Banking
How frontline staff in banks can disrupt the flow of dirty money

By analysing customer behaviour to detect suspicious transactions, frontline staff in banks can help disrupt the flow of dirty money

 

Organized crime is a global challenge. To fund its operations it relies on funds raised through ransom for kidnapping, extortion, drug trafficking and funds transfers from one person to another across countries and continents. However, a single Suspicious Transaction Report (STR) can help stop this flow of illegal money, and help prevent the repercussions that financial crime causes. Frontline staff can serve as the first line of defence against such illicit transactions being passed through their organisation
The Financial Intelligence Unit - India (FIU IND) provides financial intelligence to assist law enforcement, revenue and national security agencies within the country to combat money laundering and terrorism financing. It also regulates entities that have obligations under the Prevention of Money-laundering (Amendment)  Act, 2012  to establish anti-money laundering and counter-terrorism financing (AML/CTF) programs and  to  meet compliance obligations by reporting transactions suspected of being linked to money laundering, terrorist financing, criminal proceeds, drug trafficking or other serious criminal activities. These reports are an essential contribution to the development of the financial intelligence resources that are used by country’s law enforcement, revenue and national security agencies.
 
The STRs led to detection of black money. FIU disseminates the information in STRs to the law enforcement agencies. The feedback received by FIU IND indicates that   the unaccounted money detected by the agencies was of Rs7,848 crore while the amount of assets seized, frozen and confiscated was about Rs195 crore within the country and abroad (source-FIU Director Report 2013-2014). The detection of  huge amount of black money could be possible  as the FIU received 61,953  STRs during 2013-14 as compared to a mere 31,731 STRs received during 2012-13. It shows about 100% jump in receiving the STRs. All banking, financial intermediaries, insurance companies, payment system operators and capital market operatives are required under PMLACT to submit STRs to the FIU.
 
Reporting entities can use indicators to recognise situations that may require scrutiny from an AML/CTF perspective. Indicators alone do not automatically evidence suspicious activity; nevertheless they should alert the AML/CTF official to activities that may require further examination and monitoring. Individual cases may show more than one indicator, if so, it suggests increased urgency to examine the transactions for suspicious financial or criminal activity. AML/CTF officials can also use the indicators for training staff and to develop consistent descriptions of behaviour to be included in a suspicious transaction report.
 
Most Frequently Observed Indicators
 
1) Large - Scale Cash Transactions
Criminals often accumulate large amounts of low-denomination notes as trades for illicit substances of goods are generally made in untraceable cash transactions. These criminals have to enter these notes into the banking system to give it a touch of legitimacy and realise the true value.
 
2) A Typical Or Uneconomical Fund Transfer To Or From Foreign Jurisdiction
Transfer of criminal funds brings several benefits to laundering operations. In a number of cases, fund transfers overseas with no supporting business explanation had been identified.
 
3) Unusual Business Activity or Transaction
Movements of funds that involve a loss or lower rate of return, without any visible compensating benefit for the customer may indicate that the business is more concerned with moving funds through the financial system, than with profitability. 
 
4) Large And / Or Rapid Movements of Funds
Money launderers often try to ‘layer’ funds by switching between several accounts in different institutions / jurisdictions in an attempt to confuse the audit trail. A legitimate businessman, however, would seek to minimise bureaucracy and bank charges.
 
5) Unrealistic Wealth Compared To Customer Profile
A number of cases include disclosures where individuals with little or no wealth / no employment pay large sums of money into accounts. Often these funds are directly derived from crime, or are being ‘looked after’ while the real criminal is being investigated by police.
 
6) Defensive Stance to Questioning
 
Inexperienced launderers may not be able to prepare a reasonable cover story concerning the origins of illegal funds. Generally, an ‘honest’ customer will always be willing to answer questions concerning his funds. 
 
Money launderers and terrorism financiers remain on the lookout for new techniques which will obscure the origins of the funds and give apparent legitimacy to their activity. They will quickly embrace new products and technologies. AML/CTF officials should on a regular basis review their products, services and individual customers to ensure AML/CTF programs, processes and training match the changing levels of ML/TF risk.
 
Frontline defences
 
Opportunities exist to identify money laundering at all stages of money transactions. The frontline staffs of banks increasingly play a bigger role in identifying and reporting suspicious transactions.
 
Nervous or uncooperative behaviour exhibited by customers such as avoidance of eye contact or reluctance to provide documents could trigger suspicion.
 
It is also known that introducing the illegal sale proceeds of small drug units into the financial system can be done through a bank teller.  Money presented in unusual condition – for example, damp, odorous or covered with a substance – or multiple deposits of small notes indicating the unit price of illicit drugs should all raise concern.
 
For financial services staff, creating a STR can be a monotonous and tedious job, but dirty money supports the weapons purchases, bribes and other corrupt activities and a single STR can help stop this.
 
As a rule, suspicious transactions are mostly inconsistent with the normal behaviour pattern of the customer.  By screening transactions for indicators, typologies and unusual activity, a suspicion of criminal activity may arise.  A transaction may have many factors that do not raise suspicion when considered individually, but taken in its entirety may suggest criminal activity.
 
A large transaction may be considered suspicious if it does not fit with the customer’s financial profile.  Comparing the transaction to previous account records might show this is unusual activity and may also suggest if any patterns indicating criminal activity exist.
 
Financial institutions must remain vigilant as criminals look for new ways to obscure their illicit activities. What constitutes a suspicious transaction or behaviour is unique to each financial institution and depends on their risk assessment and customer profile, and is not static. By analyzing customer behaviour to detect suspicious transactions that trigger a STR, frontline staff will help disrupt the flow of dirty money that supports drug-trafficking, weapons purchases, and other illegal activities that, ultimately, result in violence and serious crime.
 
(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

NASIR

2 years ago

Very informative article. It says a lot about the author's intellect and knowledge of the subject.

NASIR

2 years ago

This article speaks a lot about the author's intellect and knowledge of the subject. Very informative

Banks must follow rules for insurance policy: unions
Unions in the banking sector have cautioned their members to follow procedures while enrolling members under the government insurance schemes to be launched on May 9, said union officials.
 
Officials at some branches of nationalised banks told IANS that they were being pressured by the management to enrol account holders under the insurance schemes prior to its launch so as to show impressive numbers to the powers that be.
 
"Our top management has directed lower level officials to enrol customers under the insurance scheme by any means. So employees are filling up the forms in the names of customers," an official of a nationalised bank told IANS preferring anonymity for himself and his bank.
 
He said it is not known how the bank would proceed further on the issue.
 
"Whether the bank would debit the customer account's Rs.12 (for personal accident policy) and reverse the same if he objects to the debit is not known," he said.
 
The scheme clearly stipulates that express consent of the account holder is a must before enrolling him/her under the policy.
 
"In most branches the walk-in customer will be around 100-150 a day. But there are branches that claim collection of enrolment forms of around 300 in a day. This in normal course of business is not possible," he said.
 
"To satisfy myself, I had called around 150 customers to check out their views on their enrolment. While they agreed over phone and promised to come to the branch and sign the necessary papers the very next day, only one turned up as promised," he explained.
 
Thomas Franco, general secretary of the SBI Officer's Association, told IANS: "We are aware of the issue. The insurance scheme is good but the proper procedure is not being followed. We have asked our members to see the forms are duly filled so that no problem arises at a later date."
 
He said employees have been advised to get the Aadhar card details or any other proof with regards to the nominees.
 
As per the insurance scheme framework, an account holder aged between 18-70 would be provided a personal accident insurance cover (death, total disability) for Rs.200,000.
 
As a part of the enrolment form, an account holder also authorises the bank to debit his/her account each year by Rs.12 till contrary instruction is given.
 
The problem for the bankers would be high when there is a claim while the proposal form was not signed by the bank account holder.
 
"Going by the scheme of things, this may turn out to be a scam. There is no hurry in enrolling account holders. Banks can do this at their own pace rather than satisfying the egos of the powers that be," C.H. Venkatachalam, general secretary of the All India Bank Employees Association (AIEBA), told IANS.
 
"In the name of people schemes, the banking industry has become an extension counter of the government. While talking of giving autonomy for banks, the government is pushing its programmes through the banks," he said.
 
"The scheme is a good one. It will increase insurance penetration. But due to the pressure from the management, it may actually end up in a mess giving a bad name to the government," one banker warned.

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Government sets up panel on minimum alternate tax
The government on Friday set up a high-level committee on minimum alternate tax (MAT) on foreign institutional investors (FIIs), following the passing of the Finance Bill, 2015-16, in the Rajya Sabha on Thursday.
 
Replying to the debate on the bill, Finance Minister Arun Jaitley announced a high-level committee for looking into the controversial issue of levy of MAT on FIIs.
 
"I have received a large number of representations on MAT applicable to FIIs as well as a few other tax issues, which are essentially legacy issues, we have decided to refer to a committee headed by Justice A.P. Shah, the chairman of the Law Commission," Jaitley said.
 
"Recently, the affected parties moved the Supreme Court for an early hearing. On behalf of the government, it was conveyed to the court that the government had no objection to an early hearing."
 
"And we are also keen on a final settlement of the issue. It is expected that the Supreme Court will fix an early hearing," the finance minister added.
 
Jaitley had announced exempting FIIs from paying MAT on the capital gains earned by them, but soon after the Income tax department sent notices to at least 90 foreign portfolio investors (FPIs).
 
He has assured foreign investors that a very simplified income tax return form will soon replace the MAT.
 
With the uncertainty created by MAT, foreign investors sold around $630 million in Indian shares and bonds on Wednesday, marking the biggest single-day sales since January 2014.
 
As per preliminary depositary data, it was the biggest single day sell-off since foreign investors sold around a net $877 million on January 27, 2014, when emerging markets suffered from withdrawals sparked by fears of the US Federal Reserve raising interest rates.
 
Shares and bonds have wiped out entire gains for the year over the past few weeks, with the Nifty down 11 percent since hitting a record high on March 4.
 
According to depository data last week, FIIs are set to break an 11-month streak of net inflows into the Indian debt market, having turned net sellers in April for the first time since April 2014.
 
Net outflows till April 27 have been Rs.817 crore - in the wake of recent tax notices demanding tax at 20 percent on interest income, as opposed to five percent without minimum alternate tax.
 
"I am considering a high-level committee to explore what can be done to resolve the past and move beyond it in a way that would provide real predictability and certainty to investors," Jaitley wrote last month in an opinion piece in the Financial Times.

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