent public position, or an individual linked to them. An SDN is a Specially Designated National , on a list which specifies that US Citizens are not permitted to conduct business with them. The HM Treasury Financial Sanctions list specifies individuals with whom it is prohibited to transfer or make funds available to.

What is Money Laundering ??

Money laundering is an act of converting illegal money to legal money. By illegal money we mean the money which has come from illegal sources of earning money like smuggling, any terrorist activity, drug trade, etc.

A person who is found having money from illegal sources can be made to go to prison, or any other liable punishment. So the persons or rather criminals try to convert their illegal money to legal money so that their money appears clean which is known as money laundering.

The banks have also been directed to look into this matter like if they find any suspicious activity in an account or there is huge transaction of money from an account, etc.
There are three stages in which money laundering is done which we will discuss later.

Before that some of the methods of converting illegal money to legal money as the criminals follow include

• doing investments in property or any business,
• multiple transfers of money in various bank accounts or from one place to another,
• used for purchasing foreign currency and then  back to own currency,
• repayment of loans and credit cards,
• through political parties, corporate companies and the shares market, etc.

The three stages of money laundering are:

• Placement Stage: As the name suggests, the first stage is pacing the money into the system by the methods provided above. Placing money in bank accounts, smuggling money to abroad, etc.
• Layering Stage: The main aim of this stage is to separate the illegal company from its source. In this stage the money placed in transferred to other accounts. The money is then distributed among various investments, like some in a business, some in charity, investments in share markets, etc.
• Integration Stage: Integration means joining. So in last stage of money laundering, the whole illegal money which was divided at various places in layering stage starts getting integrated into a single account so that the money now appears to have come from legal sources i.e. from businesses in the country, from share markets, any profits, etc.

If the money reaches the last stage, it appears to have come from legal sources and does not draw any attention of being illegal money.

To study the issue, in 2002, an act was passed by the Parliament of India called the Prevention of Money laundering Act 2002.

According to Section 3 of the act: “Whosoever directly or indirectly attempts to indulge or knowingly assists or is involved in any process or activity connected with the proceeds of crime and is projecting it as the untainted property shall be guilty of the offence of money laundering”.

A step to prevent money laundering is Know Your Customer (KYC) policy. The KYC helps to ensure that banks’ services are not misused.

IIBF AML/KYC A-Z Guide

Here sharing important links of AML/KYC Certification Exam.

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AML/KYC Mix Questions

This post will be updated with time with addition of more questions . 

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FULL FORMs:  FATF, AML, CET, CDD, PMLA, CIP, FIU IND

FATF : Financial Action Task Force
AML : Anti Money Laundering
CFT : Combatting Financing of Terrorism
CDD: Customer Due Diligence
PMLA : Prevention of Money Laundering
CIP : Customer Identification Procedure
FIU IND : Financial Intelligence Unit India

RBI Master Direction - Know Your Customer (KYC) Direction, 2016

SOURCE : RBI 

DIRECT LINK : CLICK HERE

DOWNLOAD LINK : CLICK HERE