anti money laundering, counter terrorist financing and ... policy version 6.0.pdf · anti-money...

AML, CTF and Sanctions Policy Version 6.0 December 2017

ANTI MONEY LAUNDERING,

COUNTER TERRORIST FINANCING

AND

SANCTIONS POLICY

Created: May 2007 Version: 0.0

Reviewed August 2013 Version: 3.0

Reviewed: September 2014 Version: 4.0

Reviewed December 2015 Version: 5.0

Reviewed December 2017 Version: 6.0


[THIS PAGE IS INTENTIONALLY LEFT BLANK]


Contents

1 OVERVIEW AND POLICY FRAMEWORK ......................................................................................... 5

1.1 GENERAL ................................................................................................................................................... 5 1.2 POLICY OBJECTIVES ...................................................................................................................................... 5 1.3 ORGANIZATION STRUCTURE ........................................................................................................................... 6

1.3.1 Audit and Compliance Committee of the Board of Directors (BACC) ............................................ 6 1.3.2 Executive Committee (EXCO) ........................................................................................................ 6 1.3.3 Risk and Compliance Committee (RCC) ......................................................................................... 6 1.3.4 Money Laundering Reporting Officer (MLRO) .............................................................................. 6

2 LEGISLATIVE AND REGULATORY ENVIRONMENT ......................................................................... 7

2.1 LEGISLATIVE AND REGULATORY BACKGROUND .................................................................................................. 7 2.2 LEGISLATIVE ............................................................................................................................................... 7 2.3 REGULATORY .............................................................................................................................................. 7 2.4 INDUSTRY GUIDANCE ................................................................................................................................... 8

2.4.1 Joint Money Laundering Steering Group (JMLSG) Guidance ......................................................... 8 2.4.2 Financial Action Task Force (FATF) Recommendations ................................................................. 8 2.4.3 Proceeds of Crime Act 2002 (POCA) .............................................................................................. 9 2.4.4 Assistance ................................................................................................................................... 10 2.4.5 Tipping Off / Prejudicing an Investigation .................................................................................. 11 2.4.6 Failure to report .......................................................................................................................... 11 2.4.7 What is Knowledge:- ................................................................................................................... 11 2.4.8 What is Suspicion ........................................................................................................................ 12 2.4.9 What is Reasonable Grounds ...................................................................................................... 12 2.4.10 Pre-Advised transaction ......................................................................................................... 13

2.5 ENVIRONMENT IN INDIA ............................................................................................................................. 14

3 PREVENTION OF MONEY LAUNDERING ...................................................................................... 14

3.1 GENERAL AWARENESS ................................................................................................................................ 14

4 RISK ASSESSMENT ....................................................................................................................... 16

4.1 RISK ASSESSMENT AREAS ............................................................................................................................ 16 4.1.1 Products ...................................................................................................................................... 16 4.1.2 Countries ..................................................................................................................................... 17 4.1.3 Customer Types ........................................................................................................................... 17 4.1.4 Delivery risk ................................................................................................................................. 18

4.2 MANAGEMENT INFORMATION REPORTING ..................................................................................................... 18 4.3 RISK CLASSIFICATION .................................................................................................................................. 19

4.3.1 High Risk ..................................................................................................................................... 19 4.3.2 Medium Risk ............................................................................................................................... 20 4.3.3 Low Risk ...................................................................................................................................... 21 4.3.4 Restrictions ................................................................................................................................. 21

5 CUSTOMER DUE DILIGENCE .......................................................................................................................... 21

5.1 CUSTOMER DUE DILIGENCE MEASURES.......................................................................................................... 22 5.1.1 Identification and Verification .................................................................................................... 22 5.1.2 Immigration Status Check ........................................................................................................... 22 5.1.3 Understanding the Purpose and Nature of the Relationship (Know Your Customer) (KYC) ........ 23

6 ENHANCED CUSTOMER DUE DILIGENCE (EDD) ............................................................................................. 23

6.1 EDD FOR MEDIUM RISK ............................................................................................................................. 24 6.2 EDD FOR HIGH RISK .................................................................................................................................. 24

7 POLITICALLY EXPOSED PERSON (PEP) ........................................................................................................... 25

8 SANCTIONS POLICY ....................................................................................................................................... 26


8.1 ESCALATIONS ............................................................................................................................................ 27 8.2 RECORD KEEPING....................................................................................................................................... 28

9 TRANSACTION MONITORING ........................................................................................................................ 28

9.1 PURPOSE ................................................................................................................................................. 28 9.2 STAGES ................................................................................................................................................... 28 9.3 ESCALATION ............................................................................................................................................. 28

10 PERIODIC REVIEWS ..................................................................................................................... 29

11 CORRESPONDENT BANKING ....................................................................................................... 29

11.1 DOWNSTREAM CORRESPONDENT BANKING ............................................................................................... 29 11.1.1 Countries which follow FATF Standard ................................................................................... 29 11.1.2 Jurisdictions which are considered as non-equivalent by FATF (Jurisdictions with strategic deficiencies). .............................................................................................................................................. 29 11.1.3 Banks and Financial Institutions in India ................................................................................ 30 11.1.4 Due Diligence ......................................................................................................................... 30

11.2 UPSTREAM CORRESPONDENT BANKING AND INTERBANK DEALINGS ................................................................ 30

12 TRADE FINANCE .......................................................................................................................... 31

13 TRAINING .................................................................................................................................... 32

14 THE ROLE OF THE MONEY LAUNDERING REPORTING OFFICER .................................................. 33


1 Overview and Policy Framework

1.1 General

Money Laundering is the process by which criminals attempt to hide and disguise the

true origin of the proceeds of their criminal activities by the use of the financial

system so that its ownership and the income earned from the criminal activity

appears to be legitimate.

This process is often achieved by converting the original illegally obtained proceeds

(which can take any form cash, property, jewelry, etc.), into other forms such as

deposits or securities and create multiple layering. Layering involves transfers of

funds through a series of accounts in an attempt to hide the funds' true origins. This

often means transferring funds to the countries that have strict bank-secrecy laws.

Such countries include the Cayman Islands, the Bahamas, and Panama. Once

deposited in a foreign bank, the funds can be moved through accounts of "shell"

corporations, which exist solely for laundering purposes. The high volume of such

transfers makes it difficult for law enforcement agencies to trace these funds.

However, it is important to remember that the criminal property does not

necessarily have to be “on the move” for money laundering offences to be

committed. Simply being in possession of criminal property can lead to an offence

under the money laundering regulations and legislation being committed.

All financial institutions are required to establish appropriate and risk proportionate

systems and controls, to prevent and deter criminals from using their products and

services for laundering the proceeds of crime. This policy is designed to ensure that

Punjab National Bank (International) Ltd (‘the Bank’) has a defined overarching

framework to comply with all applicable anti-money laundering legislation and

regulations. This document is supplemented by individual departmental operating

procedures, which are designed to ensure AML compliance within the Bank at a

more detailed level.

1.2 Policy Objectives

The principal objectives of this policy are to:

o Prevent the Bank from being used by money launderers to further their illicit

business;

o Define a framework to enable the Bank to assist law enforcement agencies in

identifying and tracking down money launderers and their criminal property;


o Ensure that the Bank remains compliant with all relevant anti-money laundering, CTF

and sanctions legislation and regulations;

o Foster best working practices to protect the Bank from financial loss and

reputational damage.

1.3 Organization structure

The responsibilities for approving and implementing the anti-money laundering,

counter Terrorist Financing(CTF) and sanctions policies are mentioned below. (As per

Terms of Reference of the committees)

1.3.1 Audit and Compliance Committee of the Board of Directors (BACC)

o Reviews the policies and procedures and if need be present to the Board for its

approval;

o Reviews quarterly compliance and financial crime report and the annual MLRO

reports from the Money Laundering Reporting Officer;

o Reviews the performance of the Money Laundering Reporting Officer;

o Reviews the adequacy and effectiveness of the anti-money laundering systems and

controls employed.

1.3.2 Executive Committee (EXCO)

o The Committee shall be responsible for monitoring the effectiveness of Anti Money

Laundering regimes.

o The Committee shall be responsible for reviewing and agreeing the Bank’s responses

to forthcoming changes to regulation.

1.3.3 Risk and Compliance Committee (RCC)

o Overseeing the development and review of all compliance policies including Anti-

Money Laundering Policy;

o Monitoring compliance with all relevant laws, regulations and policies and report any

material or relevant non-compliance to Executive Committee;

o Review and report on the progress of Bank’s compliance initiatives and projects.

1.3.4 Money Laundering Reporting Officer (MLRO)

o Member of BACC, EXCO, and RCC.


o Designs, implements and updates the Bank’s Financial Crime policies and

procedures as necessary which comprises of Anti Money Laundering, Anti Bribery

and Sanctions;

o Monitors day-to-day compliance with the financial crime policies and procedures;

o Acts as the primary interface with the regulatory authorities and law enforcement

agencies;

o May delegate some of his responsibilities to other competent staff.

(The detailed responsibilities of the MLRO are specified in Section 3).

Individual employees are required at all times to comply with the Bank’s Financial

Crime policies(AML, CTF and Sanctions) and associated procedures. Non-compliance

by employees with these policies and procedures may be considered as gross

misconduct and could result in a disciplinary offence which could lead to dismissal

and depending on the nature of the issue, the employee will possibly be subjected to

criminal proceedings.

The Bank’s AML policy will be subject to formal revision annually, but will be revised

as necessary on a more frequent basis.

2 Legislative and Regulatory Environment

2.1 Legislative and Regulatory Background

As a UK regulated business, the Bank is required to comply with two parallel regimes,

legislative and regulatory.

2.2 Legislative

As a UK registered Bank, PNBIL is required to comply with local legislation. Relevant

legislation is now encapsulated in:

o The Terrorism Act 2000 (as amended by the Anti-Terrorism Crime and Security Act

2001);

o The Proceeds of Crime Act 2002

o Fraud Act 2006

o Counter Terrorism Act 2008

o Financial Services and Market Act 2000

o Bribery & Corruption Act 2010

o Criminal Finances Act 2017

2.3 Regulatory

The requirements to prevent and detect money laundering and to counter terrorist

financing arise from the 4th European Money Laundering Directive and apply to all


European credit and financial institutions. The UK transposed these requirements

into the Money Laundering, Terrorist financing and Transfer of Funds (Information

on the Payer) Regulations 2017 (MLR 2017). The MLR 2017 specifies various

arrangements; each firm should have in place for the prevention of money

laundering or terrorist financing. The Financial Services and Markets Act 2000 made

the FCA a prosecuting authority; therefore failure to comply with these regulations

could result in serious regulatory sanctions.

The Financial Conduct Authority (FCA) has Systems and Controls (SYSC) Rules that

require senior management to establish appropriate procedures and controls to

implement the requirements of the MLR 2017 and to manage the risks of the Bank’s

products and services being used for the purposes of financial crime. The FCA

considers it part of the bank’s essential systems and controls to have strict

anti-money laundering and counter-terrorist financing policy in place, the failure of

which could lead to regulatory action being brought against the bank and its Senior

Management, which could include corporate and personal prosecution.

Such controls include the requirement that the Senior Management of an FCA

regulated firm must ensure that a director or senior manager (who may also be the

MLRO) is made responsible for the establishment and maintenance of the firm’s

AML/CTF systems and controls. The firm should appoint a Money Laundering

Reporting Officer (MLRO). At least once in a year the firm should commission a

report from the MLRO on the operation and effectiveness of the firm’s AML/CTF

system and controls.

2.4 Industry Guidance

2.4.1 Joint Money Laundering Steering Group (JMLSG) Guidance

The AML regulatory requirements are largely pulled together by a set of industry

guidance notes. A body comprising of a number of trade associations; the Joint

Money Laundering Steering Group (JMLSG), has produced guidance notes for the

regulated sector.

In 2017, JMLSG revised Guidance Part I, II and III in line with the new MLR 2017.

2.4.2 Financial Action Task Force (FATF) Recommendations

The Financial Action Task Force (FATF) is an inter-governmental body established by

the Ministers of its Member jurisdictions. FATF is a policy making body with the

objectives to set standards and promote effective implementation of legal,

regulatory and operational measures for combating money laundering, terrorist

financing and other related threats to the integrity of the international financial

system.


The FATF has developed a series of Recommendations that are recognized as the

international standard for combating money laundering and the financing of

terrorism and proliferation of weapons of mass destruction. They form the basis for

a coordinated response to these threats to the integrity of the financial system.

2.4.3 Proceeds of Crime Act 2002 (POCA)

POCA has wide-ranging implications for how financial sector firms organize their

business and assist in the process of combating crime. Hence, some of the detailed

provisions are reproduced here to raise staff awareness of their responsibilities.

One of the principal effects of POCA has been to criminalize money laundering in

respect of all crimes. Critically also, criminal conduct covers conduct committed

abroad which would, if committed in the UK be an offence resulting in a custodial

sentence of 12 months or more regardless of whether it would be an offence in the

jurisdiction in which it was committed. The principal section within POCA dealing

with money laundering offences is Part 7. The relevance of the JMLSG is reiterated

within Part 7 of the Act, which requires the Courts to take account of whether a

person has followed Guidance that has been approved by HM Treasury (i.e. The

JMLSG guidance notes) when considering whether that person within the regulated

sector has committed an offence of not reporting knowledge, a suspicion, or

reasonable grounds to suspect money laundering.

The principal provisions of Part 7 of the Proceeds of Crime Act are set out below:

o It is an offence for any person to acquire, use, possess, conceal, disguise, covert,

transfer or remove from the jurisdiction, or to facilitate its acquisition, retention, use

or control by another person any criminal property derived from any criminal

conduct.

o It is an offence for anyone to tip off the subject of an investigation (either an internal

or external investigation) by alerting them to the fact that an investigation is under

way or that the authorities intend to carry out a money laundering investigation. This

also applies to alerting any other person known to be associated with the subject of

the investigation.

o It is an offence to take any action that is likely to prejudice an investigation i.e. by

destroying, falsifying or concealing relevant documents. A mandatory reporting

requirement is introduced for the regulated sector in respect of money laundering

arising out of any criminal conduct regardless of the amount involved or the nature

of the offence. Anyone within the regulated sector is required to report knowledge,

suspicion or reasonable grounds to suspect money laundering. The requirement to

report reasonable grounds to suspect is contained in the Proceeds of Crime Act 2002

which introduced this objective test to identify where reasonable grounds to suspect

money laundering exist. The objective test is designed to allow for the effective

http://www.fatf-gafi.org/publications/fatfrecommendations/documents/internationalstandardsoncombatingmoneylaunderingandthefinancingofterrorismproliferation-thefatfrecommendations.html


prosecution of those who recklessly or wilfully fail to report where clearly a

requirement to do so existed, turning a blind eye for example.

o Members of staff within the regulated financial sector are provided with a defence

against not reporting knowledge or suspicion of money laundering if their employer

has not provided them with appropriate training, as required under the Regulations

to recognize and report suspicions. This defence is available even where there would

have been reasonable grounds to know or suspect, but would not exist as soon as

actual knowledge or suspicion is gained.

o An additional offence of not reporting has been introduced for Money Laundering

Reporting Officers (“MLRO”s) and appropriate persons (termed ‘Nominated

Officers’). The offence applies in circumstances where a nominated officer who has

received an internal report and has knowledge, suspicion or reasonable grounds to

know or suspect money laundering and does not make an external report to the

National Crime Agency (NCA) as soon as is practicable after the internal report was

received and the information contained therein adequately assessed and evaluated.

o Reports from the regulated financial sector only be made to NCA and must be made

in the form that is prescribed i.e. the NCA disclosure report. When a report has been

made before a transaction has been completed (a ‘pre-advised transaction’), the

transaction must be frozen, pending NCA defence to proceed with the transaction.

NCA has up to 7 working days to process the defence application. If NCA fails to

respond within this 7 working days period the transaction can proceed under what is

classed as “assumed defence”. If NCA refuses defence within 7 working days there is

a 31 calendar day moratorium period in which law enforcement must obtain a

restraint order if they wish to prevent the transaction from going ahead.

o However, NCA may extend the moratorium period to a total of 186 days from the

day beginning after the ending of the initial 31 days moratorium period. The power

of extending the moratorium period lies with the Crown Court in England and the

Sheriff in Scotland. NCA must file an application to extend the moratorium period

before the end of 31 days moratorium period.

o The Proceeds of Crime Act also provides new investigation tools to law enforcement

through the provision of Customer Information Orders and Account Monitoring

Orders. With the introduction of the Criminal Finances Act 2017, additional powers

have been entrusted upon the enforcement agencies.

o The Criminal Finances Act 2017 also introduced a new corporate criminal offence of

failure to prevent the facilitation of tax evasion by an associated person

Below are some additional explanations of some of the key terms used in the

Proceeds of Crime Act.

2.4.4 Assistance


It is an offence to assist anyone whom you know or suspect to be laundering any

property obtained from criminal conduct. Criminal conduct includes any crime which

could be described as an acquisitive crime, i.e. where a gain is made as a result of the

crime, i.e. drug trafficking, terrorism, corruption, theft, fraud, tax evasion, robbery,

forgery and counterfeiting, illegal deposit taking, burglary, blackmail, extortion

and/or any other offence which is committed and where a benefit is gained, of

whatever size, for any reason.

Such assistance is punishable upon conviction by a maximum of 14 years’

imprisonment, or a fine, or both. Hence, your first reaction should always be to

report your suspicion in accordance with these procedures.

2.4.5 Tipping Off / Prejudicing an Investigation

Following the implementation of POCA, a Tipping Off offence can now be triggered if

a staff member is aware that a report has been made to the MLRO and makes this

information available to the subject of the internal report or a known associate of

that subject, or if the member of staff is aware that an external report has been

made to NCA and makes the subject (or a known associate) aware of this fact. If an

internal suspicion report has been made to the MLRO, staff should assume that the

report has been passed to NCA unless they are advised otherwise.

Prejudicing an investigation may occur if a member of staff takes any action that may

prejudice an investigation or potential investigation into money laundering, by

means for example of destroying or concealing documents or falsifying documents.

The punishment on conviction for ‘Tipping-Off’ or Prejudicing an Investigation is a

maximum of 2 years imprisonment, or a fine, or both.

2.4.6 Failure to report

It is an offence under POCA for any person who acquires knowledge, suspicion or

reasonable grounds to suspect of money laundering not to report their knowledge,

suspicion or reasonable grounds as soon as it is reasonably practical after the

information came to his/her attention. Failure to report in these circumstances is

punishable on conviction by a maximum of 5 years imprisonment, a fine or both, and

may also give rise to the offence of money laundering which carries a penalty of 14

years imprisonment or an unlimited fine.

2.4.7 What is Knowledge:-


For the purpose of this Policy, knowledge is taken to be actual knowledge i.e.

actually knowing something to be true. The knowledge must have come to PNBIL, or

to an employee, in the course of undertaking our regulated business activities.

2.4.8 What is Suspicion

“Suspicion” is difficult to define and the European AML directive does not attempt to

do so. A dictionary definition is:

“An act, instance or feeling of suspecting or a belief or opinion that is based on very

little evidence”.

A law dictionary definition states that suspicion is:

“The imagination or apprehension of the existence of something wrong based only

on slight or no evidence, without definitive proof”.

The courts have defined suspicion as being beyond mere speculation, being based on

some foundation. Although the creation of suspicion requires a lesser factual basis

than the creation of a belief, it must nonetheless be built upon some foundation.

Suspicion is therefore personal and subjective and falls far short of proof based on

firm evidence. However, the suspicion must at least have some foundation and not

just be based on mere speculation. A suspicious transaction will often be:

o Any activity or instruction that is not logical from an economic, financial or

investment point of view.

o Any activity where the amount, duration or other specific feature is inconsistent with

the customer’s personal, professional or business activities, or expected investment

activity.

An activity or event may not appear to be suspicious at the time, but if suspicions are

raised later, an obligation to report then arises.

If an employee considers a transaction to be suspicious, they are not expected to

know or to establish the exact nature of any underlying criminal offence, or that the

particular funds or property are definitely those arising from a crime, money

laundering or terrorist financing.

2.4.9 What is Reasonable Grounds

The POCA introduced the requirement to disclose when there are reasonable

grounds for knowing or suspecting that another person is engaging in money

laundering or terrorist financing. This introduces an objective negligence test as a


deterrent against those undertaking financial services business who fail to act

competently, reasonably and honestly where information before them ought to

make them suspect money laundering or terrorist financing. It may therefore be

considered to cover:

o Wilful blindness i.e. turning a blind eye to the obvious.

o Negligence i.e. failing to make adequate enquiries that an honest and reasonable

person would be expected to make in the circumstances.

o Failing to assess adequately the facts and information that are either presented or

available and that would put an honest and reasonable person on enquiry.

To defend them against a charge that they failed to meet this particular test of

suspicion, PNBIL employees would need to be able to demonstrate that they took

reasonable steps in the particular circumstances to understand the customer’s

economic background and the rationale for the activity or transaction.

It is important to remember that payments to terrorist organizations may be from

legitimate sources such as donations made from earned income. However, this does

not exempt the transaction from suspicion or the requirement to report suspicion.

Whenever a staff member becomes suspicious they must follow the Bank’s

procedures and report all details to the MLRO in writing on the standard suspicious

transaction and activity reporting form or whatever format is available and the

MLRO is required to evaluate your report accordingly. If need be MLRO may request

the employee to complete the standard internal report at a more convenient time. A

copy of the report must also be given to the immediate departmental head, who

must review the same and make their observations in writing on the reverse of the

copy, sign and date, and forthwith deliver to the MLRO. For the avoidance of doubt -

the original of the report must be delivered directly to the MLRO or his deputy in his

absence.

2.4.10 Pre-Advised transaction

Where an instruction is received prior to a transaction taking place and there is a

suspicion that the transaction or the funds involved relate to money laundering then

a report must be made by the MLRO to NCA and defence sought to proceed with

the transaction. The Bank must not proceed with a transaction, whilst the consent

is being awaited. This creates a dilemma since the Bank may consider that delaying a

transaction while the Bank obtains consent will tip off the customer. The definition

of what is a pre-advised transaction becomes critical. If the Bank has not been pre-

advised, then it may proceed with the transaction and report the suspicion, without

having to seek prior consent. However, the Bank must be able to justify its stance of

not seeking prior consent from NCA.


In practice, a transaction which takes place the same day without prior instruction

cannot be pre-advised. Further, from a pragmatic viewpoint, due to cross-border

time and other instruction cut-off constraints, transactions which take place with

next day value are also not considered by the Bank to be pre-advised. For all

transactions for which instructions are received where an action is to take place in

one or two working days’ time or longer and where there is a suspicion of money

laundering, one must immediately seek advice from the MLRO as to whether to

proceed with the transaction. In such circumstances the MLRO will consult with

Senior Management and agree a plan of action for dealing with the customer.

The JMLSG Guidance Notes advise that in a situation where an account is frozen

whilst consent to proceed is being sought, if the customer makes strong demands for

a transaction to be effected, NCA should be approached for assistance. The Guidance

Notes also clarifies that if a complaint from a customer is received because of a delay

in processing a transaction whilst consent is sought, the inability of the Bank to

provide a suitable explanation may result in a complaint to the Financial

Ombudsman Service (FOS). In such circumstances the Bank may advise the FOS that

the transaction was withheld for compliance reasons and the Ombudsman’s legal

department will then be responsible for overseeing the case.

2.5 Environment in India

Our parent company in India, Punjab National Bank, is subject to their local

legislation, the Prevention of Money Laundering Act, 2002 (PMLA) which came into

force on 1st July 2005. The local banking regulator, Reserve Bank of India (RBI) also

issues guidelines on AML from time to time. Punjab National Bank is in compliance

with the local legislation and regulatory AML guidelines issued by RBI and Indian

Government. Additionally, our parent has prepared Group Anti-Money Laundering

Policies and Procedures. This Group Policy and associated procedures will provide

additional assurance about the provenance of transactions/customers originated

from India.

3 Prevention of Money Laundering

3.1 General Awareness

Money laundering within the banking and financial system remains a significant risk

factor to the Bank’s business, both in terms of the criminal aspects and the risks

associated with failing to comply with the regulations and legislation. Minimizing our

reputational risk is also a prime consideration.

Recent legislation (UK Bribery Act 2010) deals with aspects of corruption by UK

nationals at home and overseas and the confiscation of assets related to the


proceeds of such criminal activity. The Bank must therefore scrutinize customers and

their activities more closely and ensure that due diligence checks on assets

(corporate/personal) are appropriate. POCA deals with the confiscation, through

criminal and civil actions, of assets obtained through a criminal process or activity. It

also includes assets pledged or charged to the bank as security where the bank

concerned has not demonstrated ‘Due Diligence’ in determining the legitimate

source of the asset concerned.

A new offence of ‘Prejudicing an Investigation’, similar to that of ‘Tipping Off’, has

come into effect and is applicable to the non-regulated sector/non-regulated

activity. This is to mirror the offence of tipping off, where the possibility to do so

originates in a non-regulated environment, i.e. in an employee’s private or social life.

As investigations may go on for years without a charge being made, it becomes even

more important to maintain security and confidentiality of all the bank’s records.

Where a Suspicious Activity Report has been made, destroying a related document is

likely to constitute an offence, no matter how old that document maybe, and due

for destruction under our normal record keeping procedures, unless the Bank has

received notification from the courts or law enforcement agency that the records are

no longer required.

The table below provides details of the records that must be retained and the

applicable retention periods in order to comply with UK AML/CTF legislation. For

detailed information, refer Bank’s Data Protection Policy and Record Retention and

Archiving Policy.

Type of record Length of retention

Account opening forms and customer due diligence profile form including risk assessment, CDD material and supporting identification evidence.

At least 5 years after the date when the account is closed.

Individual customer transaction and activity records.

At least 5 years from the date that the transaction or series of transactions was completed.

Records relating to reviews of higher risk activity or transactions.

At least 5 years from the date when the account is closed

Compliance monitoring reports and MLRO annual reports.

At least 5 years from the date when the report was made.

Staff training records. At least 5 years from the date of the training.


In addi

In addition, the Bank is also required to retain documents in the event that there is a

request to reproduce them by a court of law by way of a court order. Any document

purporting to be a court order, such as a restraint order, freezing order, Customer

Information and Disclosure orders or Account Monitoring order must be delivered

immediately to the Money Laundering Reporting Officer or, in his absence, to his

deputy.

4 Risk Assessment

Bank must take appropriate steps to identify and assess the risks of money

laundering and terrorist financing to which it is subject.

The risk assessment considers the size and nature of the business. MLRO is

responsible for executing the risk assessment. The findings must be presented to the

Risk and Compliance Committee and the Executive Committee. Where the risk

assessment identifies gaps within controls or a requirement of new controls, an

action plan addressing the gaps needs to be devised by the MLRO and tracked to

completion.

4.1 Risk Assessment Areas

Given our expected business activity, the main areas of risk from a money laundering

aspect are likely to be as follows.

4.1.1 Products

High risk products are those where third party funds can be freely received, or funds

can be regularly paid to third parties without evidence of identity of the third parties.

Other products which pose a high risk of financial crime is trade finance which may

involve trading with high risk countries or trade of dual purpose commodities.

For example, Products offering money transfer facilities through cheque books,

telegraphic transfers, SWIFT, CHAPS, deposit from third parties, are some of the high

Court Order, Law Enforcement Enquiries, and responses to such.

A minimum of 10 years or indefinitely if required to do so by law enforcement.

Internal & External Suspicious Activity Reports

A minimum of 10 years or indefinitely if required to do so by law enforcement.


risk products. Corporate and Individual current accounts are particularly attractive

to the money launderers. Bank may also encounter situation where the money

launderers can use loan accounts for layering purpose.

International Money transfers are classified as high risk transactions and accordingly

Rupee Remittance Product is classified as High Risk Product. Similarly, correspondent

Banks accounts are also classified as high risk accounts.

Indian Rupee remittance service is only provided to walk-in customers through

debit/credit cards of other UK Banks.

Bank does not have any other high risk products.

4.1.2 Countries

Geographical locations without adequate anti-money laundering regulations, where

cash is the normal medium of exchange, unstable political regimes with high levels of

public or private sector corruption, drug producing or drug trafficking countries and

those countries which are classified as not having equivalent levels and standards of

AML regulations and legislations as the UK are highly vulnerable to money

laundering. The introduction of the Criminal Finances Act 2017 considers the

facilitation of tax evasion as a crime. Bank is also required to be extra vigilant while

establishing relationship or dealing with customers/third parties in tax havens and

offshore financial centers. Even though the country of our parent bank is on the FATF

list of countries who have implemented a robust legal and regulatory AML/CTF

regime, given that our typical customer will be non-resident Indians, domiciled in the

UK, who are likely to have ongoing close connections with India, staff must remain

alert, particularly in the area of remittances.

4.1.3 Customer Types

Bank must also recognize that certain types of customers are likely to fall into higher

risk categories. Private companies and Trusts are a popular vehicle for the money

launderers since they are more useful for distancing the monies from the launderers,

particularly if the beneficial ownership structure is unclear. Particular attention must

be paid to due diligence for such vehicles. Also, certain type of individuals such as

‘Politically exposed persons’ (PEPs) will require additional scrutiny. PEPs include

government ministers, senior civil servants, senior public service officials and senior

executives of government owned corporations and their family members and known

associates who are often in a position either to wield significant influence over

others, or indeed be subjected to it themselves. Enhanced due diligence procedures

will need to be followed for high and medium risk customers as set out in the


detailed operations manual . Sectoral analysis will form a part of the risk assessment.

Appropriate due diligence procedures to be applied in high risk sector.

4.1.4 Delivery risk

The manner by which the Bank communicates with its customers is also a key

element that will need to be considered when evaluating the overall risk that a

customer relationship poses to the Bank. Whenever the Bank does not deal with a

customer on a face to face basis, i.e. deals remotely over the telephone or internet,

the delivery risk increases. This increase in risk is due to the enhanced risk posed by

the ability to secure anonymity offered by remote transactions and dealing. In

general, this risk exposure for us is considered to be low as in the majority of the

cases the Bank would ordinarily always deal with our customers on a face to face

basis. The majority of our account opening is always done on a face to face basis.

4.2 Management Information Reporting

The following reports should be presented to the management:

o Monthly compliance and Financial Crime Report

o Quarterly Compliance and Financial Crime Report

o Annual MLRO Report

o Annual Risk Assessment Report

The reports would normally be expected to consider the following areas:

Correspondence with the Regulators

Ongoing operations of AML and financial crime related processes, systems

and controls

Any changes in the regulatory risk environment

Any recommended changes to the financial crime risk assessment.

Whether there have been any breaches of rules or regulations

A summary of key findings, along with an action plan for addressing

deficiencies

A summary of prior period actions and outcomes for comparison.

A summary of the SARs reported.

Summary of Investigation Orders received.

Summary of disqualified person list if any.

The MLRO’s annual report is submitted to the BACC.The report will contain


MLRO’s observations in respect of deficiencies in compliance with procedures pertaining to money laundering and financial crime,

a summary of latest changes in money laundering preventive guidelines or other regulations,

an indication of the way in which new findings on countries with anti-money laundering inadequacies have been used during the period,

information on training provided to staff members during the period,

any resources requirements,

information concerning reports from Reporting Accountants or Internal Audit and a risk assessment of the impact of new products/services and details of high risk/PEP relationships established/maintained.

4.3 Risk Classification

The documentation and approach to account opening or monitoring or while establishing or

maintaining business relationship with third parties should be based on their perceived risk

profile. The risk profile of client/third party is established based on certain risk factors such

as types of customer, countries or geographic areas in which it operates products or

services, type of transactions and delivery channels.

All Banks’ clients must be categorized as High, Medium or Low at the time of On-boarding.

The below risk classification is based on the inherent risk assessment of the client based on

the customer type, location, product type, turnover, sectoral analysis, etc. A rationale for

assigning a particular risk category must be developed and recorded along with the account

opening forms. At the time of reviewing the accounts, the risk category must also be

reviewed and changed if required. Risk categories adopted by the of Bank’s customers is

outlined as below:

4.3.1 High Risk

o HNI (High Net-worth Individuals) – Accounts with £1 million turnover or £0.5 million

Deposit or GBP equivalent.

o PEP (Politically Exposed persons) – PEP Accounts include Accounts of

1. Persons holding prominent public function,

2. Their family members (spouse/civil partner of PEP, children, Spouse/civil

partners of Children of PEPs, parents of PEP) and

3. Known close associates (an individual known to have joint or sole beneficial

owner of a legal entity set up for the benefit of PEP or having close business

relationship with PEP) who are often in a position either to wield significant

influence over others, or indeed be subjected to it themselves. Bank includes

domestic individuals occupying prominent public positions as PEPs, in

addition to those from abroad.


o FATF High Risk Jurisdictions Initiative is to reduce money laundering by ensuring that

all financial centres adopt and implement measures for the prevention, detection

and punishment of money laundering according to internationally recognized

standards. There is a list of High Risk Jurisdictions published by FATF consisting of

jurisdictions with strategic deficiencies.

o Entities registered in High Risk Countries as classified by Financial Action Task Force

or Tax Havens. Staff are notified by the Compliance department regarding any

change in the status of the High Risk Countries/Tax Havens

o Unregistered Charity/trust/club/association- A organization that is not registered

with a regulator under the law of the territory in which it is established. An

unregistered charity must register with the charity commission within a year of

opening an account with the Bank or reaching an annual turnover of £5,000. Failing

to do so may result in termination of account relationship.

o Corporate accounts must be classified as high risk if they operate in the following

high risk sectors:

1. Precious gem dealers

2. Commodity traders/providers

3. Travel agencies

4. Government Agencies

5. Government contractors

6. Embassies and or Consulates

Any other business which is cash intensive should be classified as high risk and

appropriate due diligence applied. Refer Operations Manual for details.

o Gatekeepers: Accounts of gatekeepers such as accountant, lawyers, or other

professionals

o Respondent Customer: PNBIL can only provide downstream correspondent Banking

Services to its affiliates. These customers must be classified as high risk and

enhanced due diligence procedures are to be applied.

o UK residents holding a non UK/EEA passport or those who does not hold a

permanent residence in UK or having a visa of less than 1 year.

o Customer’s accounts used for trade finance activities.

4.3.2 Medium Risk

o All corporate accounts operating other than the high risk sectors must be classified

as Medium Risk.

o All types of registered Charity Accounts (Other than Unregistered

Charities/Trusts/Clubs/Associations accounts which are classified as High Risk

Account).

o Student Accounts- Non UK Customers on Student VISA in UK.

o Not Ordinarily UK Resident Customers- Customers residing outside UK.


o Minors’ Accounts

o TBA (Third Party Beneficiary Accounts)- Where the individual is acting as an agent on

behalf of a third party beneficiary.

o UK residents holding a non UK/EEA passport or those who do not hold a permanent

residence in UK having a visa of less than 2 year and more than 1 year.

4.3.3 Low Risk

o Self-Invested Personal Pension Schemes (SIPPS) and Small self-administered pension

schemes (SSAS).

o All other customers/accounts which are not classified as high risk or medium risk are

considered as low risk.

4.3.4 Restrictions

Bank will not provide its services to the following businesses, territories or customer

types.

o MEB (Money Exchange Bureaus) - Businesses that exchange currency, transmit

money or encash cheques for their customers are known as 'Money Service

Businesses'.

o FATF Non Co-operative Countries and Territories (NCCT). Currently the NCCT list

consists of Iran and Democratic Republic of Korea.

o Shell Banks

o European Union blacklisted Tax Havens

o Casinos, Gambling, Arm Manufacturers and Dealers, etc.

o Walk-in Cash Remittance

5 Customer Due Diligence

Bank is required to apply customer due diligence in the following scenarios:

Establishing a business relationship: The due diligence procedure must be followed while on-boarding a customer or any third party contractors

Periodic Reviews: Based on the risk category, the customer is required to be reviewed periodically.

Trigger Events: There may be events which triggers the requirement to apply due diligence which are as follows:

o Carrying out an occasional transaction that amounts to a transfer of funds excessing 1000 Euros or GBP 800.

o Suspicion of money laundering or terrorist financing


o Doubting the veracity or adequacy of documents or information previously obtained by the Bank for the purposes of identification or verification.

o Carrying out an occasional transaction that amounts to Euro 15,000 or more or GBP 12, 000 , whether the transaction is executed in a single operation or in several operations which appears to be linked.

o Any change in the Identity of the customer or the customer’s beneficial owner.

o Transactions which are not reasonably consistent with the Bank’s knowledge of the customer profile.

o Change in the purpose or intended nature of the Bank’s relationship with the customer.

o Any other matter which may affect Bank’s assessment of the money laundering or terrorist financing risk in relation to the customer.

5.1 Customer due Diligence Measures

5.1.1 Identification and Verification

All customers, third parties, intermediaries being dealt with must be identified at the

time of on-boarding in order to understand the underlying level of risk and assigning

the appropriate risk category

Bank is expected to follow particular procedures to identify its customers and verify

customers’ identities and addresses. This is known as identification and verification

(ID&V) process. Along with the ID & V, the bank conducts a financial crime check

which checks the customers against fraud database, bankruptcy, sanctions, PEP,

Mortality, Criminal proceedings, etc.

5.1.2 Immigration Status Check

Immigration Act 2016 was introduced for the following purposes:

o Introduce new sanctions on illegal workers and rogue employers in UK.

o Provide better co-ordination of regulators that enforce workers’ rights

o Prevent illegal migrants in the UK from accessing housing, driving licences and bank

accounts

o Introduce new measures to make it easier to enforce immigration laws and remove

illegal migrants from UK.

As per the provisions of the act, Bank must screen all customers against the Home

Office Illegal Immigrants List for new customers at the time of on-boarding. Any

positive result to be reported to the home office. Currently, this is being done

through a third party application; CIFAS. Home Office has provided sole access of the


Illegal Immigrants List to CIFAS. The search requires Name, Address and date of Birth

of the Individual. The results of the search must be recorded in the customer file.

As per the latest provisions of the revised Immigration Act, existing customers are

required to be screened against the disqualified person list (Illegal Immigrants List)

on a quarterly basis.

5.1.3 Understanding the Purpose and Nature of the Relationship (Know Your

Customer) (KYC)

Bank must always have a profile of each customer through which the Bank will be

able to identify the following:

o The nature and details of the business/occupation/employment

o Sources and destinations of funds routed through the account

o Anticipated Value and Volume of Activity that is to be undertaken

o Relationship with an Ultimate Beneficial Owner (UBO) where applicable.

For Individual customers, no separate profile is required. The Account Opening Form

is sufficient to capture all required information. However, any discussion with the

customer that is related to the above information/current situation of the customer

must be noted and recorded in the account opening file.

However, For non-Individual accounts, separate forms have been devised

In order to comply with this policy, Bank has established its own detailed operational

procedures for the purpose of AML. The procedures are designed to:

o Obtain full Customer Due Diligence (CDD) records before establishing customer

relationships,

o Deal with one- off transactions;

o Create a profile of customers to enable the bank to monitor operations in the

accounts;

o Recognize and report suspicious activity and transactions; and

o Ensure that if a customer comes under investigation, a proper audit trail will be

provided.

Together, ID&V and KYC form Customer Due Diligence (CDD).

6 Enhanced Customer Due Diligence (EDD)

Where an account/customer is not classified as Low Risk at the time of account

opening, then Bank must perform enhanced due diligence. The enhanced due


diligence will consider further information before determining the final risk rating of

the customer. The detailed EDD procedures required to be followed is prescribed in

the Operations Manual.

6.1 EDD for Medium Risk

All Medium Risk accounts must be signed off by the Branch/Division Head. In

addition to this, the EDD for medium risk client needs to satisfactorily address the

following areas:

o Carry out Identification and verification of all beneficial owners greater than 20%

shareholding; including the ultimate beneficial owners wherever applicable.

o Obtain an understanding of the various relationships between signatories and with

underlying beneficial owners.

o Understanding the origin of the initial and ongoing source(s) of wealth and funds;

o Developing an understanding of the anticipated level and nature of the activity that

is to be undertaken through the relationship.

o Review of publicly available information about the Individual or the Entity.

o Obtain copies of recent and current audited financial statements.

o Performing searches on the Companies House or equivalent in case of corporates.

o Visit to the place of operation can be made if required. In case of trusts/charities,

visit to the charity/trust is mandatory at the time of account opening and review.

This visit must be done by the branch/division head a visit report must be recorded

in the account opening file.

o A letter from the college must be obtained in case of Student accounts

o In case of a Power of Attorney account, the Power of Attorney must be verified from

the Office of Public Guardian. The responsibility of verification lies with the Head of

Operations.

6.2 EDD for High Risk

All high risk relationships must be formally recommended for acceptance and

approved by the Head of Business/COO, except in case of PEPs which requires

approval from the MLRO. The additional due diligence required are as under:

o Document an understanding of the client’s source of wealth

o Document and understanding of the client’s source of funds (current and future).

o Review any other potential risk factors indicated by media reports or information

provided by the client.

o Respondent Accounts: Approval from COO must be obtained for opening a

Respondent account. Such accounts are to be assigned with a relationship manager


for carrying out the enhanced due diligence procedures at the time of on-boarding

and ongoing monitoring.

7 Politically Exposed Person (PEP)

Bank provides services to Politically Exposed Persons (PEP).

PEPs are defined as individuals entrusted with prominent public functions, including:

o Heads of state, heads of government, ministers and deputy or assistant

ministers

o Members of parliament or of similar legislative bodies – similar legislative bodies

include regional governments in federalised systems and devolved

administrations, including the Scottish Executive and Welsh Assembly, where

such bodies have some form of executive decision-making powers. It does not

include local government in the UK but it may, where higher risks are assessed,

be appropriate to do so in other countries.

o Members of the governing bodies of political parties – the FCA considers that

this only applies to political parties who have some representation in a national

or supranational Parliament or similar legislative body as defined above. The

extent of who should be considered a member of a governing body of a political

party will vary according to the constitution of the parties, but will generally only

apply to the national governing bodies where a member has significant

executive power (eg over the selection of candidates or distribution of

significant party funds).

o Members of supreme courts, of constitutional courts or of any judicial body the

decisions of which are not subject to further appeal except in exceptional

circumstances – in the UK this means only judges of the Supreme Court; firms

should not treat any other member of the judiciary as a PEP and only apply EDD

measures where they have assessed additional risks.

o Members of courts of auditors or of the boards of central banks

o Ambassadors, charges d’affaires and high-ranking officers in the armed forces –

where those holding these offices on behalf of the UK government are at

Permanent Secretary/Deputy Permanent Secretary level, or hold the equivalent

military rank (eg Vice Admiral, Lieutenant General, Air Marshal or senior)

o Members of the administrative, management or supervisory bodies of State-

owned enterprises – this only applies to for profit enterprises where the state

has ownership of greater than 50% or where information reasonably available

points to the state having control over the activities of such enterprises

o Directors, deputy directors and members of the board or equivalent function of

an international organisation –this only includes international public

organisations such as the UN and NATO. The Government made clear in their


consultation of 15 March 2017 that they do not intend this definition to extend

to international sporting federations.

The PEP Guidance issued by FCA states that the PEPs are to be classified as Low Risk

and High Risk PEPs and the Bank can carry out a risk assessment of each PEP

customer to classify them as “High Risk” or “Low Risk” PEPs based on certain

parameters; product, geography and personal and professional status indicators.

Bank has adopted a stringent approach while applying enhanced due diligence on

PEP. Bank will continue to classify the PEP customers into one category that is “High

Risk” and continue applying enhanced due diligence required for high risk PEP

customers.

8 Sanctions Policy

International Financial Sanctions are imposed by national governments or

International Bodies such as OFSI (Office of Financial Sanctions Implementation), HM

Treasury or the Office of Foreign Assets and Control (OFAC, US Treasury). The

purpose of the Sanctions may be to encourage a change in behavior of a target

country or regime, to apply pressure on a target country or regime to comply with

set objectives, as an enforcement tool for bringing about International peace and

security or to prevent and suppress the financing of terrorists and terrorist financing.

In the UK, the Sanctions regime is implemented and administered by the HM

Treasury.

Transactions with sanctioned Individuals and countries are prohibited and Bank has

an obligation to freeze the assets of the target and report any transactions to the

regulator. Bank is also required to submit the status of any assets frozen during the

year to HM Treasury (if any).

Being a UK regulated Bank, we are required to carry out additional CDD, on-going

monitoring, systematic reporting or limiting or ceasing business with a

designated/sanctioned person/entity/country

Bank is required to screen its customers, employees, and third party service

providers, filter its transactions and prevent activity with a sanctions target

immediately once identified. Sanctions checking must be performed during the

following stages:

o As part of the customer on-boarding process before the customer can be accepted

o On a regular basis as and when there is a new individual/entity added/deleted to

these lists by International bodies.

o At the time of Account Review.


All information obtained about the customers must be checked against Sanctions

databases. This is done electronically at the point of onboarding by a third party

application or the through the transaction monitoring /AML application. And on a

daily basis across the Bank customer base, as the Sanctions lists are updated. These

checks must be carried out for the following:

o Individuals : Primary and Joint account holder, Power of Attorney holder,

o Companies: Authorized Signatories, Directors, Ultimate Beneficial Owner, and

Shareholders having a shareholding of more than 20%. If a company has a

shareholding of more than 20% or is the Ultimate beneficial owner, then these

checks are also applicable on the said company.

o Charity/Trusts/ Societies/ Clubs and Association: Authorized Signatories, Trustees,

Directors (in case the trust is registered as a company), Beneficiary of the trust.

o Payments: Remitters of all Inward Payments and Beneficiaries of all outward

payments.

o Entity names must be screened against the sanctions lists since they may be subject

to sanctions.

8.1 Escalations

In the event of sanctions hit, the following guidelines are to be followed:

o New Customers: The account opening process should be on hold pending further

review. In case of genuine hit, the case must be referred to MLRO/Compliance and

wait for further instructions from MLRO. In case, the hit is a false positive, then

branch/department must do a review to confirm whether the subject is actually on a

sanctions list. Branch after completing the review may decide on whether or not to

establish relationship with the customer depending on the risk perceived by the

bank. The review must be recorded in the customer file and approved by the

branch/division head.

o Existing Customers: In case, an account relationship already exists, and there is a

sanctions hit against the customer’s name or there is a sanctions hit against the

remitter/beneficiary of a payment, then the transaction must be put on hold

immediately pending further review. In case of genuine hit, then the case is to be

referred to the MLRO /Compliance for further review. In case, the hit is a false

positive, then branch/department to do a review to confirm whether the subject is

actually on a sanctions list.

o Walk-in Customer: If there is a sanctions hit against the remitter/beneficiary of a

payment made by a walk-in customer, then the transaction must be put on hold

immediately pending further review.


8.2 Record keeping

Adequate records must be maintained of due diligence documentation including all

positive and false positive hits, recording what triggered the Initial hit, the action

taken to confirm the findings and clear reasons for decisions to retain report or close

a relationship. These records should be maintained by both Compliance and the

concerned department/division.

9 Transaction Monitoring

Bank is required to perform monitoring of all transactions flowing through it. The

monitoring can either be automated or manual and real time basis or post

transaction.

9.1 Purpose

o To comply with the regulations. o To detect any unusual behavior in customer’s financial activities. o To screen customers, remitters and beneficiaries of transactions against

OFAC and HMT sanctions lists to make sure Bank does not deal either with sanctioned Individual, entities or countries

9.2 Stages

o Transaction processing: At the time of processing the transaction. This is done manually and staff must be adequately trained to identify any suspicion.

o Automated Transaction Monitoring Application: Post the processing of transaction in the transaction monitoring application (BaNCS). Alerts are raised in this application based on specific scenarios in order to identify suspicious transactions. The responsibility of addressing the alerts lies with the branch staff. These alerts must be addressed immediately.

o Finacle Transactions report checking: This report provides daily customer transaction details. This activity is done on a daily basis usually on the day after the transaction is processed.

o Periodic Review: All customer transactions to be checked and matched with customer’s profile while reviewing the account periodically.

o Other trigger events: if the staff comes across any other event that might raise a suspicion, then staff must check transactions in customer’s account.

9.3 Escalation

o If at any of the above given stages, the staff identifies a suspicious transaction, then it should follow the suspicious activity reporting procedure. (Refer Operations Manual).


10 Periodic reviews

All accounts/customers shall be reviewed on a periodic basis and in accordance with

the risk classification of the customer. High risk accounts should be reviewed once in

a year, Medium risk accounts every 2 years and Low Risk accounts should be

reviewed once every 3 years. See Review procedure. A review date must be diarized

for each account either in the accounting system or outside the system. The

responsibility for maintaining this diary and ensuring the due and punctual

completion of the reviews shall rest with the Branches and Operations Departments.

However, Compliance/AML department will monitor and report the progress and

ensure completion of this activity. As part of this review, we ensure that customer

details are up to date.

11 Correspondent Banking

Staff must ensure that “Know your Correspondent” procedures are followed before

establishing correspondent relationships for both upstream and downstream

correspondent Banks. The Bank’s policy on correspondent banking is set out below:

11.1 Downstream Correspondent Banking

11.1.1 Countries which follow FATF Standard

The Bank will establish a rationale for establishing a Correspondent Banking

relationship including the nature of business to be conducted and record this on the

relevant bank’s file.

For banks (other than UK/EU) that follow FATF standards, in establishing a

correspondent relationship the Bank will advise the relevant Bank that we may, for

Money Laundering purposes request copies of documentation identifying the

customer and trade for transactions passing over the account. The bank will be

requested to accept and acknowledge this condition.

11.1.2 Jurisdictions which are considered as non-equivalent by FATF

(Jurisdictions with strategic deficiencies).

As a general policy, the Bank will not enter into a Correspondent Banking

relationship with a bank in a country or jurisdiction which does not employ

appropriate and robust anti money laundering and counter terrorist financing laws

and regulations.


11.1.3 Banks and Financial Institutions in India

Banks or financial institutions in India, not having a branch in London may wish to

establish or maintain a correspondent relationship with our Bank. The Bank is also

likely to accept deposits from various Banks including Indian Banks. The purpose of

these accounts will be mainly to facilitate trade flows, remittances and interbank

deals.

11.1.4 Due Diligence

The Bank will take care that it opens correspondent accounts only after meeting the

following criteria:

o Satisfying it that the institution is a known and reputed institution.

o At the time of opening the account, Bank must satisfy itself concerning the reasons

why the correspondent wants to open an account and the type and nature of

transactions that will flow through the account.

o Obtain a copy of the Financial Crime (including AML, CTF and Sanctions) Policy of the

Respondent Bank and understand the Anti-money laundering procedures that it will

adopt in the use of the account.

o It is mandatory that details are obtained of the Respondent Bank’s own CDD

procedures.

o Bank must obtain a commitment from the Respondent Bank that they will not pass

any non-account holder funds through the correspondent bank account.

o Remitters and Beneficiaries of all transactions of the respondent Bank made through

the Bank’s account must be screened against the sanctions list.

o All respondent accounts must be reviewed at least once every year by the

relationship manager. The review will be considered completed only after seeking

approval for the same from Compliance.

o Responsibility of the Bank as well as the Respondent must be documented and

conveyed to the respondent and a copy of it must be filed in the Account Opening

File.

o All respondent bank account opening must be approved by the Bank’s Chief

Operating Officer.

11.2 Upstream Correspondent Banking and Interbank Dealings

Bank takes correspondent banking services from other financial Institution to

process its own customer’s transactions in various currencies. Bank also undertakes

Forex deals with International Banks of repute. The Bank may also place or borrow

funds with similar Banks. In such transactions, the Bank will be dealing as a principal


with the counterparty Banks and there are no customer transactions. Bank is

required to carry out due diligence of these Financial Institutions as follows:

o Bank will follow simplified due diligence for maintaining dealings with Banks

operating within FATF jurisdictions as given in Annexure 8.

o Bank should only enter into a relationship if the service provider holds world rank of

less than 500 and country rank not exceeding 5.

o Bank will follow additional procedures of obtaining additional documents like a copy

of the Banking license, reference from our parent or agent or obtaining legal opinion

etc. for completing the CDD for Banks from non- FATF countries.

o As general guidance, for banks in non-EU countries, the establishment and regulated

status of the bank shall be confirmed (hard copy to file if internet confirmation used)

in one of the following ways.

1. Checking with the home country Central Bank or relevant supervisory body;

or

2. Checking with another office, subsidiary, branch, or correspondent bank in

the same country; or

3. Checking with an EU regulated correspondent bank of the overseas

institution; or

4. Obtaining from the relevant institution evidence of its licence or

authorization to conduct financial and or banking business.

o All Correspondent accounts must be reviewed at least once every year by the

relationship manager. Compliance to approve the review work done by the

relationship manager.

o Bank must obtain a copy of the Wolfsburg Questionnaire from all correspondent

banks.

o Bank to obtain a completed KYC/AML Questionnaire from the correspondent Banks

before establishing account relationship with the Bank. This must be also be

obtained once every year at the time of reviewing the relationship.

o Approval from the Chief Operating Officer is required before establishing

relationship with a correspondent bank.

12 Trade Finance

The use of trade finance facilities such as Letters of Credit (LCs – this includes trade

letters of credit and standby letters of credit which are used as an alternative to an

indemnity or financial guarantee) and Guarantees (including indemnities,

bid/performance and retention bonds) can be used for money laundering purposes.

The complexity of transactions and the huge volume of trade flows can hide

individual transactions and help criminal organizations to transfer value across


borders. Trade finance can be used to hide the illegal movement of funds or value –

typically by misrepresenting the price, quality or quantity of goods, or even faking

the existence of goods – and is dependent on some form of collusion between buyer

and seller. There are a number of techniques for doing this.

Due diligence must be applied by the Trade Finance Department prior to the issue

and confirmation stages of the LCs as well as making sufficient enquiries to be

comfortable that the underlying transaction is genuine. Trade finance staff must

strictly follow their detailed departmental procedures to prevent money laundering

through the trade finance area. As general guidance:

o While opening a letter of credit on behalf of our customers a reference should be

made to the customer’s profile to ensure that the transaction covered by the LC is a

genuine trade transaction (underlying goods and value should be consistent with the

customer’s normal trade and ability to provide).

o The department should obtain all the details of the transactions as required to verify

movement of goods even if the LC is fully cash secured.

o Staff should insist on a full set of original documents of title to the goods covered

under a LC (other than a Stand by Letter of Credit) as part of the documents required

for negotiation.

o The department should also insist on a copy of an Export License wherever

applicable for goods exported through UK ports.

o Manual screening of ports, storage houses, inspection companies, insurance

companies, and all entities/individuals who are party to the transactions.

o Any trade transaction for weapons, military and defence goods, needs to be

escalated to MLRO for approval.

o Bank needs to be sure of who will be the end user for the transaction.

In summary, the department should verify as far as they possibly can that there is a

legitimate underlying trade transaction taking place under the LC and that the

movement of funds is consistent with the trade transaction and business of the

parties involved.

Copies of the proof of delivery of goods, e.g. bill of lading or airway bill and invoice,

should be retained and attached to the transaction documentation.

13 Training

It is the Bank’s policy that new staff shall be given Anti Money Laundering Induction

training prior to undertaking customer-facing or transaction processing work, or

within a reasonable period of commencement if they are qualified by prior

experience.


Regulatory rules stipulate that every relevant member of the staff must be given

training on money laundering, sanctions screening and terrorist financing prevention

on an on-going basis. Training may take place using a variety of media as judged

appropriate by the Bank including electronic learning, face to face and ad-hoc emails,

talks and memos.Such training will be given at least once a year to satisfy the

minimum regulatory requirement. Issue of ad hoc in-house training, memos, etc. will

act as an additional supplement. Senior Management will also be updated regularly.

In addition to the training programs above, those staff working in retail, wholesale,

trade finance and Compliance will be given additional focused training where the

staff attend external trainings and briefings conducted and organized by Regulatory

bodies and associations to update the knowledge on present and upcoming changes

in Money Laundering, CTF and Sanctions.

The HR department will obtain an annual declaration from all employees that they

have,

o Read and understood the AML,CTF and Sanctions policy.

o received adequate training in AML

o Understood their obligations with respect to POCA.

HR Department ensures that all new relevant employees complete the declaration

after joining the Bank. They also maintain a training register to record the details of

relevant training provided to each employee of the Bank.

Bank also conducts briefing to board of directors once in a year to update on the on-

going AML issues and other compliance related topics.

14 The Role of the Money Laundering Reporting Officer

Bank’s Anti money laundering and terrorist financing strategy is encapsulated in the

role of MLRO. The MLRO’s function is a registered controlled function with the FCA

and as such is required to be an Senior Management Regime (SMR) designate.

The Bank’s MLRO has a number of responsibilities in addition to any other role and

responsibilities specified by anti-money laundering guidelines from time to time. In

particular, the MLRO:

o Is responsible for the design and implementation and maintenance of Anti-Money

Laundering / Countering Terrorist Financing (AML/CTF) policies, procedures, systems

and controls in line with the legislation, regulations or guidelines.

o Monitors the day to day operation of the Bank’s AML/CTF policies, procedures,

systems and controls.


o Must take reasonable steps to establish and maintain adequate arrangements for

awareness and training.

o Must promptly respond to any request for information made by PRA, FCA, BOE or

other regulatory bodies.

o Is the focal point for delivery of all Suspicious Activity or Transaction Reports

o Determines whether the information contained in any Suspicious Activity Report he

received gives rise to knowledge, suspicion or reasonable grounds that the

customer(s) may be engaged in Money Laundering (in making the judgment, the

MLRO must consider all the relevant information available within the Bank and have

access to the customer file and pay particular attention to the customer profile).

o Must report the activity to the NCA where he suspects Money Laundering (he does

not need to seek consent internally within the Bank to do so).

o Maintains a separate register for internal reports. All internal enquiries made in

relation to the report and the reason behind whether or not to submit the report to

the authorities should be documented and retained for a minimum of ten years (as

per internal standards).

o Retains Records of suspicion, including those not disclosed to the authorities, for a

minimum of ten years (as per internal standards) from the date of the transaction.

o In case of pre-advised transaction, MLRO must obtain proper acknowledgement and

defence from NCA for continuing transactions in the account. If it is necessary to

terminate business transactions with the customer the MLRO should obtain

confirmation from NCA that such termination does not amount to a “Tip-Off”.

o Will periodically sample the documentation obtained for opening new accounts to

confirm that adequate KYC/CDD information is obtained and/or review the results of

internal audits in this regard.

o Must obtain and make use of national and international findings concerning

countries with inadequacies in their approach to money laundering prevention.

o Must periodically check and hold findings given by JMLSG (published in their

website) and periodically receive and hold intelligent assessment forwarded by NCA

and make use of the same in effective implementation of AML/CTF

o Must ensure that the periodical findings of the FATF concerning approach to money

laundering prevention is received and make use of the same

o Must submit an annual report to the BBACC with respect to his findings on the

effectiveness of the systems and internal control on AML/CTF

o Must produce an annual report which must assess the operation and effectiveness

of the systems and controls in relation to money laundering risk.

In the absence of the MLRO including his leave period, the Deputy MLRO will

assume the responsibility of the role of MLRO. However, in cases where the absence

is more than 12 weeks, the pre-approval of FCA will be obtained in compliance with

senior manager’s regime.

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