Anti-Money Laundering 7th Annual Summit (India)

Transcription

1 Anti-Money Laundering 7th Annual Summit (India) Mumbai, October 12, 2017 KEY TAKEAWAYS

2 Fintelekt s 7th Annual AML Summit 2017 (India) was chaired by Vikas Tandon, Global Head - AML Risk & Control, Citibank. The keynote address was presented by Manoj Kaushik, IPS, Additional Director, Financial Intelligence Unit, India (FIU-IND). Sambit Mohanty, Country Head, Accuity, made a presentation on uncovering sanctions risk in trade finance, while Vinod Menon, Regional Manager, Bureau van Dijk made a presentation on the role of beneficial ownership in sanction compliance programs. The Summit comprised three panel discussions by senior AML compliance professionals on current AML trends and issues, trade-based money laundering, and digital payment products and AML risk management. Amitav, IRS, Additional Director General, Directorate of Income Tax (Risk Assessment), Central Board of Direct Taxes delivered the valedictory presentation on Money Laundering Threats from Virtual Currencies, urging the AML community to consider the risks from newer areas such as virtual currencies. Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 2

3 Opening Panel (L to R): Shirish Pathak, Managing Director, Fintelekt Advisory Services; Manoj Kaushik, IPS, Additional Director, Financial Intelligence Unit India (FIU-IND); Vikas Tandon, Global Head - AML Risk & Control, Citibank; Sambit Mohanty, Country Head, Accuity. Chairman s Remarks Vikas Tandon, Global Head - AML Risk & Control, Citibank Vikas stressed on the increasingly complex role for AML compliance officers in order to stay ahead of the perpetrators of money laundering and terrorist financing. Breaking down the silos within organisations will be critical towards information and knowledge sharing for fighting the perpetrators of crimes. Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 3

4 Keynote Address Manoj Kaushik, IPS, Additional Director, Financial Intelligence Unit India (FIU-IND) Manoj Kaushik urged the industry to come together on an urgent basis and co-operate in knowledge sharing on criminals through an industry-wide negative list. He also urged the delegates to debate on practical solutions to AML challenges and to work towards creating a culture of compliance within the organisation. There has been a reduction in employee initiated Suspicious Transaction Reports (STRs) in the last few years Creation of compliance environment cannot be restricted to headquarters. Front line staff need to be made aware and sensitive about AML related issues, IT systems need to be more robust to bring out anomalies and breach of thresholds Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts are an area of concern. These accounts were misused substantially during demonetization. Banks need to control misuse of these financial inclusion instruments Quality of STRs filed needs to be improved. Before filing an STR, ground of suspicion must be reviewed. Further, organizations file STRs in their own formats, which makes it difficult for FIU-IND to analyse them. Standardization of formats of STRs filed needs be achieved across all organizations There is an urgent need for co-operation in the area of an industry-wide negative list, which should include a listing of known money launderers on a national level, similar to a sanctions list on an international level A repository should be created consisting of all the queries received from FIU-IND Confidentiality has to be maintained at all times. s sent by FIU-IND should not be forwarded to anyone else and response should be sent by the same ID. I request all AML officers to create a culture of compliance within their organisation, without which compliance will be merely technical and will not move to qualitative compliance. - Manoj Kaushik, IPS, FIU-IND Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 4

5 Presentation: Uncovering Sanctions Risk in Trade Finance Transactions Sambit Mohanty, Country Head, Accuity Sambit discussed the threat from sanctions, the challenges financial institutes face while uncovering sanctions and ways to deal with them. Organizations need to be battle ready for trade finance compliance. - Sambit Mohanty, Accuity Cost of non-compliance with sanctions goes beyond penalties, by hitting the reputation of a financial institution Because of non-compliance, governments around the globe have to spend huge amounts of money to fight terrorism Bankers are not very well equipped as of now to deal with sanctions Risks in trade finance go beyond screening payment messages. Banks should be aware of any adverse developments present in the trade finance transaction Dual Use Goods identification is not just a list problem but also a matching problem In trade finance, vessels are important, and risks in vessels are manifold A trade finance screening solution should have specialized alert algorithms, should allow active screening across transaction lifecycle and identifying risks beyond sanctioned jurisdictions and should have a single audit trail for multiple sanctions checks Organizations should have clear policies and consistent procedures across trade finance risk assessment; they should stress on front office employees to make adequate use of CDD information, escalate transactions with sanctions concerns and should impart specific trade finance compliance training to relevant employees. Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 5

6 Presentation: The Role of Beneficial Ownership in Sanctions Compliance Programs Vinod Menon, Regional Manager, Bureau van Dijk Vinod discussed how beneficial ownership information plays a pivotal role in providing sanctions compliance program with necessary information for screening processes, challenges faced in these processes and solutions to these challenges. Limited access to global ownership data in Sanctions programs have created unknown and risky sanctions exposure While screening new customers against screening lists across the globe, multiple hits might come for the same customer. There could be double matches. It becomes hard to verify if these are false hits or true ones When considering OFAC s 50% ownership rule, it becomes difficult to track because entities that are fully/partially owned by a sanctioned entity/individual will not be on the sanctions list Challenges faced: Individuals use complex ownership structures to hide true ownership of a company. It becomes difficult to identify real owners Circular ownership is used to hide ownership from the traditional ownership thresholds Ownership is dynamic, and thus it becomes hard to keep track of all the changes if organisations works in silos. Bureau van Dijk aggregates this data in a single source from private correspondence, filings, company websites, press news, annual reports and official registers and puts it all together in a standardised format. - Vinod Menon, Bureau van Dijk Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 6

7 Panel Discussion: Current AML Trends and Issues (L to R): Bhalchandra Joshi, Senior VP, Head Service Delivery & Operations Excellence, Reliance Mutual Fund; K V Ravichandra, General Manager Compliance, International Banking Group, State Bank of India; Vikas Tandon, Global Head - AML Risk & Control, Citibank; Madhu Sinha, Director AML Compliance & AMLCO, Citibank India; Ravi Lahoti, Head AML, HDFC Bank; Vikas Anand, Director - Legal & Compliance, Canara HSBC OBC Life Insurance. This panel with a representative mix from banking, insurance and mutual funds discussed the benefits of Aadhar and demonetization, the need to come out of silos and work together as a community. Compliance has to be driven from the top, risk appetite of the organization should be defined and a risk based approach should be put in place, which needs to be an ongoing process with continuous monitoring, and not a static programme depending merely on KYC Demonetization helped in formalizing the economy further, with cash component of economy moving into banking sector; liquidity of banking sector has increased and investments in financial assets has increased A list of suspicious individuals/entities provided by the government/fiu- IND/Ministry of Corporate Affairs (MCA) needs to be taken seriously. FIU- IND s list of shell companies and negative lists need to be integrated with existing systems. The lists should be used intelligently to become meaningful Aadhar as a unique ID will help reveal all the accounts a person has. It will also be a big step towards digitization and paperless KYC For insurance, Aadhar can ease issuance process, decrease turn around time and strengthen verification process. It will also help the sales force to collect correct data and weed out fake identities Aadhar will help reduce cost as well. Data can be fetched directly from an authenticated database, doing away with the need for data entry, quality check and verification Many challenges are faced by Indian banks in foreign locations, such as hesitation in meeting regulators, governance, risk and compliance, PEP verification, cost of compliance, technology challenges etc. Aadhar creates a unique win-win case, in which quality of compliance goes up along with convenience to do compliance. - Bhalchandra Joshi, Reliance Mutual Fund Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 7

8 Panel Discussion: Trade Based Money Laundering (L to R): N Ashok, Head - Trade Monitoring, Financial Crime Surveillance Unit, Standard Chartered Global Business Services; Pushpendra Sharma, Head Compliance, RBL Bank; Charan Rawat, Former Chief Governance Officer, Barclays Bank India; Anurag Jain, Head of Risk and Market Development, Thomson Reuters. Trade Based Money Laundering (TBML) is one of the most complex methods of money laundering and also the hardest to detect. The panel came together to discuss issues faced by banks, share real life experiences and talk about new technologies and regulations introduced to curb TBML. The right amount of data at the right time is going to play a very critical role, beyond just processes and technology. - Anurag Jain, Thomson Reuters Bankers need to know their customers, the customers business, as well as have an understanding of trade finance documentation There is no flow of information between a relationship manager and a trade finance manager, which makes TBML easier for fraudsters Churn rate being high in processing hubs of banks is a big challenge. There is no institutional memory, as the staff keeps changing Over-invoicing and under-invoicing are big challenges faced by the banks. There is no place where one can find price range of goods Banks should collaborate with technology companies to share their experience and put in place range of prices for goods and commodities. The onus is on a banker to check if the shipment mentioned in the invoice is actually correct and released Regular staff training needs to be provided to relationship managers, sharing common TBML examples and real life situations with them A bank wide negative list must be shared with all the branches and it should be automated Export Data Processing and Monitoring System (EDPMS) has managed to bring down the possibility of misuse of multiple banks by fraudsters. It gives bankers first hand information about customers. Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 8

9 Panel Discussion: Digital Payment Products and AML Risk Management (L to R): Sagar Tanna, Co-founder, TSS Consultancy; Devendra Raghav, Head of Compliance and Risk, Aditya Birla Idea Payments Bank; Jairam Manglani, Country Head - Financial Crime Compliance & Principal Officer, Standard Chartered Bank India; Akshay Chopra, Director - Strategic Initiatives, Jocata Financial Advisory & Technology; Arpit Ratan, Co- Founder, Signzy. The panel discussed how digital payment processes can be misused by money launderers, the initiatives taken by regulator to curb this misuse and role of stronger technologies in reducing the risks. In today s world, more and more people are shifting towards digital payment products and usage of credit and debit cards is seeing a decline Virtual currencies provide an easy way for people to transfer funds because it is not possible to track the source of funds Mobile wallets are being used for layering of funds, where funds are parked before they are transferred to bank accounts of fraudsters Risk of money laundering increases when old systems of tracking data are used today by automating the same data points. In a digital world, different data points need to be tracked and utilized. Data accuracy may likely become a far greater challenge for banks and financial institutions It is easier to track transactions when they are clubbed into peer groups, analyzing variations to understand behaviors Financial inclusion using Aadhar has the potential to curb misuse of small accounts for money laundering New products launched should be verified by the principal officer of the organization. The AML risk can be curbed provided that organizations are compliant to wire transfer guidelines and KYC requirements. The risk of money laundering increases several folds in areas where leakages are possible - Jairam Manglani, Standard Chartered Bank India Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 9

10 Presentation: Money Laundering Threats from Virtual Currencies Amitav, IRS, Additional Director General, Directorate of Income Tax (Risk Assessment), Central Board of Direct Taxes Amitav shared his expertise on Virtual Currencies and insights on their steep growth in the last few years. He discussed global practices and emerging regulatory frameworks, the expansion of Bitcoin market in India, the dark side of virtual currencies and ways to mitigate the risk of virtual currencies. Virtual Currencies are digital representations of value that can be digitally traded and function as medium of exchange, and/or a unit of account and/or a store of value but do not have legal tender status in any jurisdiction The underlying technology in virtual currencies is called Blockchain, where each transaction is recorded in a public ledger, called blockchain Virtual currencies are prone to misuse for money laundering and terrorist financing and are used as consideration for criminal activities Terrorist groups have not yet adopted virtual currencies on a large scale yet, but cyber criminals networks have No amount of survey will help fathom the market size of Bitcoin in India. It may not be significant, but it is growing Although all transactions around bitcoins are in a public ledger, personal identities are not related to these entries. The pseudo anonymous feature of Bitcoins allows people to transact without anyone relating the transaction to them Bitcoin is vulnerable to abuse because of anonymity of transaction, ready availability, ease of converting into fiat currency, global reach, low transaction cost, blurred taxation status and more Bankers should be aware of the landscape of bitcoin or virtual currency market in their country The profile of bitcoin users or investors must be treated as high risk customers with enhanced due diligence applied to them. The feel good factor being created across the world and the friendly attitude of governments to embrace digital money is responsible for the price rise in virtual currencies. - Amitav, IRS, Central Board of Direct Taxes Fintelekt Anti-Money Laundering 7 th Annual Summit 2017 (India) 10

11 Contact Oliver Dickson Vice-President Fintelekt Advisory Services Pvt Ltd 401, One+, Survey No. 18/1, Off Pancard Club Road, Baner, Pune , India Copyright Fintelekt Advisory Services Pvt Ltd For limited circulation only.