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April 26, 2002 | 0944 IST
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Anti-money laundering measures on the anvil

BS Banking Bureau

The Reserve Bank of India's Monetary & Credit Policy, to be announced on Monday, is expected to outline the anti-money laundering measures that banks in India will need to take, though the finance ministry seems to be in no hurry to push the anti-money laundering Bill.

The Prevention of Money Laundering Bill 1999 seeking the introduction of steps to deal with unaccounted wealth was introduced in the Lok Sabha but subsequently, following a motion adopted by the Rajya Sabha, the Bill was referred to a select committee of the House.

The RBI is under pressure from the global central banks to spell out norms to fight money laundering - a process whereby the proceeds of serious crime are turned into apparently legitimate financial resources.

In November last year, the State Bank of India was pulled up by the US Federal Reserve for its lack of systems and procedures to clamp down on money launderers.

The RBI is expected to direct banks to put in place 'know your customer' policies and procedures and the enhanced due diligence requirements to be followed to protect the safety and soundness of the banking system.

The Indian Banks' Association in consultation with the RBI recently issued draft anti-money laundering guidelines to all major banks.

The feedback from the banks on them will form the basis for the AML measures, senior bankers familiar with the developments said.

"In order to comply with the AML measures, we expect the RBI to issue policies, procedures and controls that are designed to prevent banks from becoming unwitting conduits for dirty money," said a senior banker.

The AML programme will basically cover account opening and screening, enhanced due diligence, transaction monitoring and the generation of accurate and timely suspicious activity reports.

Among other things, banks will be required to have a designated AML compliance officer to whom the operational staff will report suspicious transactions and any unusual flow of funds into or out of accounts, put in place an ongoing employee training programme and have an independent audit function to periodically test the AML programme integrity.

Under the AML, bank deposits are expected to be classified into high risk, medium risk and low risk categories. The moment a deposit slips into the high-risk category, the compliance officer will report the matter to the RBI.

At the account opening stage, banks will have the right to question customers on their cash flows (salary and sources of other inflows like dividend payments). Also, the bank will have the right to verify all this information from a third party.

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