In a bid to check money laundering and terror funding through banking channels, the Reserve Bank of India will come up with stringent directives for banks by April 2004, which will enable the regulator to trace 'suspicious' transactions.
The RBI intends to revamp the present 'Know Your Customer ' principle, come out with a blacklist of countries and people involved in terror funding and make it mandatory for banks to report 'suspicious' transactions, senior bank officials said on Tuesday.
The new guidelines would be implemented from the second quarter of 2004-05.
The RBI is coordinating with the ministry of finance, especially the income tax department, on this issue.
Apart from the RBI, the other two regulators -- the Securities and Exchange Board of India and the Insurance Regulatory and Development Authroity -- would also put in place systems for tracing dubious transactions in the near future.
RBI Deputy Governor K J Udeshi did not like to divulge details, but said: "The impact of money laundering is now beginning to extend from economic crimes to international terrorism."
"As financial transactions grow more complex, it becomes more difficult for banks to maintain a customer profile. The challenge, therefore, is to ensure that banks know their customers without hindering the smooth flow of financial transactions," she said, addressing a banking conference in New Delhi.
Referring to RBI's present guidelines on KYC principle, she said: "The basic aim is to prevent banks being unwillingly used as a channel for funds derived from criminal activity or financing terrorism."
The guideline relates to identification of depositors and systems and procedures to control financial frauds, of money laundering and suspicious activities and scrutiny and monitoring of large-value transactions, she said.
Confirming the developments, Oriental Bank of Commerce Chairman B D Narang said monitoring of suspicious transactions would be tightened.
Banks would be setting up 'anti-money laundering cells' for this purpose, which would coordinate with RBI, he said.
The banks are expecting the new RBI directive in April next year and it would be implemented by second quarter of 2004, he said.
The move assumes importance in the wake of the new Money Laundering Act, which broadly laid down the guidelines. The RBI has been asked to come up with detailed directive to enable the government to trace money laundering and terror funding.
