FOUNDATION COURSE IN AML - INDIA1.1 What is Money Laundering?Money laundering, as the name suggests, is the process by which criminals attempt to disguise the true origin of the proceeds of criminal activities by using the financial system such that after a series of transactions, the money, its ownership and the income earned from it appear to be legitimate.

They try to disguise the true origin of the illegal money by transferring them from one financial institution to another, using accounts of apparently different persons or businesses. These persons or businesses may, in fact, have a legitimate existence in the financial system. However, they are usually controlled by one person or entity for the sole purpose of converting that person’s illegal money into legal money.Money laundering : An exampleMr. PQR, a worker in an organization, has a salary account in a bank. He also runs an extortion racket, (illegitimate and forcible extortion of money, also called protection money or 'hafta'). He puts the money that he gets from this racket into another account opened in the name of a trust, as a cash donation. With this money, Mr.PQR, as the trustee, purchases office premises that are leased out to generate legitimate funds for the 'trust'.

Thus, Mr. PQR 'launders' money obtained from his extortion racket by channeling it into a trust. Obviously the trust is a front for his illegal activities. By making legitimate purchases for the trust with the illegal money, he tries to convert the illegal money into legal money.

Money laundering definedLet us look at some definitions of money laundering as given by domestic and international guidelines. 1. According to the Financial Action Task Force (FATF), money laundering is the processing of criminal proceeds in order to disguise their illegal origin. 2. Section 3 of The Prevention of Money-Laundering Act, 2002, of India defines the offence of money laundering as under:Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of money-laundering. How money is launderedHow is money laundered? Well, criminals may differ in the means they employ to launder illegal money. However, money laundering, regardless of the degree of complexity, is usually carried out in three stages:

Placement stageLayering stage Integration stage

Let us examine each of these stages in detail.Money laundering: The placement stageThe placement stage involves the channelization of cash proceeds of illegal activities into the banking or financial system.

The proceeds of most criminal transactions are in cash. However, criminals who accumulate large amounts of cash run the risks of detection and seizure. Hence, they try to channel the funds into the financial system, usually into banks, and this is called placement.

At the placement stage it is relatively easy to detect money-laundering attempts because at this point the money is still traceable to its source.

Let us look at some common placement methods used by money launderers.Money laundering: The layering stageThe next stage in the money-laundering cycle is the layering stage. After placing illegal funds in a bank, money launderers would try to separate them from their illegal source through a process called layering.

Layering consists of multiple, complex, financial transactions that make it difficult to link money to an illegal activity. It disguises or eliminates the audit trail. At this stage, money launderers may also mix the 'dirty' money with 'clean' money and try to disguise it further.

Let us look at the methods employed by launderers for layering money.Money laundering: The integration stageThe final stage in the money-laundering cycle is the integration stage. In this stage illegitimate funds are integrated into the economy by providing what appears to be a legitimate explanation for the illicit financial wealth.

For example, integration of illegal proceeds might include purchase of real estate, businesses, securities, automobiles, or jewellery. Integration moves illegal funds back into the economy with the appearance of normal business earnings. It would be extremely difficult at this point for a bank to distinguish between illegitimate funds and legitimate funds.

Let us look at some common means of integration used by money launderers.

Stages in the money laundering cycle: A summaryMoney laundering takes place through 3 stages: Placement, layering, and integration.

The placement stage involves the channelization of the cash proceeds of illegal activities into the banking or financial system. Placement is usually performed through smurfing, smuggling, asset conversion, alternative remittances, and electronic transfers.

Layering is the process of separating illegal money from the sources that generated them, through multiple, complex, financial transactions. Layering is performed through electronic transfers, offshore banks, shell corporations, trusts, walking accounts, and intermediaries.

Integration is the final stage in the money laundering cycle. In this stage, illegitimate funds are integrated into the economy by providing what appears to be a legitimate explanation for the illegitimate financial wealth. Credit and debit cards, sale and purchase of assets, business recycling, and export-import transactions are some means of integrating laundered money.Regulations to prevent money laundering for IndiaIntroductionMoney laundering is a serious problem worldwide, affecting financial markets and institutions. Accordingly, laws and regulations, for combating money laundering have been set up or are in the process of being set up across various countries. It is imperative for us, as employees of a bank, to know and understand these regulations and our role in ensuring compliance with the same. This knowledge would help us implement appropriate measures to prevent criminals from laundering money

using our bank as a channel.

Since our Bank operates in various geographies, our distributed workforce needs to be aware of the anti money laundering laws and regulations operating in such countries. Know Your Customer (KYC)Anti money laundering regulations emphasize that a bank or financial institution should invest in knowing their customers. It is only when we know our customer properly, that we can identify unusual transactions — an important part in identifying money-laundering activities.

An effective Know Your Customer (KYC) policy/procedures would include implementation of the following:

Customer identification procedures Customer verification procedures Comparison with negative lists maintained by governments (for instance, lists of known terrorists or terrorist organizations)These programs and measures help

in ensuring that only bona fide accounts are opened, and in understanding the money laundering risks in certain products and customers.Monitoring and Reporting of Suspicious TransactionsSuspicious transactions are transactions that are inconsistent with a customer’s known, legitimate activities or with the normal business for that type of account.

The KYC policy/procedures should provide guidelines for recognizing such transactions. This should be backed up by training to ensure that employees understand how to implement these guidelines. Many banks also use software to identify such transactions.a sample list of suspicious transactions

1. A business account receives and disburses large amounts of money that does not seem to reflect any normal business-related activity such as payments to vendorsb or employees.

2. A customer makes a large cash deposit in a business account, which is notnormally considered to be a cash-intensive business.

3. Unexplained transactions between business and personal accounts. 4. A customer comes with a request for a loan on behalf of an offshore company,especially one

that is located in a country where anti money laundering laws are lax. 5. Large electronic deposits immediately followed by bulk cash withdrawals, or bulk cash deposits

followed by electronic transfers out of the account.6. Without a good reason, a customer opens many accounts in single or multiple names and moves

money frequently between these accounts.Compliance with lawAnti money laundering regulations should ensure that financial transactions are carried out in compliance with the regulatory requirements. These include the following:

customer identification and verification procedures and due diligence measures reporting transactions above threshold limits and reporting suspicious transactions recording transactions and maintaining these recordsblocking or freezing accounts

You will be able to understand each of these terms as we deal with them under the different anti money

laundering regulations.Cooperation with law enforcement agenciesAnti money laundering regulations also emphasize the need for cooperation with law enforcement agencies. These include:

sharing and reporting information when required, providing access to records and documents, andadherence to orders and requests issued.Internal policies and proceduresAnti money laundering regulations include the following actions that need to be taken by a financial institution, as part of its internal policies and procedures:

adoption of written anti money laundering policies/procedures by the Board of Directors/Senior Management, appointment of a compliance officer within an organization, laying down internal reporting procedures, development and review of policies, procedures and controls on a periodic basis, independent audit function to test an organization’s anti money laundering programs, ongoing employee training programs, and record retention procedures.International regulationsMoney laundering is clearly a serious issue facing the international financial community. All countries are required to participate in the prevention of money laundering activities as this affects the international financial system.

Countries should follow comprehensive and authoritative international standards in drafting and implementing anti money laundering regulations. In addition, of course, each country must have its own rules, regulations, and guidelines to tackle money laundering.

Awareness of major international anti money laundering regulations will enable you to understand the Bank's anti money laundering compliance requirements while participating in the international spheres.Domestic regulationsIn India, money laundering has been recognized and acknowledged as a major threat to society and to the stability of the financial market. The Prevention of Money Laundering Act 2002(PMLA), drafted in 2002, is an Act to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering. The obligation of Banking Companies, financial institutions and intermediaries are laid out in the Act. The Act comes into effect from July 1, 2005. Apart from this act, the RBI (Reserve Bank of India), the banking regulator, has issued KYC and anti money laundering guidelines to banks. 2.2 The Financial Action Task Force (FATF) guidelinesIntroductionThe Financial Action Task Force (FATF) is an intergovernmental body that develops and promotes policies and guidelines to combat money laundering. It consists of 33 members � 31 countries and 2 international organizations. The 33 member countries include countries that are the major financial centers in Europe, North and South America, and Asia. The FATF guidelines consist of 40 recommendations. Nine special recommendations were issued to combat terrorist financing. The FATF lists certain countries and territories, with little or no anti money laundering measures, as

non-cooperative countries and territories (NCCTs). As on February 11, 2005, the following countries figured on the FATF's NCCT list: 1. Myanmar 2. Nauru 3. NigeriaThe FATF guidelines for financial services require that they should not maintain anonymous accounts, perform a thorough customer identification procedures based on reliable documents/data/information, and analyze and report unusual or suspicious transactions, and have policies, procedures and training to counter money laundering.

Key elements of the FATF guidelinesThe following are the key elements of the FATF guidelines. 1. The FATF defines financial institutions according to their activities. The guidelines are intended to ensure that they meet CDD, STR , and CTR requirements.

2. The FATF guidelines require that risk-based customer due diligence (CDD) procedures should be performed by financial institutions. CDD is the process of checking and verifying the identity of a customer, and the nature of his or her business, and maintaining such verification and identification throughout the business relationship and transactions.

CDD should be performed initially during the establishment of a business relationship and later for occasional transactions only. It should also be performed when money laundering or terrorism financing is suspected and when doubts arise about previous customer due diligence verifications.3. The FATF guidelines prescribe the following processes and procedures to help banks detect and prevent money laundering.

i. Banks should collect and store information, intelligence and evidence. Information is material collected that describes events and transactions, for example, reports of suspicious transactions Intelligence is information that has value added to it by the process of investigation and analysis. Evidence is information and matter that could form the basis for proving or establishing a fact. ii. Customers should not be questioned! A bank should not try to obtain evidence of a crime or to conduct an investigation. Instead it should assess transactions that seem unusual or suspicious and report them. iii. Banks should develop procedures to assess transactions fairly. Such procedures should be based on:

knowledge of money laundering symptoms, knowledge of the history and profile of customers, and customers’ behaviour during transactions. 4. A bank should not 'tip off' customers of its intention to report them to the concerned anti money laundering authorities. The identity of reporters must be kept secret SummaryThe Financial Action Task Force (FATF) is an intergovernmental body that develops and promotes policies and guidelines for financial services and organizations to combat money laundering.

The FATF consists of 31 countries and 2 international organizations. Its guidelines comprise forty-nine recommendations.

Countries and territories with little or no anti money laundering measures are listed by the FATF as non-cooperative countries and territories (NCCTs).

The key elements of the FATF guidelines for banks and financial institutions are as follows.

1. Risk-based Customer due diligence (CDD) procedures should be performed by financial organizations.

2. Banks should

collect and store information, intelligence and evidence develop procedures to assess transactions fairly not try to obtain evidence of a crime or to conduct an investigation assess transactions that seem unusual or suspicious and report themRBI GUIDELINESIntroductionIn August 2002, the Reserve Bank of India (RBI) issued guidelines on 'Know Your Customer' norms and for cash transactions. This was with a view to safeguarding banks from being unwittingly used for the transfer or deposit of funds derived from criminal activity (for both deposit and borrowal accounts), or for financing of terrorism. The guidelines are also applicable to foreign currency accounts or transactions.

In November 2004, the RBI has issued revised guidelines on 'Know Your Customer (KYC) Guidelines - Anti Money Laundering Standards'. These guidelines are based on the Recommendations of the Financial Action Task Force and the Paper issued on Customer Due Diligence (CDD) for banks by the Basel Committee on Banking Supervision.

Through these guidelines banks are advised by RBI to ensure that a proper policy framework on 'Know Your Customer' and Anti-Money Laundering measures is formulated and put in place with the approval of Board of Directors within three months from the date of RBI circular and ensure full compliance with the provisions of the revised guidelines by December 2005. These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 and any contravention or non-compliance with the same may attract penalties under the relevant provisions of the Act.

Note: q Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing q Basel Committee on Banking Supervision is the Committee constituted by the Bank for International Settlements (an international organisation which fosters international monetary and financial cooperation and serves as a bank for central banks) for providing a forum for regular cooperation among central banks on banking supervisory matters.Terrorism FinanceRBI has been circulating lists of terrorist entities notified by the Government of India to banks so that banks may exercise caution if any transaction with such entities is detected. There should be a system at the branch level to ensure that such lists are consulted in order to determine whether a person/organization involved in a prospective or existing business relationship appears on such a list. The authority to which banks may report accounts suspected to belong to terrorist entities would be advised in consultation with the government.Foreign Contribution Regulation Act (FCRA), 1976

(i) Banks are also required to adhere to the instructions on the provisions of the Foreign Contribution Regulation Act, 1976 cautioning them to open accounts or collect cheques only in favor of associations that are registered under the Act by the Government of India. A certificate to the effect that the association is registered with the Government of India should be obtained from the concerned associations at the time of opening of the account or collection of cheques.

(ii) Branches of the banks are required to exercise due care to ensure compliance and desist from opening accounts in the name of banned organizations and those without requisite registration. Record keepingFinancial intermediaries should prepare and maintain documentation on their customer relationships and transactions in order to

meet the requirements of relevant laws and regulations, and

enable any transaction effected through them to be reconstructed.

In the case of wire transfer transactions, the records of electronic payments and messages must be treated in the same way as other records in support of entries in the account. All records of financial transactions should be preserved and maintained in accordance with the provisions of PMLA.As per the Group AML Policy of ICICI Bank and under PMLA, records are to be retained for a period of 10 years.The Prevention of Money Laundering Act, 2002IntroductionThe Prevention of Money-Laundering Act, 2002, (PMLA) was enacted in 2002 and extends to the whole of India. The Government of India has subsequently amended the PMLA to remove certain shortcomings existing in the earlier version and the Act has been notified in the Official Gazette for implementation with effect from July 1, 2005.PMLA is an Act to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto. PMLA defines offence of Money Laundering as follows:"Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offence of money-laundering."

Let us examine the obligations of banking companies, financial institutions, and intermediaries as provided in this Act. Provisions of the PMLA Section 14 of PMLA states the following as regards no civil proceedings. Unless otherwise provided in section 13 of PMLA, banking companies, financial institutions, intermediaries and their officers shall not be liable to any civil proceedings against them for furnishing information as prescribed under clause (b) of sub-section (1) of section 12 of PMLA. (This clause states that banking companies/financial institutions/intermediaries should furnish information to the Director.)Section 15 of PMLA states the following as regards the procedure and manner of furnishing information.

The Central Government may, in consultation with the Reserve Bank of India, prescribe the procedure and the manner of maintaining and furnishing information under sub-section (1) of

section 12 of PMLA for the purpose of implementing the provisions of this Act.The Government, in of India consultation with the Reserve Bank of India, has notified the rules under PMLA, for banking companies, financial institutions and intermediaries for:

1. maintenance of records of the nature and value of transactions; 2. procedures & manner of maintaining and the time for furnishing of information; and 3. verification of records of identity of the clients

The rules notified under PMLA are effective from July 1, 2005.The main highlights of the rules, which are, inter alia, applicable to every banking company are as follows:

1. Maintenance of record of prescribed transactions (nature and value prescribed under the rules) - Rule 3

2. Maintenance of information in respect of prescribed transactions in accordance with the procedures and manner specified by the Reserve Bank of India from time to time - Rule 5

3. Maintenance of the records for a period of ten years from the date of cessation of the prescribed transactions - Rule 6

4. Furnishing of the information in respect of prescribed transactions within the specified time frame - Rule 8

5. Verification and maintenance of the record of identity and current address or addresses, permanent address or addresses of the client, the nature of the business of the client and his financial status - Rule 9

Further, the Banking Company is required to communicate the name, designation and address of the Principal Officer of the Bank to the Director constituted under the PMLA.Prescribed Transactions referred to under Rule 3 are as follows:

1. All cash transactions of value of more than Rupees ten lakhs or its equivalent in foreign currency - Rule 3(1)(A)

2. All series of cash transactions integrally connected to each other, which have been valued below Rupees ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month - Rule 3(1)(B)

3. All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of valuable security has taken place - Rule 3(1)(C)

4. All Suspicious transactions(According to Rule 2(g), the term "suspicious transaction" means a transaction whether or not made in cash which, to a person acting in good faith:

1. Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; 2. Appears to be made in circumstances of unusual or unjustified complexity; 3. Appears to have no economic rationale or bonafide purpose) - Rule 3(1)(D)

Group AML Policy of ICICI Bank IntroductionMoney laundering, as already discussed, is a criminal activity with serious consequences for financial organizations. Laws and regulations are already in place, or are being formulated, in most countries, to prevent and control money laundering. You have read about these in the previous sections.

What are the consequences of not taking money laundering seriously? As a bank, what problems would we be likely to encounter if we do not develop a framework/standards/policies & procedures for dealing with money laundering practices? Let us find out. ICICI Bank's initiatives As a leading bank in India, ICICI Bank constantly benchmarks itself against international practices, regulations and conventions to a reasonable and practicable extent. The Bank has therefore undertaken to establish a global anti money laundering (AML) framework to participate in the international efforts against money laundering and to ensure that it is not used as a vehicle for money laundering. The

proposed anti money laundering framework of the Bank, in fact, goes beyond the present regulatory environment in India. As part of the anti money laundering framework, ICICI Bank has formulated a Group AML Policy in January 2004. The Group AML Policy has been revised in December 2004, keeping in view the requirements of RBI on KYC and AML. Let us examine the features of the Group AML Policy document which covers the following topics. (i ) Scope and objectives of the Group AML Policy (ii) AML Standards (iii) AML Operating Structure (iv) MIS, Reporting and Compliance (v) Customer Acceptance PolicyScope and objectives of the Group AML Policy Our Bank is required to comply with laws and regulations relating to Anti Money Laundering (AML). Every employee of ICICI Bank plays a key role in protecting the Bank’s reputation and also prevent it from becoming a channel for money laundering. Hence you must become familiar with the Bank’s Group Anti Money Laundering Policy.

Let us see what its scope and objectives are and what it covers.Scope The Bank’s Group AML Policy establishes the standards of anti money laundering compliance and is applicable to all activities of the Bank and its Strategic Business Units (SBUs) in India or abroad.

For the purpose of this policy, the term ‘SBUs’ refers to any business group constituted by the Bank for carrying out its activities/offering of products and services, and as may be specified for the purpose of AML compliance monitoring by the Money Laundering Reporting Officer (MLRO) of the Bank.Further, keeping in view the requirements of the recent guidelines of Reserve Bank of India (RBI) on KYC/AML dated November 29, 2004, a separate Customer Acceptance Policy for the Bank has been formulated which lays down the criteria for acceptance of customers. The Customer Acceptance Policy forms an integral part of the Group AML Policy. It contains the basis for the due diligence/risk profiling/documentation procedures applicable to different types of customers. Detailed AML procedure manuals for SBUs for different products/services would be laid down in line with the Bank’s Group AML Policy with the approval of the Committee of Directors (COD).

However, if any country or jurisdiction has any unique AML requirements, overseas SBUs are required to implement such standards and accordingly adopt an appropriate AML Procedures for the same. Such AML policy or procedures shall be an addendum to, the Bank’s Group AML Policy and would be applicable only to respective overseas SBUs. These addendums will be approved by the COD, and are to be read in conjunction with the Bank’s Group AML Policy.AML and the Bank’s subsidiaries The Bank’s Group AML Policy framework enshrined in the Group AML Policy document is to be used by the subsidiaries of ICICI Bank, including overseas subsidiaries, and joint ventures and alliances.

The subsidiaries, joint ventures, and alliances shall formulate their respective AML policies (in line with their regulatory requirements) with the approval of the respective Board of Directors/Committee of Directors and in consultation with MLRO of ICICI Bank. Such policy documents may cover the AML procedures too.Key anti money laundering objectives Within the overall Bank's Group AML Policy framework, the key anti money laundering objectives of ICICI Bank are: To prevent the Bank’s business channels, products and services from being used for money

laundering.

To establish a framework for adopting appropriate AML procedures and controls in the operations and business processes of the Bank.

To ensure compliance with the laws and regulations in force from time to time. To protect the Bank’s reputation. To assist law enforcement agencies in their effort to investigate and track money launderers.

To lay down AML compliance norms for the employees of the Bank. Scope and objectives of the Group AML Policy: RecapICICI Bank’s anti money laundering policy (the Bank’s Group AML Policy) establishes the standards of anti money laundering (AML) compliance and is applicable to all activities of the Bank including its Strategic Business Units (SBUs) in India or abroad.

Detailed AML procedure manuals for SBUs for different products/services are laid down in line with the Bank’s Group AML Policy with the approval of the Committee of Directors (COD).

If any country or jurisdiction has any unique anti money laundering requirements, overseas SBUs are required to implement such standards and accordingly adopt an appropriate AML policy / procedures.

The key objectives of the Bank’s Group AML policy include the prevention of usage of the Bank as a channel for money laundering and to ensure compliance with the laws and regulations in force, from time to time so as to protect the Bank’s reputation.Pillars of AML Standards: KYC and MSTR The AML standards of the Bank would be primarily based on two pillars, namely, KYC and Monitoring/ Reporting of Suspicious Transactions (MSTR). Suspicious transactions shall include large as well as cash transactions above a threshold limit as per applicable regulations/Bank’s internal guidelines and shall be monitored and reported. Detailed procedure manuals shall be prepared for each SBU illustrating the KYC and MSTR requirements for the various products. You are already familiar with the term KYC. So let us first look at what is mentioned for KYC policies and procedures under the Group AML Policy document and how the employees of the Bank can help implement it.Monitoring/Reporting of Suspicious Transactions (MSTR) A suspicious transaction is one that is inconsistent with a customer’s known, legitimate activities or with the normal business for that type of account. A satisfactory KYC procedure provides the foundation for recognizing unusual or suspicious transactions since knowledge of the customer’s normal or expected activities would enable the Bank to recognize when a transaction or series of transactions are abnormal. Sufficient guidance and training shall be imparted to staff to enable them to recognize potentially suspicious transactions. However, considering the magnitude of the transactions being handled, it would be necessary to develop appropriate software systems to better support the identification and reporting of suspicious transactions.

The assessment of suspicious transactions shall be based on a reasonable evaluation of relevant factors, including having information on the client’s business, financial history, background, behavior and threshold limits for transactions as stipulated by applicable regulations and the Bank’s internal

guidelines. Monitoring/Reporting of Suspicious Transactions (MSTR) The Bank would endeavor to:

a) Ensure that the SBUs have in place requisite processes and technology to:

monitor transactions in order to identify unusual behavior, conduct enhanced due diligence upon such identification, and report any suspicious transaction that has been identified based on the results of such enhanced due diligence.b) Establish Management Information Systems (MIS) to identify critical areas and issues which need to be addressed to prevent money laundering and to provide required information relating to suspicious transactions to the top management and regulatory authorities at pre-determined intervals.

c) have proper record maintenance policies and procedures, which would ensure that documents required are available within reasonable period. Monitoring/Reporting of Suspicious Transactions (MSTR) Each SBU shall develop appropriate parameters for transaction monitoring and suspicious behavior in consultation with the MLRO. The country - and product-specific details of likely or potentially suspicious transactions such as large transactions and cash transactions shall be included in specific anti money laundering procedures along with the threshold limits as defined by respective regulations and/or internal guidelines. According to the existing RBI guidelines, cash transactions above Rs. 1 million are required to be reported by the branches of banks to their controlling offices.Suspicious transactions: Some examples The transaction is done by a customer who is listed in a Negative List given by the Government or the Reserve Bank of India (RBI). 1.There is a large cash deposit that does not match with customer profile (or if this happens frequently) 2.Immediate withdrawal of Cash (within a short duration) after the Cash is deposited in the Customer account 3.A client starts conducting frequent cash transactions in large amounts when this has not been a normal activity in the past.4.The use of Letters of Credit and other methods of trade finance to move money between countries where such trade is not consistent with the client's usual business. 5.Detailed guidelines on identification of suspicious transactions shall be informed from time to time to the concerned employees by way of e-circulars.A customer makes or receives huge deposits or remittances along with pre-closure of loans or payment of past overdues.6.There is excessive activity in a hitherto dormant account 7.There are frequent deposits of foreign travelers' cheques 8.There are structured transactions, such as making numerous small remittances to a single account to evade reporting thresholds. Summary Money laundering poses several risks including legal and financial risks and risks to banks’ reputations. Being aware of these risks, ICICI Bank has established a global AML framework. The Bank would follow a risk-based approach in implementing its anti money laundering framework. This involves risk profiling of various customer and product segments and review and approval of such profiles by the MLRO.

The anti money laundering standards of the Bank are based on two pillars.

a. Know your customer (KYC) b. Monitoring/Reporting of Suspicious Transactions (MSTR) .Summarya) Know your customer (KYC) Availability of Customer information is a critical element in the effective management of Money Laundering risks. The KYC would include procedures for obtaining and verifying customer identification, such as basic and enhanced due diligence procedures. b) Monitoring/Reporting of Suspicious Transactions (MSTR)A suspicious transaction is one that is inconsistent with a customer’s known, legitimate activities or with the normal business for that type of account.

The assessment of suspicious transaction would be based on a reasonable evaluation of relevant factors such as information on the client’s business, financial history, background, behavior and threshold limits for transactions as stipulated by applicable regulations and the Bank’s internal guidelines.

ICICI Bank's AML Operating StructureThe Audit CommitteeThe Audit Committee of the ICICI Bank Board shall supervisethe implementation of the Bank’s Group AML Policy framework. Anti Money Laundering Monitoring GroupThe Anti Money Laundering Monitoring Group (AMLG) is a Bank-wide group to ensure proper implementation of the AML framework. The AMLG functions under the overall supervision of the Audit Committee of the Board.

The AMLG for the Bank shall comprise of Chief Financial Officer and Treasurer, Head-Compliance and Audit Group, Head-Corporate Legal Advisory Group and MLRO. The Audit Committee shall review the composition of the AMLG on an annual basis. The quorum for the meetings of the AMLG shall be any two members, one of whom shall be the MLRO.

From time to time the AMLG shall analyse the unusual or suspicious activity that may have been escalated by MLRO for its review and decide on action to be taken in that regard. AMLG will also be responsible for defining (or estimating) the money laundering risks inherent in all the activities of the SBUs and hence, will provide strategic inputs to the Audit Committee. The Money Laundering Reporting Officer Here are some more functions of the MLRO:

Participating in strategic planning meetings,

Comment on proposed plans, specifically if they increase the money laundering risk exposure of SBUs (for example, expansion into international markets, introduction of products to facilitate cross border payments, etc.),

Advising the detailed responsibilities of the respective AML Compliance functionaries in consultation with the respective SBU Heads from time to time, and

Escalating to AMLG unusual behavior and suspicious activity or transactions.

Go to the next slide to read some examples of suspicious activities or transactions.

The Money Laundering Reporting Officer Finally, the MLRO’s functions also include: Monitoring of compliance and exception reporting Reviewing all reports (such as the suspicious transaction report or Cash transaction report) that are to be submitted to regulatory or law enforcement authorities, and ensuring that they are submitted on a timely basis.SummaryThe Audit Committee of the ICICI Bank Board shall supervise the implementation of the Bank’s Group AML Policy framework.

The Anti Money Laundering Monitoring Group (AMLG) is a Bank-wide group to ensure proper implementation of the AML framework. It functions under the overall supervision of the Audit Committee of the Board.

The AMLG for shall comprise the Chief Financial Officer and Treasurer, Head-Risk, Compliance and Audit Group, Head-Corporate Legal Advisory Group and MLRO. The Audit Committee shall review its composition on an annual basis.

From time to time the AMLG shall analyze suspicious activity that may have been escalated by MLRO.

The Money Laundering Reporting Officer (MLRO) would be a senior level officer of the Bank, who shall have the executive responsibility of monitoring the day-to-day implementation of the Bank’s Group AML Policy and Procedures. SummaryThe MLRO shall: liaison with the regulatory/enforcement authorities on AML matterssubmit periodic reports to the Audit Committeereview and approve all the products and services offered by the SBUs to ensure compliance with AML policies and proceduresensure that AML controls are put in place before any new product is launchedcomment on proposed plans, specifically if they increase money laundering risk exposureof SBUs advise the detailed responsibilities of the respective AML compliance functionaries in consultation with the respective SBU Headsescalate to AMLG unusual behavior and suspicious activity or transactionsmonitor compliance and exception reporting Anti Money Laundering Compliance Functions at SBUsThe SBU compliance functionary Each SBU Head shall be responsible for implementing the AML framework, policies and procedures in his/her respective SBU. To aid effective implementation, each SBU shall have a designated official to perform AML compliance function, which will operate independently and report to the MLRO through the respective SBU Heads. The compliance function shall draw upon the expertise from the risk, compliance, legal, and system functions. SBU compliance officer is responsible for:

Money laundering risk monitoring, risk measurement, and risk evaluation at the respective SBU

Ensuring that the Management Information Systems (MIS) generated as per the internal policies and regulatory equirements

The SBU compliance functionary The SBU compliance officer is also responsible for:

Providing inputs to employees and managers of the SBU on issues related to money laundering risks.

Ensuring that there are comprehensive, updated operating risk management procedures in line with policies to guide the day-to-day activities of SBUs.

Collating and maintaining AML records

Ensuring the validity and accuracy of data used for AML analysis

Monitoring compliance and exceptions reporting The SBU compliance functionary Further, the SBU compliance functionary is also responsible for:

Escalating of unusual behavior or suspicious activity or transaction to the MLRO. Participating in the development of behavior tracking models and operations of the AML system, that is, in defining the rules and models that help identify unusual or suspicious transactions and account activity of a customer. This is basically to set customer behavior patterns which should draw attention when necessary. Coordination and participation with sub-groups, which are set up from time to time to study specific matters (such as a new regulation, a new product, or a case) Making specific requests to the MLRO for training, systems upgrading, etc.The SBU compliance functionaryHere’s a checklist of the SBU compliance functionary’s responsibilities:

Money laundering (ML) risk monitoring ML risk measurement ML risk evaluation at SBU Ensuring that MIS is generated as per internal policies and regulatory requirements Providing inputs to employees/managers of SBUs on ML risks Ensuring comprehensive, updated, operating risk management procedures in line with policy to guide daily activities of SBUs Collating and maintaining AML records Ensuring validity and accuracy of data used for AML analysis Monitoring compliance and exceptions reporting Escalating unusual behavior and suspicious activity/transactions to MLRO Participating in the development of behavior tracking models and operations of AML system Coordinating and participating with sub-groups set up from time to time to study specific matters Making specific requests to MLRO for training, systems upgrades, etc. Roles and responsibilities of employees The role of employeesThe Human Resource Policy of the Bank and all its SBUs shall include the due diligence procedures from an AML perspective that need to be carried out before employing any personnel including temporary or outsourced manpower. The role of employees in implementing any AML framework is critical. Therefore, they are expected to carry out the stipulated procedures efficiently. They shall maintain strict confidentiality in regard to KYC, MSTR, and other AML procedures. Any inefficient or suspicious behavior of employees shall be

dealt with suitably.If any activity is outsourced to any agency/individual, it would be ensured that they would adhere to the guidelines outlined in this Policy. Please note that employees are not expected to play detectives! That is the role of the regulatory authorities and is best left to them. Employees are only required to be vigilant while opening accounts and monitoring transactions. In doing so they should NOT in any way communicate to the customers that they are being viewed with suspicion. Most of our customers come to us for bona fide banking needs � it would be unforgivable if we were to communicate by word or action that we suspect them of money laundering activities. The role of employeesNeedless to say, adequate training programs shall be conducted for all employees on the requirements laid down in the policy document as well as in the AML procedure manuals. Specialized training programs shall also be undertaken to address the needs of: The MLRO, the SBU compliance functionaries, and their staff The employees dealing with high money laundering risk products The employees with customer contacts or those authorized to settle cash or non-cash financial transactionsThis e-learning module is part of the initiative to train employees and make them aware of the regulatory requirements regarding the topic.The role of employees Exception/Escalation ProceduresEmployees are expected to be conversant with the procedures laid down from time time in connection with the Know Your Customer & monitoring/reporting of transactions.

Further, all the exceptions to AML policy and procedures must be recorded and reported to the Money Laundering Reporting Officer (MLRO) immediately who will deal with the same in accordance with the applicable guidelines. Significant exceptions shall be reported to the Audit Committee of the Board on a quarterly basis.

All SBUs shall escalate any identified suspicious activity or transaction to the MLRO in accordance with the instructions on monitoring/reporting of transactions issued by Corporate Office from time to time.

The MLRO shall escalate the suspicious activity or transactions to AMLG. Based on the review by AMLG, the suspicious activity or transaction in the prescribed format will be reported in accordance with the applicable laws. Summary ICICI Bank’s anti money laundering policy (the Bank's Group AML Policy) establishes the standards of anti money laundering (AML) compliance and is applicable to all activities of the Bank including its Strategic Business Units (SBUs) in India or abroad. The policy makes for a hierarchical framework.

At the top of the AML framework is the Audit committee.

The Anti Money Laundering Group (AMLG) works under the supervision of the Audit Committee and implements the policy thro' various officers.

The Money Laundering Reporting Officer (MLRO) is a senior level officer of the Bank who is responsible for monitoring the day-to-day implementation of the Bank's Group AML Policy and

Procedures.

Summary Further, SBU heads are responsible for implementing the AML framework, policies, and procedures in their respective SBUs.

Each SBU has a designated officer to perform AML compliance functions.

This officer operates independently and reports to the Bank's MLRO through the respective SBU head. SummaryThe Human Resource Policy of ICICI Bank and all its SBUs include the due diligence procedures that need to be carried out before employing any personnel, including temporary or outsourced people.

Now, ICICI Bank employees should ensure that they adhere to the guidelines outlined in the policy/related procedures. They are expected to carry out the stipulated procedures efficiently. Therefore, they should be vigilant while opening accounts and monitoring transactions. They should not, however, communicate their suspicion to customers.MIS, Reporting and Compliance Introduction In respect of the reports and compliance requirements ICICI Bank Group AML Policy covers the following sections:

Record Keeping

Reporting to the Audit Committee of the Board

Reporting Procedures for Subsidiaries

Regulatory Reporting/Internal Controls

Audit/Monitoring

Cooperative Efforts Updation

Let us examine each of them. Record keeping The Bank shall maintain appropriate documentation on its customer relationships and transactions to enable reconstruction of any transaction.

The records shall be maintained for a period of ten years from the date of cessation of the transaction. Records shall be maintained in a manner that facilitates its easy retrieval as and when required. Reporting procedure for subsidiaries In subsidiaries, the MLRO for each subsidiary shall make a quarterly report to the Board of Directors of the subsidiary and circulate this report to the Compliance and Audit Group of the Bank at the Corporate Office in Mumbai, India.

The report would contain the following: observations on deficiencies in compliance with procedures,

a summary of the latest changes in money laundering preventive guidelines or other regulations, information on training provided to staff members during the period, any resources requirements,

information concerning reports from Reporting Accountants or Internal Audit, and

a risk assessment of the impact of new products or services.Regulatory reporting Regulatory reporting refers to reports on Anti Money Laundering compliance to regulatory or law enforcement agencies. All SBUs must implement necessary procedures and controls to ensure that all regulatory reporting, as laid down by the applicable regulations in the AML Compliance framework, is completed properly and within the required reporting timelines.

The MLRO or his designated staff shall review all reports submitted to regulatory law enforcement authorities before submission from time to time.

Each SBU must use specific forms or formats as approved by the MLRO for reporting unusual transactions or suspicious transactions or in submitting any other information as may be prescribed. Audit/monitoring The scope of the internal audit of the Bank shall include testing of compliance with the Bank's Group AML Policy and procedures by the various SBUs. The checklist of items reviewed, which should include a summary of deficiencies and actions taken, must be documented and submitted to the Audit Committee.

The Bank shall monitor all Large Transactions and Cash Transactions beyond the threshold limits defined by the AMLG. Cooperative effortsAs a part of its risk management strategy, the Bank shall cooperate with regard to the law enforcement and mutual assistance programs initiated by various countries as may be required under applicable laws in India or other laws governing the SBUs.

UpdationGiven the fact that the risks the Bank faces are constantly changing and that ML risk management methodologies, regulations, and tools are also evolving, it is imperative that the Bank’s Group AML policy document be reviewed, and if necessary, updated on a periodic basis or when there are significant changes in the applicable AML regulations. The Committee of Directors (COD) would be authorized to approve amendments to the Group AML Policy and approve the AML procedures for SBUs as may be required from time to time. SummaryHere is a gist of the reporting and compliance procedures laid down in the Bank's Group AML Policy.

The Bank shall maintain appropriate documentation on its customer relationships and transactions to enable reconstruction of any transaction. The adequacy of the Bank’s money laundering risk measurement systems, including any findings of internal and external auditors and advisors, shall be reported to the Audit Committee on a quarterly basis. The MLRO for each subsidiary shall make a quarterly report to the Board of Directors reviewing

assessing and summing up the anti money laundering measures and any other information about the subsidiary. Each SBU must report unusual or suspicious transactions to regulatory bodies using specific forms and formats. The Bank shall put in place internal controls such as an adequate and well-defined organizational structure and explicit allocation of duties and responsibilities. The Bank shall implement an effective internal audit function for testing compliance with Bank's Group AML policy guidelines. This audit report shall be documented and submitted to Audit Committee. QUESTIIONS:

1. Placement methods are broadly divided into*None of the above

2. According to RBI guidelines branches should intimate their controlling offices about cash transactions above*Rs 1 million

3. According to FATF money laundering is*Processing of criminal proceeds in order to disguise their illegal origin

4. MLRO will escalate the suspicious transaction to*AMLG

5. FATF guidelines are intended to meet*Customer due diligence procedure

6. Money laundering is*Converting legal money into illegal money

7. Separating the funds from their illegal source is called(*Smurfing)

8. Reports on anti money laundering compliance to regulatory agencies is called*Regulatory reporting*Quarterly audit

9. Placement methods using banking and financial institutions is broadly divided into*Smurfing*Electronic Transfers

10. Facilities provided by the bank for the transfer of money via electronic media are called*Electronic transfers

11. ICICI bank maintains records on customer transactions in order to*Reconstruction of any transactions

12. Passport of the customer is used for*Identity proof*Address proof

13. The stage where legitimate explanation is given to illegitimate funds is called*Integration stage

14. What are the key anti money laundering objectives of ICICI bank*To protect the bank`s reputation*To ensure compliance with the laws and regulations in force from time to time

15. At which stage of the money laundering process it is relatively easy to detect the crime*Placement stage

16. Banks are required to apply basic due diligence for*low risk customers

17. All SBUs would conduct risk profiling of various*Customer segments

18. Appointing a compliance officer within a organization falls under which aspect of money laundering regulations*Internal policies and procedures

19. ICICI bank will have proper record maintenance policies and procedures in place to*Ensure required documents are available within reasonable period of time

20. What does reselling and repurchasing assets for laundering money do*Furthers integration

21. What forms an integral part of ICICI bank`s group AML policy(*Customer identification procedures)

22. Illegal activity where stacks of gold, cash, jewllery or even rare stamps are moved from place to place is called*Smuggling

23. Each SBU will develop appropriate measures for transaction processing in consultation with*MLRO

24. Laundering money by putting it in cash intensive businesses like restaurants is called*Business recycling

25. SBU compliance officer also does*Making specific request to MLRO

26. This document is accepted as an identity proof at the time of opening the account*Driving license

27. Adequate diligence is the fundamental requirement for any business transaction*True

28. Effective element of a Know your customer (KYC) procedure is*On going monitoring

29. Use of multiple cash deposits each smaller than the minimum cash reporting requirements is called(*Smuggling)

30. Placement stage is when cash is channeled into*Banks

31. This is not a step in the money laundering process*Recovery stage

32. PMLA was enacted in(*6/25/1905)

33. Which intergovernmental body develops promotes anti money laundering guidelines*FATF

34. All SBUs must implement necessary procedures and controls to ensure*Regulatory reporting

35. This is not a sources of funds for illegal money*Charity

36. Regulations empowering the director to levy a fine or order on banking companies or financial institutions or intermediaries for failure to comply with provisions of section 12 are laid down in*Section 13

37. Driving license of the customer is used for*Identity proof

38. Photo debit card of the customer is used for*Invalid

39. The bank`s approach for establishing a customer behavior pattern includes*BOTH

40. The bank shall deal with the bank providing services to shell banks only with the prior approval of the bank`s AMLG*True

41. Which section of the PMLA talks about banking companies, financial institutions and intermediaries should maintain records(*Section 13)

42. Process whereby people send each other money without going through the banking system is called*Alternative remittances

43. Which of these is not non banking method of laundering money(*Alternative remittances)

44. Govt of India in consultation with RBI has notified the rules under PMLA, for banking companies, financial institutions and intermediaries for*Maintenance of records of the nature and value of transactions*Verification of records of identity of clients

45. Which section of the PMLA talks about civil proceedings*Section 14

46. The stage where clean money is mixed with illegal money to disguise it further is called*Layering

47. ICICI bank will monitor all cash transactions beyond the threshold limit set by the(*AML framework)

48. Common means of integrating money into the financial system is(*Business recycling)*Export import transactions

49. Customer identification procedures fall under which aspect of money laundering regulations*Know your customer (KYC)

50. What approach would ICICI bank adopt in implementing its anti money laundering framework(*Group based)

51. This means also features in the placement methods of laundering money*Electronic transfers

52. FATF provides guidelines for anti money laundering policies and procedures at*Three levels

53. Consequences of money laundering are*Finances Terrorism*Endangers society at large*Drains the national treasury

54. Before offering its services to its correspondent banks ICICI bank will*Check whether the correspondent bank complies with an acceptable money laundering program

55. Revised anti money laundering guidelines of RBI cover*Customer acceptance policy*Risk Management*Compliance management

56. Basic due diligence is an approach the bank takes to*Identify and verify customers

57. Pillars of AML standards are*Know your customer (KYC)*Monitoring/reporting of suspicious transactions

58. Significant suspicious activity is reported to the audit committee on(*Fortnightly)

59. Who can call for records defined in the section 13 of PMLA(*MRLO)

60. Risk profiles of customer segments should be submitted to the board of directors of the bank*False

61. When a customer moves from a low risk to high risk the approach used is*Enhanced due diligence

62. Internal controls must be adequately supplemented by

(*Reporting procedures*External controls)

63. SBU compliance officer is responsible for*Money laundering risk monitoring*Management Information Systems (MIS)

64. At what point it is difficult for the bank to distinguish between legal and illegal funds*Integration

65. Before employing temporary or outsourced people ICICI bank adheres to*HR policies

66. This is the preferred means of laundering money accumulated by tax evasion*Offshore banks

67. MLRO will submit the quarterly report to*BoD of the Subsidiary

68. Transactions that are inconsistent with the customer`s known legitimate activities are called*Suspicious transactions

69. How many special regulations were issued to combat terrorist financing*9

70. From the cessation of the date of the transaction, ICICI bank maintains records of the transaction for a period of*10 years

71. A bank which doesn`t have any physical presence in any country is called*Shell bank

72. ICICI formulated Group AML policy in(*1/1/2005)

73. Companies that are set up according to the laws of the land but do not do any real business are called*Shell corporations

74. Above the AML framework is*Audit committee

75. This is a suspicious transaction*Customer makes or receives huge deposits or remittances along with pre-closure of loans payments of previous over dues

76. FATF guidelines consist of how many regulations*40

77. Information of the violation of the provisions of section 12 is provided to the director by(*Bankers)