Citizens' Issues
Develop a compliance culture to implement anti-money laundering guidelines

Prevention and ethical value system are the only solution. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum, where there are cases of money laundering

Anti-money laundering (AML) guidelines must be implemented and followed religiously. A touch of religiosity (religious rituals are done with devotion and with discipline) in implementation may perhaps inspire commitment and then hopefully it will be laced with ethics. This is how it should be—but does that happen?
 

The failures of several recent cases demonstrate that it does not happen. Inadequate internal controls coupled with lack of commitment and disrespect to ethical values from senior management has led to significant losses for banks.
 

Prevention and ethical value system are the only solution. Prevention means blocking an event that may pervert the established internal controls. Clearly, if the cancerous growth of money laundering is to be arrested/ checked, strong doses of chemo-radiation in the form of stringent internal checks and controls and high ethical business standards with all the unflinching commitment of the top management will need to be administered.
 

Know your customer (KYC), an essential prescribed precaution, must be coupled with know your employees (KYE). There are a host of instances that highlight the involvement of employees in fraudulent transactions and in most cases in league with customers as the Cobrapost sting operation indicated. The sting operation captured employees advising the customers how they could convert their black money by opening multiple accounts, engaging mules, and many other such methods. Though there was no evidence to show that they did it for any financial gains, yet it did prove that for attracting customer and mobilizing business to meet their targets they won’t hesitate to resort to any tactics. It seems the pressure to achieve the target was the motive behind their action. It couldn’t be established though whether they had the blessings of the senior management. However, the banks named in the sting operation are headed by eminent bankers who will certainly not approve of such dubious actions from their employees. This therefore brings in sharp focus the need for a thorough check on employee’s credentials and proper screening of candidates to prevent the hiring of undesirable characters. Criminals can deploy only one of two ways to launder money, they can either fool the bank employees into participating or they can get them to be complicit.  When banks take money laundering regulations seriously and follow them religiously the job gets a whole lot harder for the people involved in criminal activities.
 

Cobrapost’s sting operations brought to light officials of a few banks, who lacked integrity, had no discipline and transparency, and did no due diligence This should ring a warning bell and send a strong and clear message to all, to ensure that adequate systems are put in place so as to reduce the possibility of circumventing the policy guidelines and prescribed procedures. These imply that the controls should be such as to facilitate efficient conduct of business on ethical lines and at the same time obviate any chance of fraud. The need therefore is to revaluate AML compliance controls and systems.
 

Internal check forms a valuable part of the Internal AML Control System. Violations take place primarily because of target achievement pressure and veiled motivation from top management who to a group of officials said, compliance people tell how not to do the business; you have to take your own call on your business growth.It is so ironic that the person who made this statement spoke after a session on Business Ethics.
 

It has been observed that an organization implementing and maintaining a robust internal control system backed by a moral and ethical culture would, in most cases, prevent any perversion of rules and regulations. If banking organizations/financial institutions do not go down that road, it is inevitable that they will be more prone to violations and resultant reputational risk. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum. However, despite the soundest internal checks and control system being in place subversion will take place because of staff collusion, abuse by person who has authority and overriding the control management.    
 

Each bank/financial institution must establish the appropriate internal systems necessary for the sound application of the anti-money laundering regulations and must  review such systems periodically to find out any weaknesses therein or in the extent to which such systems are applied and must  take the appropriate measures to correct such situations supported by the firm commitment from senior management.
 

Lack of spirituality and materialism seem to be the root cause for all these problems. Greed has taken over contentment and replaced ethical values. Everyone wants to get rich. It is the get-rich-quick syndrome that is driving people and organizations to indulge in activities inconsistent with organizational value systems. Organizations should try to develop a culture that has ethical and spiritual tone that echoes constantly and the more it is developed, less will be the incidence of fraud and violations.
 

(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)

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COMMENTS

nagesh kini

3 years ago

Bank branches are required to submit reports to various authorities - how many of these are really scrutinized and acted upon is a moot point - MOF/RBI need to clarify what is actually done after receiving the report particularly when something amiss is reported and/or noticed.

REPLY

S.S.A.Zaidi

In Reply to nagesh kini 3 years ago

My article focuses on that-, Implementation of AML guidelines is lax and sloppy. If it has to be robust and implemented religiously
a very strong ethically laced compliance culture has to be created backed by unflinching commitment of senior management
Zaidi

S.S.A.Zaidi

In Reply to nagesh kini 3 years ago

My article focuses on that-, Implementation of AML guidelines is lax and sloppy. If it has to be robust and implemented religiously
a very strong ethically laced compliance culture has to be created backed by unflinching commitment of senior management
Zaidi

Vidarbha cotton growers may shift to soya crop this Kharif season

Poor sales and demand for cotton seed in western Vidarbha indicates that farmers could shift from cotton to pulses like tur, chana and even linseed besides soyabean

Large number of traditional cotton growers in the Vidarbha region of Maharashtra may shift to soya this Kharif season as cropping pattern was set to change after the onset of monsoons, according to agriculture experts.

 

The total cotton sowing area is likely to be reduced by 10 lakh hectares from 40 lakh hectares on one hand and an increase by the same numbers in soya cultivation area may take place, since soya was a cash crop and yield was satisfactory in terms of acreage, they said.

 

“The shift from cotton could be more than the 10% that was anticipated initially,” said Maharashtra State Cotton Growers’ Co-operative Marketing Federation sources.

 

“One of the reasons could be the failure of the government to announce the minimum support price (MSP) for cotton. This has fuelled fears that it may not fetch much more than Rs3,900 a quintal it got last year. If a farmer knows before hand the price, it helps him decide which crop to go for.

 

Cotton growing has become costly and returns are poor,” sources said.

 

Vidarbha Jan Andolan Samiti president Kishore Tiwari said this year a good beginning in the monsoons has helped farmers to kick start kharif operations on time.

 

“But cotton, which for many years has been the main cash crop of Vidarbha, may give way to soyabean this year.

 

Poor sales and demand for cotton seed in western Vidarbha’s Amravati division indicates that farmers could shift from cotton to pulses like tur, chana and even linseed besides soyabean,” Tiwari said.

 

Confirming a lesser interest for cotton by farmers, a senior government official from Amravati division said that soyabean looks to be the preferred crop this year.

 

“The picture will be clear in only later this week.

 

Farmers initially just make rounds to dealers to look around and do not buy anything. They take couple of days before deciding and then finalise on the crop,” he said.

 

Tiwari and his team are also advising farmers to go in for food crops and pulses to augment income.

 

“I have noticed that demand for cotton seeds is far less. Some input dealers and companies have started offering discounts,” he said.

 

Tiwari was however furious over non disbursement of crop loan to farmers.

 

About four lakh farmers have been provided with crop loan by the District Co-operative Banks in Vidarbha which was a dismal show. In Buldana district, only 7% crop loan was disbursed till last week, he claimed.

 

In case of default by district co-operative banks, some nationalised banks have disbursed loan but that too is just 10% in Vidarbha of the earmarked amount.

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COMMENTS

Gunda

3 years ago

Uh... Chana is a Rabi crop, not Kharif. There is no question of sowing Bengal Gram (chana) at this point of time. Only Cotton, Red Gram (intercropped), Green Gram (in select areas), Soybean and in some areas Urad, is grown in Kharif season. Gram is sown after Soybean is harvested. And in areas where water availability is good in Vidarbha, wheat is sown instead of Bengal Gram.

I am not sure what Kishore Tiwari is trying to prove by being 'furious' over disbursal of crop loan. DCCBs can only loan what they have available. Does he want DCCBs and nationalized banks to go to farmers homes and present them with cash? Besides, available funds reduce when farmers default previous loans. There is lot of talk of defaults because of anticipated farm loan waiver because of coming elections.

Finally, cotton is not attractive this year simply because production is expected to be good all over the world this year. But the same is expected to be true for Soybean across the world. Farmers are walking into a potential trap if the Indian Kharif Soybean output ends up very good. Prices will then go under pressure as farmers look to sell before Diwali and get cash for the festival or to buy Rabi inputs. Some naive people apparently want the government to hike MSP to unreasonable levels, buy expensive from farmers and then sell cheap to mills because they won't buy at anything above market rates.

Set up SIT to investigate showering of one largesse after another on RIL, says Sarma

According to the former secretary to the GoI, the whole gamut of showering one largesse after another on Reliance Industries should be subject to an independent investigation by a special investigation team or SIT

EAS Sarma, former secretary of the Government of India (GoI), has said that the whole gamut of showering one largesse after another on Reliance Industries (RIL) should be subject to an independent investigation and such an investigation will unravel the hidden links in this web of improprieties.

 

Mr Sarma, in a letter to prime minister Dr Manmohan Singh, said, “If the Central Bureau of Investigation (CBI) secures adequate autonomy, it could be entrusted with the task of investigating these improprieties. However, I do not feel quite hopeful of the government’s intentions against the background of the statements being made by some of your esteemed colleagues. In that case, an investigation by a Special Investigation Team (SIT) should be instituted. I feel that the stakes involved in this matter are far too heavy to be taken lightly.”

 

In his latest salvo, Mr Sarma, cited a news report that says the petroleum minister is once again trying to bypass the mandatory provisions incorporated in the Production Sharing Contract (PSC) in the name of “national security” and extend additional concessions to RIL.

 

“This is unacceptable. It will amount to a gross impropriety. In fact, what the petroleum minister is now trying to do is to go against the letter and spirit of Comptroller and Auditor General’s (CAG) report on PSCs and dole out yet another huge largesse to RIL. No wonder that those who had opposed such concessions in the past were forced to give up the ministerial portfolio of petroleum and natural gas,” the former secretary said.

 

According to Mr Sarma, the Directorate General of Hydrocarbon (DGH) had recommended to the ministry that RIL should be directed to relinquish 86% of the KG-D6 block area as envisaged in the PSC, including that in which discoveries were announced belatedly.

 

“It is ironic that the ministry should choose to interpret the same PSC to hike up the gas price and quote “national security” and to deviate from the PSC, when it came to relinquishment of the franchised blocks as per the contract. It is nothing but a deliberate ploy to benefit RIL at the expense of the public,” he said.

 

Mr Sarma said, “The minister’s earlier statement that India was “floating on oil”, apparently on an assurance given by RIL, should remind the government how the earlier assurances by RIL had turned out to be totally misplaced, causing a debilitating damage to the interests of small investors and the interests of the downstream power developers. References by the minister to ‘import’ lobbies are apparently aimed to obfuscate the main issue of granting undue benefits to RIL!”

 

The former secretary had written several letters to the PM and petroleum ministry on the improprieties committed by the United Progressive Alliance (UPA) government in dealing with RIL’s gas project in Krishna Godavari (KG) Basin in Andhra Pradesh.

 

Last year in August, Mr Sarma had alleged that there were irregularities committed in the pricing, allocation and the management of the natural gas from KG Basin to the detriment of the public interest at the macro-level and to the detriment of Andhra Pradesh at the state level.

 

The Krishna-Godavari basin is spread across over 50,000 sq km in the Krishna River and Godavari River basins in Andhra Pradesh. The site is known for the D-6 block where RIL discovered the biggest natural gas reserves in India in 2002. It was also the world’s largest gas discovery of 2002.

 

In November 2012, the former secretary, in his letters have said, “The exploration and development effort put in by RIL in the KG Basin, the technology adopted, the resources discovered, the costs incurred, the claims made on pricing of gas and the costs to be reimbursed are all matters that impinge directly and indirectly on the public exchequer. All such matters should be subject to public scrutiny and RIL should be held accountable to the public”.

 

You may also want to read...

 

Why the petroleum ministry is reluctant for a CAG audit of RIL?

 

RIL’s KG basin project is affecting irrigation, rice cultivation

 

Who is hurting Andhra Pradesh in the KG Basin gas supply, asks Sarma

 

Don’t let private cos override public interest in KG Basin: EAS Sarma

 

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COMMENTS

P M Ravindran

3 years ago

Ignorance, some had quipped, was bliss. It seems very true in the Indian context. There is nothing but 'loot and brazen it out' that the govt is indulging in these days. And I am equally worried about the citizens who do not fight for justice. May God bless, Anna, Kejriwal, Baba Ramdev and their ilk who are advocating a 2nd freedom struggle on Gandhi's steps and also all those who are following Netaji too.

SuchindranathAiyerS

3 years ago

This would apply to almost every successful company in India sinc 1947. Only cronies were permitted to succeed. Others were even denied licenses!

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