AML

2.0 Regulations to prevent money laundering

Learning objectives

By the end of this unit you will be able to:

understand some major international and domestic regulations for preventing and controlling money
laundering

identify common aspects that all anti money laundering regulations address

list and describe briefly major international anti money laundering laws and regulations in different
countries (especially in countries where ICICI Bank operates)

list and describe briefly domestic laws and regulations for preventing money laundering

understand and describe the role played by banks and financial institutions in preventing money
laundering

understand and describe the role of employees in ensuring that anti money laundering guidelines are
followed

describe the consequences of not taking anti money laundering measures seriously

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3.0 Group AML Policy of ICICI Bank

Learning objectives

By the end of this section, you will be able to:

describe ICICI Bank's AML initiatives

describe and explain the scope and objectives of ICICI Bank's Group Anti Money Laundering Policy

describe the AML standards

Introduction

Money laundering, as already discussed, is a criminal activity with serious consequences for financial
organizations. Laws and regulations are already in place, or are being formulated, in most countries, to
prevent and control money laundering. You have read about these in the previous sections.

What are the consequences of not taking money laundering seriously? As a bank, what problems would we be
likely to encounter if we do not develop a framework/standards/policies & procedures for dealing with money
laundering practices? Let us find out.

ICICI Bank's initiatives

As a leading bank in India, ICICI Bank constantly benchmarks itself against international practices,
regulations and conventions to a reasonable and practicable extent. The Bank has therefore undertaken
to establish a global anti money laundering (AML) framework to participate in the international efforts
against money laundering and to ensure that it is not used as a vehicle for money laundering. The
proposed anti money laundering framework of the Bank, in fact, goes beyond the present regulatory
environment in India. As part of the anti money laundering framework, ICICI Bank has formulated a
Group AML Policy in January 2004. The Group AML Policy has been revised in December 2004, keeping
in view the requirements of RBI on KYC and AML. Let us examine the features of the Group AML Policy
document which covers the following topics.

(i ) Scope and objectives of the Group AML Policy

(ii) AML Standards
(iii) AML Operating Structure
(iv) MIS, Reporting and Compliance
(v) Customer Acceptance Policy

Scope and objectives of the Group AML Policy

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Our Bank is required to comply with laws and regulations relating to Anti Money Laundering (AML).
Every employee of ICICI Bank plays a key role in protecting the Bank’s reputation and also prevent it
from becoming a channel for money laundering. Hence you must become familiar with the Bank’s Group
Anti Money Laundering Policy.

Let us see what its scope and objectives are and what it covers

The Bank’s Group AML Policy establishes the standards of anti money laundering compliance and is
applicable to all activities of the Bank and its Strategic Business Units (SBUs) in India or abroad.

For the purpose of this policy, the term ‘SBUs’ refers to any business group constituted by the Bank for
carrying out its activities/offering of products and services, and as may be specified for the purpose of
AML compliance monitoring by the Money Laundering Reporting Officer (MLRO) of the Bank.

Further, keeping in view the requirements of the recent guidelines of Reserve Bank of India (RBI) on
KYC/AML dated November 29, 2004, a separate Customer Acceptance Policy for the Bank has been
formulated which lays down the criteria for acceptance of customers. The Customer Acceptance Policy
forms an integral part of the Group AML Policy. It contains the basis for the due diligence/risk
profiling/documentation procedures applicable to different types of customers.

Scope

Detailed AML procedure manuals for SBUs for different products/services would be laid down in line with
the Bank’s Group AML Policy with the approval of the Committee of Directors (COD).

However, if any country or jurisdiction has any unique AML requirements, overseas SBUs are required to
implement such standards and accordingly adopt an appropriate AML Procedures for the same. Such
AML policy or procedures shall be an addendum to, the Bank’s Group AML Policy and would be applicable
only to respective overseas SBUs. These addendums will be approved by the COD, and are to be read in
conjunction with the Bank’s Group AML Policy.

AML and the Bank’s subsidiaries

The Bank’s Group AML Policy framework enshrined in the Group AML Policy document is to be used by
the subsidiaries of ICICI Bank, including overseas subsidiaries, and joint ventures and alliances.

The subsidiaries, joint ventures, and alliances shall formulate their respective AML policies (in line with
their regulatory requirements) with the approval of the respective Board of Directors/Committee of
Directors and in consultation with MLRO of ICICI Bank. Such policy documents may cover the AML
procedures too.

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Key anti money laundering objectives

Within the overall Bank's Group AML Policy framework, the key anti money laundering objectives
of ICICI Bank are:
To prevent the Bank’s business channels, products and services from being used for money laundering.

To establish a framework for adopting appropriate AML procedures and controls in the operations and
business processes of the Bank.

To ensure compliance with the laws and regulations in force from time to time.
To protect the Bank’s reputation.

To assist law enforcement agencies in their effort to investigate and track money launderers.

To lay down AML compliance norms for the employees of the Bank.

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Scope and objectives of the Group AML Policy: Recap

ICICI Bank’s anti money laundering policy (the Bank’s Group AML Policy) establishes the standards of
anti money laundering (AML) compliance and is applicable to all activities of the Bank including its
Strategic Business Units (SBUs) in India or abroad.

Detailed AML procedure manuals for SBUs for different products/services are laid down in line with the
Bank’s Group AML Policy with the approval of the Committee of Directors (COD).

If any country or jurisdiction has any unique anti money laundering requirements, overseas SBUs are
required to implement such standards and accordingly adopt an appropriate AML policy / procedures.

The key objectives of the Bank’s Group AML policy include the prevention of usage of the Bank as a
channel for money laundering and to ensure compliance with the laws and regulations in force, from
time to time so as to protect the Bank’s reputation.

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Pillars of AML Standards: KYC and MSTR

The AML standards of the Bank would be primarily based on two pillars, namely, KYC and Monitoring/
Reporting of Suspicious Transactions (MSTR). Suspicious transactions shall include large as well as cash
transactions above a threshold limit as per applicable regulations/Bank’s internal guidelines and shall be
monitored and reported. Detailed procedure manuals shall be prepared for each SBU illustrating the KYC
and MSTR requirements for the various products.

You are already familiar with the term KYC. So let us first look at what is mentioned for KYC policies and
procedures under the Group AML Policy document and how the employees of the Bank can help
implement it.

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Monitoring/Reporting of Suspicious Transactions (MSTR)

A suspicious transaction is one that is inconsistent with a customer’s known, legitimate activities or with
the normal business for that type of account. A satisfactory KYC procedure provides the foundation for
recognizing unusual or suspicious transactions since knowledge of the customer’s normal or expected
activities would enable the Bank to recognize when a transaction or series of transactions are abnormal.

Sufficient guidance and training shall be imparted to staff to enable them to recognize potentially
suspicious transactions. However, considering the magnitude of the transactions being handled, it would
be necessary to develop appropriate software systems to better support the identification and reporting
of suspicious transactions.

The assessment of suspicious transactions shall be based on a reasonable evaluation of relevant factors,
including having information on the client’s business, financial history, background, behavior and
threshold limits for transactions as stipulated by applicable regulations and the Bank’s internal
guidelines.

The Bank would endeavor to:

a) Ensure that the SBUs have in place requisite processes and technology to:

monitor transactions in order to identify unusual behavior,

conduct enhanced due diligence upon such identification, and
report any suspicious transaction that has been identified based on the results of such
enhanced due diligence.

b) Establish Management Information Systems (MIS) to identify critical areas and issues which need to
be addressed to prevent money laundering and to provide required information relating to suspicious
transactions to the top management and regulatory authorities at pre-determined intervals.

c) have proper record maintenance policies and procedures, which would ensure that
documents required are available within reasonable period.

Each SBU shall develop appropriate parameters for transaction monitoring and suspicious behavior in
consultation with the MLRO. The country - and product-specific details of likely or potentially suspicious
transactions such as large transactions and cash transactions shall be included in specific anti money
laundering procedures along with the threshold limits as defined by respective regulations and/or
internal guidelines. According to the existing RBI guidelines, cash transactions above Rs. 1 million are
required to be reported by the branches of banks to their controlling offices.

Suspicious transactions: Some examples

1. The transaction is done by a customer who is listed in a Negative List given by the
Government or the Reserve Bank of India (RBI).
2. There is a large cash deposit that does not match with customer profile (or if this
happens frequently)
3. Immediate withdrawal of Cash (within a short duration) after the Cash is
deposited in the Customer account
4. A client starts conducting frequent cash transactions in large amounts when this
has not been a normal activity in the past.

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5. The use of Letters of Credit and other methods of trade finance to move money
between countries where such trade is not consistent with the client's usual
business.
6. A customer makes or receives huge deposits or remittances along with pre-
closure of loans or payment of past overdues.

Detailed guidelines on identification of suspicious transactions shall be informed from

time to time to the concerned employees by way of e-circulars.
7. There is excessive activity in a hitherto dormant account
8. There are frequent deposits of foreign travelers' cheques
9. There are structured transactions, such as making numerous
small remittances to a single account to evade reporting
thresholds.

Review

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Summary

Money laundering poses several risks including legal and financial risks and risks to banks’ reputations.
Being aware of these risks, ICICI Bank has established a global AML framework.

The Bank would follow a risk-based approach in implementing its anti money laundering framework. This
involves risk profiling of various customer and product segments and review and approval of such
profiles by the MLRO.

The anti money laundering standards of the Bank are based on two pillars.

a. Know your customer (KYC)

b. Monitoring/Reporting of Suspicious Transactions (MSTR)

a) Know your customer (KYC)

Availability of Customer information is a critical element in the effective management of Money
Laundering risks. The KYC would include procedures for obtaining and verifying customer identification,
such as basic and enhanced due diligence procedures.

b) Monitoring/Reporting of Suspicious Transactions (MSTR)

A suspicious transaction is one that is inconsistent with a customer’s known, legitimate activities or with
the normal business for that type of account.

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The assessment of suspicious transaction would be based on a reasonable evaluation of relevant factors
such as information on the client’s business, financial history, background, behavior and threshold limits
for transactions as stipulated by applicable regulations and the Bank’s internal guidelines.

4.0 ICICI Bank's AML Operating Structure

L ea r ning ob jec t iv es

By the end of this unit, you will be able to:

describe the operating structure of ICICI Bank's Group Anti Money Laundering (AML) organization
list the authorities and designated people involved in implementing the Bank’s Group AML policy and
explain their roles and responsibilities
describe how AML compliance is adhered to in the Bank’s Strategic Business Units (SBUs)
list the roles and responsibilities of the SBU functionaries who implement the policy

The Audit Committee

The Audit Committee of the ICICI Bank Board shall supervisethe implementation of the Bank’s Group
AML Policy framework.

Anti Money Laundering Monitoring Group

The Anti Money Laundering Monitoring Group (AMLG) is a Bank-wide group to ensure proper
implementation of the AML framework. The AMLG functions under the overall supervision of the Audit
Committee of the Board.

The AMLG for the Bank shall comprise of Chief Financial Officer and Treasurer, Head-Compliance and
Audit Group, Head-Corporate Legal Advisory Group and MLRO. The Audit Committee shall review the
composition of the AMLG on an annual basis. The quorum for the meetings of the AMLG shall be any two
members, one of whom shall be the MLRO.

From time to time the AMLG shall analyse the unusual or suspicious activity that may have been escalated by
MLRO for its review and decide on action to be taken in that regard. AMLG will also be responsible for
defining (or estimating) the money laundering risks inherent in all the activities of the SBUs and hence, will
provide strategic inputs to the Audit Committee.

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Here are some more functions of the MLRO:

Participating in strategic planning meetings,

Comment on proposed plans, specifically if they increase the money laundering risk exposure of SBUs
(for example, expansion into international markets, introduction of products to facilitate cross border
payments, etc.),

Advising the detailed responsibilities of the respective AML Compliance functionaries in consultation
with the respective SBU Heads from time to time, and

Escalating to AMLG unusual behavior and suspicious activity or transactions.

Go to the next slide to read some examples of suspicious activities or transactions

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Finally, the MLRO’s functions also include:

Monitoring of compliance and exception reporting

Reviewing all reports (such as the suspicious transaction report or Cash transaction report) that are
to be submitted to regulatory or law enforcement authorities, and ensuring that they are submitted on a
timely basis.

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Summary

The Audit Committee of the ICICI Bank Board shall supervise the implementation of the Bank’s Group
AML Policy framework.

The Anti Money Laundering Monitoring Group (AMLG) is a Bank-wide group to ensure proper
implementation of the AML framework. It functions under the overall supervision of the Audit Committee
of the Board.

The AMLG for shall comprise the Chief Financial Officer and Treasurer, Head-Risk, Compliance and Audit
Group, Head-Corporate Legal Advisory Group and MLRO. The Audit Committee shall review its
composition on an annual basis.

From time to time the AMLG shall analyze suspicious activity that may have been escalated by MLRO.

The Money Laundering Reporting Officer (MLRO) would be a senior level officer of the Bank, who shall
have the executive responsibility of monitoring the day-to-day implementation of the Bank’s Group AML
Policy and Procedures

The MLRO shall:

liaison with the regulatory/enforcement authorities on AML matters

submit periodic reports to the Audit Committee
review and approve all the products and services offered by the SBUs to ensure compliance
with AML policies and procedures
ensure that AML controls are put in place before any new product is launched
comment on proposed plans, specifically if they increase money laundering risk exposure
of SBUs
advise the detailed responsibilities of the respective AML compliance functionaries in
consultation with the respective SBU Heads
escalate to AMLG unusual behavior and suspicious activity or transactions
monitor compliance and exception reporting

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5.0 MIS, Reporting and Compliance

L ea r ning ob jec t iv es

By the end of this unit you will be able to understand and describe

record keeping requirement and documentation requirements as laid down in the Bank's Group AML
policy

reporting requirements to the Audit Committee

reporting requirements to be followed by subsidiaries

reporting requirements to be followed in SBUs regarding any suspicious activity in the unit and
regarding compliance with the Bank's Group AML policy

internal controls laid down in the Bank's Group AML policy

audit or monitoring procedures laid down in Bank's Group the AML policy

awareness of the requirement for the Bank to cooperate with with the law enforcement agencies

Introduction

In respect of the reports and compliance requirements ICICI Bank Group AML Policy covers the following
sections:

Record Keeping

Reporting to the Audit Committee of the Board

Reporting Procedures for Subsidiaries

Regulatory Reporting/Internal Controls

Audit/Monitoring

Cooperative Efforts

Updation

Let us examine each of them

Record keeping

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The Bank shall maintain appropriate documentation on its customer relationships and transactions to
enable reconstruction of any transaction.

The records shall be maintained for a period of ten years from the date of cessation of the transaction.
Records shall be maintained in a manner that facilitates its easy retrieval as and when required.

Reporting procedure for subsidiaries

In subsidiaries, the MLRO for each subsidiary shall make a quarterly report to the Board of Directors
of the subsidiary and circulate this report to the Compliance and Audit Group of the Bank at the
Corporate Office in Mumbai, India.

The report would contain the following:

observations on deficiencies in compliance with procedures,

a summary of the latest changes in money laundering preventive guidelines or other regulations,
information on training provided to staff members during the period,

any resources requirements,

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information concerning reports from Reporting Accountants or Internal Audit, and

a risk assessment of the impact of new products or services.

Regulatory reporting

Regulatory reporting refers to reports on Anti Money Laundering compliance to regulatory or law
enforcement agencies. All SBUs must implement necessary procedures and controls to ensure that all
regulatory reporting, as laid down by the applicable regulations in the AML Compliance framework, is
completed properly and within the required reporting timelines.

The MLRO or his designated staff shall review all reports submitted to regulatory law enforcement
authorities before submission from time to time.

Each SBU must use specific forms or formats as approved by the MLRO for reporting unusual
transactions or suspicious transactions or in submitting any other information as may be prescribed.

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Review

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Summary

Here is a gist of the reporting and compliance procedures laid down in the Bank's Group AML Policy.

The Bank shall maintain appropriate documentation on its customer relationships and transactions to
enable reconstruction of any transaction.

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The adequacy of the Bank’s money laundering risk measurement systems, including any findings of
internal and external auditors and advisors, shall be reported to the Audit Committee on a quarterly
basis.
The MLRO for each subsidiary shall make a quarterly report to the Board of Directors reviewing
assessing and summing up the anti money laundering measures and any other information about the
subsidiary.
Each SBU must report unusual or suspicious transactions to regulatory bodies using specific forms
and formats.
The Bank shall put in place internal controls such as an adequate and well-defined organizational
structure and explicit allocation of duties and responsibilities.
The Bank shall implement an effective internal audit function for testing compliance with Bank's
Group AML policy guidelines. This audit report shall be documented and submitted to Audit Committee.

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