Rbi To Go Strict On Money Laundering

The Reserve Bank of India (RBI) is reviewing the foreign currency deposit mobilisation policy of public sector banks. The objective of the move is to help the banks to plug the loopholes being used by unscrupulous entities to launder money.

The move is prompted by increasing concerns that Indian banks may unwittingly become party to international money laundering operations.

RBI has examined foreign currency non-resident - bank deposit, non-resident external deposit and non-resident non-repatriable deposit schemes of banks.

The apex bank is evolving an effective response to tackle the malaise of laundering, sources familiar with the developments said.

The issues that have come under the central bank's scrutiny are whether these banks have established an effective know-your-customer (KYC) policy and whether they are alert to the large value funds transfers/customer transactions not consistent with his business activities.

 

Further, the RBI is checking out whether they generate elaborate reports on the activities in various classes of deposits, cash-in/cash-out reports and incoming/outgoing wire transfer logs among others.

A senior banker pointed out that the foreign branches of the PSBs do take care to verify the bonafides of a non-resident Indian, who wants to open an account with a public sector bank, by getting his/her passport verified with the Indian embassy/high commission/consulate in a foreign country.

"But given the fact that money laundering is a complex process often leaving no paper trail banks have to be guard," said another banker.

Though banks are taking some precautions due to concerns over money being laundered to conceal criminal activities such as drug trafficking and illegal tax avoidance associated with it, a closer scrutiny as to the source and destination of funds is required, averred the banker.

"The RBI has called for information from the banks to gauge their level of preparedness in tackling the malaise of money laundering. The central bank possibly intends coming up with some early warning signals that will help the bankers avoid getting involved with money launderers," the official pointed out.

Money laundering is driven by criminal activities that conceal the true source of funds so that they can be used freely. As per international literature, it involves three independent steps (placement - physical placing bulk cash proceeds; layering - separating the proceeds from criminal activity from their origins through layers of complex financial transactions; and integration - providing an apparently legitimate explanation for the illicit proceeds) that often occur simultaneously.