AML KYC Tutorial | Cash Transaction Reporting (CTR)

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Reporting Obligation

In terms of the Rules notified under Prevention of Money Laundering Act, 2002 (PMLA) certain obligations were cast on banking companies with regard to reporting of certain transactions. Accordingly, Banks are required to make the following reports to the FIU- IND.

  • Cash Transaction Reporting (CTR)
  • Counterfeit Currency Reporting (CCR)
  • Suspicious Transaction Reporting (STR)

Cash Transaction Reporting (CTR)

As per the PMLA rules, Bank is required to submit the details of,

  • All cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency.
  • All series of cash transactions integrally connected to each other, which have been valued below rupees ten lakh or its equivalent in foreign currency, where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds rupees ten lakh.
  • The format for reporting of the above-mentioned cash transactions, known as Cash Transaction Report (CTR) has been provided by the RBI through its Circular.
  • RBI vide circular dated May 22, 2008 has clarified that Cash transaction reporting by branches to their controlling offices should be submitted on monthly basis.
  • While the circular provides both manual as well as electronic formats for submission of CTR, banks have been advised to initiate urgent steps to ensure electronic filing of CTR.
  • In case of Banks who have implemented software solutions for AML, CTR generation module forms part of the standard suite of the software.
  • Some Banks who have not availed of AML software may require their technology departments to institute suitable procedures for extraction of data and arranging the same in form of text files in specified format every month.
  • The FIU-IND has provided an Excel based utility at its website www.fiuindia.gov.in for generation of CTR in electronic form. This could be used by banks that do not have a core banking system. After following steps instructed by FIU-IND therein, the said utility automatically generates a set of 6 files for onward reporting to FIU-IND.
  • Banks on CBS find it relatively easier to report the CTR. However other banks would have to ensure that the generation of CTR is a centralized activity and therefore their processes have to facilitate timely collation of data across all branches at one location so that reporting can be done.
  • Banks are required to incorporate the BSR code in the Branch file of the CTR. In case BSR is not available in case of new branches, banks may use a unique code other than BSR for the branch so that it is possible to identify records across the CTR files.

 

AML KYC Tutorial | Methods of monitoring

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Methods of Monitoring

Banks need to have suitable mechanisms to identify suspicious transactions. The methods for monitoring may be broadly classified as follows

  • Observation
  • The staff at the bank’s branches may at the time of processing the transaction or otherwise come across certain transactions not in line with the profile of the customer.
  • Certain behaviour displayed by the customer during their interactions with such customer may also lead to suspicion.
  • Banks may advise their branch staff to report such instances to the principal officers/ his representatives so that additional due diligence may be done on same.
  • Analysis of Exception Reports:
  • Banks may have in place a system of generation of exception reports at branches or at the central office to examine accounts based on certain threshold limits.
  • Suitable due diligence may be conducted for these accounts and accounts concluded to be suspicious may be reported to the FIU-IND through the principal officer.
  • AML Software:
  • Banks may have an AML software to generate alerts/ exceptions and then channel these alerts for suitable due diligence and reporting.
  • Alerts concluded to be suspicious might be reported to the FIU-IND through the principal officer.
  • One of RBI circulars requires banks to put in place an appropriate software application to throw alerts when the transactions are inconsistent with risk categorization and updated profile of customers

AML KYC Tutorial | Transaction Monitoring

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AML KYC Tutorial | Transaction Monitoring

Ongoing monitoring is an essential element of effective KYC procedures. Banks can effectively control and reduce their risk only if they have an understanding of the normal and reasonable activity of the customer so that they have the means of identifying transactions that fall outside the regular pattern of activity. However, the extent of monitoring will depend on the risk sensitivity of the account.

Definition

Transaction Monitoring can be defined as “A formal process for identifying suspicious transactions and a procedure for reporting the same internally”. Monitoring means analysis of a customer’s transactions to detect whether the transactions appear to be suspicious from an AML or CFT perspective.

Approach of Banks for Monitoring of Transactions

  • Banks should pay special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose.
  • Banks may prescribe threshold limits for a particular category of accounts and pay particular attention to the transactions which exceed these limits.
  • Transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer should particularly attract the attention of the bank.
  • Very high account turnover inconsistent with the size of the balance maintained may indicate that funds are being ‘washed’ through the account.
  • Every bank should set key indicators for such accounts, taking note of the background of the customer, such as the country of origin, sources of funds, the type of transactions involved and other risk factors.
  • Banks should put in place a system of periodical review of risk categorization of accounts and the need for applying enhanced due diligence measures. Such review of risk categorization of customers should be carried out at a periodicity of not less than once in six months.

Suspicious Transaction Report (STR)

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Suspicious Transaction Report (STR)

Every banking company, financial institution and intermediary shall furnish to FIU information of all suspicious transactions whether or not made in cash.

Suspicions transaction means a transaction including an attempted transaction, whether or not made in cash which, to a person acting in good faith –
(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c)  appears to have no economic rationale or bonafide purpose; or
(d)  gives  rise  to  a  reasonable  ground  of  suspicion  that  it may involve financing of the activities relating to terrorism;

Broad categories of reason for suspicion and examples of suspicious transactions for a banking company are indicated as under:

Identity of client
–        False identification documents
–        Identification documents which could not be verified within reasonable time
–        Accounts opened with names very close to other established business entities
Background of client
–        Suspicious background  or links with known criminals
Multiple accounts
–        Large number of accounts having a common account holder, introducer or authorized signatory with no rationale
–        Unexplained transfers between multiple accounts with no rationale
Activity in accounts
–        Unusual activity compared with past transactions
–        Sudden activity in dormant accounts
–        Activity inconsistent with what would be expected from declared business
Nature of transactions
–        Unusual or unjustified complexity
–        No economic rationale or bonafide purpose
–        Frequent purchases of drafts or other negotiable instruments with cash
–        Nature of transactions inconsistent with what would be expected from declared business

 

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Counterfeit Currency Reporting (CCR)

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Counterfeit Currency Reporting (CCR)

The PMLA Rule 3(1) (C) read with rule 8 requires the reporting of all cash transaction where forged or counterfeit Indian currency notes have been used as genuine.

The RBI vide circular dated May 22, 2008 provided the format in which the CCR needs to be reported to the FIU-IND. The said report is required to be filed not later than seven working days from the date of occurrence of such transactions.

  • Banks may enter data centrally on counterfeit currency into a separate utility provided by FIU-IND for same. This utility is available on FIU-IND website. After following steps instructed by FIU-IND therein, this utility automatically generates a set of 3 files for onward reporting to FIU-IND.
  • For enabling CCR reporting banks would need to put in place a mechanism such that information on counterfeit currency flows to a central location for onward submission to FIU-IND through the principal officer.
  • It is necessary that each entry in the counterfeit currency report carries that details of the account in which such currency is deposited.

 

AML KYC Tutorial | Cash Transaction Reporting (CTR)

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Govt. Certified AML/KYC Compliance Officer

Reporting Obligation

In terms of the Rules notified under Prevention of Money Laundering Act, 2002 (PMLA) certain obligations were cast on banking companies with regard to reporting of certain transactions. Accordingly, Banks are required to make the following reports to the FIU- IND.

  • Cash Transaction Reporting (CTR)
  • Counterfeit Currency Reporting (CCR)
  • Suspicious Transaction Reporting (STR)

Cash Transaction Reporting (CTR)

As per the PMLA rules, Bank is required to submit the details of,

  • All cash transactions of the value of more than rupees ten lakh or its equivalent in foreign currency.
  • All series of cash transactions integrally connected to each other, which have been valued below rupees ten lakh or its equivalent in foreign currency, where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds rupees ten lakh.
  • The format for reporting of the above-mentioned cash transactions, known as Cash Transaction Report (CTR) has been provided by the RBI through its Circular.
  • RBI vide circular dated May 22, 2008 has clarified that Cash transaction reporting by branches to their controlling offices should be submitted on monthly basis.
  • While the circular provides both manual as well as electronic formats for submission of CTR, banks have been advised to initiate urgent steps to ensure electronic filing of CTR.
  • In case of Banks who have implemented software solutions for AML, CTR generation module forms part of the standard suite of the software.
  • Some Banks who have not availed of AML software may require their technology departments to institute suitable procedures for extraction of data and arranging the same in form of text files in specified format every month.
  • The FIU-IND has provided an Excel based utility at its website www.fiuindia.gov.in for generation of CTR in electronic form. This could be used by banks that do not have a core banking system. After following steps instructed by FIU-IND therein, the said utility automatically generates a set of 6 files for onward reporting to FIU-IND.
  • Banks on CBS find it relatively easier to report the CTR. However other banks would have to ensure that the generation of CTR is a centralized activity and therefore their processes have to facilitate timely collation of data across all branches at one location so that reporting can be done.
  • Banks are required to incorporate the BSR code in the Branch file of the CTR. In case BSR is not available in case of new branches, banks may use a unique code other than BSR for the branch so that it is possible to identify records across the CTR files.

 

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Customer Due Diligence

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Customer Due Diligence

  1. Identifying the customer on the basis of documents, data or information obtained from a reliable and independent source;
  2. Identifying, where applicable, the beneficial owner and taking risk-based and adequate measures to understand the ownership and control structure of the customer;
  3. Obtaining information on the purpose and intended nature of the business relationship;
  4. Conducting ongoing monitoring of the business relationship including ensuring that the transactions being conducted are consistent with the knowledge of the customer, the business and risk profile, including, where necessary, the source of funds and ensuring that documents, data or information held are kept up-to-date.

Guidance notes have been drafted by a working group made up of:

  • the Irish Banking Federation, the Irish Insurance Federation,
  • the Irish Funds Industry Association,
  • the Irish Stock Exchange,
  • the Consultative Committee of Accountancy Bodies Ireland (CCAB–I),
  • the Irish League of Credit Unions and

Whilst still in draft format, the purpose of the guidance notes is to provide assistance to firms and persons who are subject to anti-money laundering (AML) legislation in understanding their obligations.

Firms and persons who are subject to AML legislation (designated persons) should take a combination of appropriate steps, on the basis of their assessment of the AML risk that each customer presents, and accordingly can apply varying levels of CDD.

The guidance notes provide a detailed description of the levels of CDD that can be applied…

Simplified Customer Due Diligence

A designated person does not have to identify information on the purpose or intended nature of the business relationship of a customer, or the beneficial owner of a customer, where the customer is considered to present a low risk of money laundering or terrorist financing.

However, the designated person must obtain sufficient information about the customer to satisfy itself that the customer meets the criteria for SCDD to be applied to it.

AML KYC Tutorial | Customer Identification Procedures

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Customer Identification Procedures

Banks are required to clearly spell out the Customer Identification Procedure to be carried out at different stages i.e. while establishing a banking relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity of the adequacy of the previously obtained customer identification data.

Financial institutions need to conduct a risk assessment of their customer base and product offerings, and in determining the risks, consider:

  • The types of accounts offered
  • The methods of opening accounts.
  • The types of identifying information available
  • The institution’s size, location, and customer base

Example of Software used for CIP:

Customer Acceptance Policy (CAP)

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Customer Acceptance Policy (CAP)

  • Accept only those clients whose identity is established by conducting due diligence appropriate to the risk profile of the client.
  • Where the investor is a new investor, account must be opened only after ensuring that pre account opening KYC documentation and procedures are conducted.

(a) Documents as per standard norms to be collected.

(b) identity verification of the client to be made through support desk.

(c) PBSPL will follow the industry standard in implementing the procedure for KYC.

  • Any transaction from a client may be accepted only after Customer acceptance procedure is completed. However, Customer acceptance procedure and Transaction acceptance procedure may be initiated simultaneously in case of low risk customers.
  • If Customer acceptance policies denies a customer and customer does not respond to requests for additional information, the opening of the new account can be rejected. A fitting condition may be put in place in the account opening or money transaction request form to this effect.

The Clients are introduced in the system through recognized partners or Mutual fund

Partners or Relationship Managers or any known identity

Customer Risk

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‘Customer risk’ in the present context refers to the money laundering risk associated with a particular customer from a bank’s perspective. This risk is based on the risk perceptions associated with the parameters comprising a customer’s profile, and the risk associated with the product and channel being used by him.