Even at the time, when the Government of India introduced the Anti-money Laundering Bill in Parliament in 1999, the urgent need for implementing its provisions was felt by RBI. The Central Bank's Credit Policy for year 2002-03 under paragraphs 127 & 128 quoted here-under deals about "Prevention of Money Laundering"
"India has been sharing the increasing international concern on the use of the financial system for money laundering and financing of terrorism. The challenges faced by the international community in combating financial crimes require sustained and coordinated action among the various agencies concerned with regulation and enforcement responsibilities, both in India and abroad. RBI and the Government have initiated various steps from time to time to check any misuse of the financial system for laundering proceeds of criminal activities.
As part of these initiatives, RBI is in the process of issuing a Master Circular setting out the policy, procedures and controls required to be introduced by banks. These include strict adherence to "Know Your Customer" (KYC) procedures for prevention of misuse of banking system for money laundering and financing of terrorist activity. The recommendations of the Working Group on Anti-Money Laundering set up by IBA would also be taken into account while framing the guidelines."
The resolve of RBI was again reiterated while publishing RBI Report on Banking for the year 2002, (under paragraph 1.70 titled "Money Laundering and Financing of Terrorism">
" Sharing the increasing international concern on the use of the financial system for money laundering and financing of terrorism, the Reserve Bank and the Government initiated various steps to check misuse of the financial system for laundering proceeds of criminal activities. With a view to safeguarding banks from being unwittingly used for the transfer or deposit of funds from criminal activities, it was decided to reinforce the existing instructions on Know Your Customer (KYC) norms and cash transactions. The policy, procedures and controls required to be introduced by banks including strict adherence to KYC procedures have been issued in consultation with banks."
The Indian Banks' Association in consultation with the RBI also issued draft anti-money laundering guidelines to all major banks. The feedback from the banks on them forms the basis for the AML measures, when these guidelines were issued by RBI on16.08.2002
Guidelines on "Know Your Customer" norms and "Cash transactions"
( Circular No.DBOD.AML.BC.18/14.01.001/2002-03 dated August 16, 2002
The Contents of the circular are quoted verbatim in the next page. Its broad gist is as under:
As per the KYC guidelines THE RBI has directed banks to apply the "Know Your Customer'' (KYC) procedure during account opening; this would be part of the apex bank's guidelines relating to identification of depositors.
The KYC guidelines will be applicable to all new accounts with immediate effect.
The objective is to put in place systems and procedures to help control financial frauds, banks have been informed.
In a meeting of bank chiefs called by the RBI on 18.08.2002, banks were told to obtain all the information necessary to establish the identity and legal existence of each new customer, based, preferably, on disclosures by the customers themselves.
Where documents such as passport or driving licence are not available, verification of the new customer's credentials by existing account holders or their introduction by a person known to the bank may suffice.
The board of directors of banks should have in place adequate policies to monitor transactions of a suspicious nature in accounts, and have systems of conducting due diligence and reporting such transactions.
Banks are expected to have adopted due diligence and appropriate KYC norms at the time of opening of accounts in respect of existing customers, too, in keeping with earlier instructions of the RBI. Any omission in this respect should be completed at the earliest.
RBI has been circulating lists of terrorist entities notified by the Union Government to banks, so that they can exercise caution if any transaction by such entities is detected.
Banks have been told that there must be a system at the branch level to ensure that such lists are consulted.
An independent evaluation of the controls for identifying high value transactions should be carried out on a regular basis by the internal audit function in the banks.>
It has been emphasised that all operating and management staff must fully understand the need for strict adherence to KYC norms. Hence, all institutions must have ongoing training programmes so that their staff are adequately trained.
[Source: "Business Line" Financial Daily from THE HINDU group of publications Issue dated Sunday, Aug 18, 2002]
