Guide to Money Laundering for compliance professionals
‘ Money laundering ‘ refersto any activity that transforms illegally obtained or tax evaded funds into legitimate capital. It involves generating criminal proceeds but disguising their illegal source. Simply put, money laundering is the process of making dirty money look clean.
Predicate offenses such as drug trafficking or terrorist activity, corruption, fraud generate dirty money. It originates from illegitimate source. The money from the illicit activity is considered dirty, and the process “launders” the money to make it look clean.
Global Issue
According to some estimates, every year the money laundered out of India is more than Rs. 15,55,000 crores. It is a huge amount and poses a significant policy concern for government. As a result, governments and international bodies have undertaken efforts to deter, prevent, and apprehend money launderers.
As a result of these efforts an inter-governmental body was formed under the name of Financial Action Task Force (FATF) in July 1989. Its primary role was to develop measures to combat money laundering. FATF require financial institutions to report the suspicious transactions.
Financial institutions have likewise undertaken efforts to prevent and detect transactions involving dirty money, both as a result of government requirements and to avoid the reputation risk involved.
Laws against money laundering were created to use against organized crime during the period of Prohibition in the United States. Money laundering has been criminalized in the United States since the Money Laundering Control Act of 1986.
Regulations in India
Prevention of Money Laundering Act was passed in India in the year 2002. Currently, this is the only weapon in the fight against money laundering in India. The act was amended in the year 2012 and amended version removed the threshold requirement of the crime.
Director of Financial Intelligence Unit — India (FIU-IND) is empowered to impose fine on financial institutions. Year 2021 began with FIU’s strict action against Paypal India. FIU wants Paypal to pay a sum of Rs.9.6 million. This was a path breaking judgement.
This judgement will bring all the Payment Gateway service providers under the purview of Anti Money Laundering. This increases the demand for Certified Anti Money Laundering Experts.
RBI, SEBI and Insurance Regulatory and Development Authority (IRDA) have been brought under the purview of PMLA, 2002. Hence, the provisions of this Act shall apply to all financial institutions, banks, mutual funds, insurance companies and their financial intermediaries.
Stages of Money Laundering
There are three stages of money laundering. Typical laundering operation goes through all of these three phases.
Placement
At this stage, the launderer introduce the proceeds of crime into a legitimate financial institution. This is often in the form of cash deposits. This stage carries highest risk in the laundering process. Obviously, Launderers have to be innovative to deposit large amounts of cash.
Large cash deposits into the bank accounts raise suspicions. In the United States, Bank Secrecy Act requires financial institutions to report high-value transactions. Many launderers prefer to split the transactions to make it look legitimate.
Layering
Second phase is Layering. This involves sending the money through various financial transactions to change its form. However, this makes it difficult to trace. Layering consists of moving the funds through multiple bank accounts.
It involves wire transfers between different accounts in different names even in different countries.
Integration
At the integration stage, the money re-enters the financial system in legitimate looking form. But it appears to come from a legal transaction. Sometimes the launderers initiate cross border transfers of money to the account of a local business. These transfers are disguised as investments.
Additionally, investments in startup company, exempt under income tax is a trending technique of integration.
Certification in Money Laundering
The Certified Anti-Money Laundering Expert (CAME) is a popular Indian program. CAME is a intermediate level but a practical course. It gives you a solid understanding of core KYC AML principles. At the same time, it is one of the promising programs in Asian countries.
Also, CAME offers the video learning modules like TBML, Shell Company investigations etc. This course is attractive for the compliance professionals from middle eastern countries. In addition, the module on money services business is a distinguishing factor of this program.
It starts with an in-depth review of basic Anti Money Laundering AML concepts and goes beyond to cover the cross functional subjects such as digital currencies, corruption, tax evasion.
Additionally, institute distributes the study material to registrants. CAME examination is internet based exam. Students need to score 75% marks to successfully complete CAME exam.
KYC and AML
Customer information is collected when an account is opened. This information helps the bank to know the customer, his source of income, his business etc. Customer risk-rating models are one of three primary tools used by financial institutions to detect money laundering. The models deployed by most institutions today are based on an assessment of risk factors such as the customer’s occupation, salary, and the banking products used.
Mock AML Examinations
This training program combines the benefits of e-learning with professional course. Aspiring candidates have many options to test their knowledge on AML concepts. And here is the list of simulated exams on compliance topics
Simulated exams for the aspirants of the Certification course offered by Indiaforensic can test their skills on Simulated CAME Exams. Additionally, there are mock tests available on the subjects like TBML, KYC, FATCA and CTF. These are free examinations but require user registration.
Originally published at https://www.regtechtimes.com on March 1, 2020.
