Banks told to submit laundering plan soon

The Reserve Bank of India (RBI) has asked all commercial banks to submit their plan of action with regard to deployment of anti-money laundering (AML) systems by June and submit the final report on solutions and infrastructure installed by December.

The RBI directive comes in the wake of the recent IPO allotment scandal, in which banks were found to have grossly violated customer identification and anti-money laundering norms.

A senior public sector banker said, "Banks are currently examining different solutions available for anti-money laundering. The investment that each bank may have to make could vary between Rs 2 lakh and Rs 1 crore."

The expenditure to be incurred is directly linked to volume of transactions, the existing transaction mode and the kind of reporting required. AML involves setting up rules and defining procedures for reporting fraudulent transactions to the income-tax authorities.

The Indian Banks' Association (IBA) has circulated a guidance note for banks on 'know your customer' (KYC) standards and anti-money laundering measures.

The IBA Chief Executive H N Sinor explained that the cost of compliance is extremely high and, hence, banks are reviewing their internal mechanisms for various processes, reporting structures and accountability for implementing KYC and AML guidelines.

The IBA is slated to hold focused briefings on compliance to KYC and AML measures for its member banks.

Industry estimates put total global money laundering at $856 billion a year, of which the Asia-Pacific region alone accounts for around 30 per cent.

Recently, two private sector banks "" UTI Bank and Karnataka Bank "" deployed a software, called Bankalert, which was provided by 3I Infotech. This software would help the banks closely monitor transaction patterns, through a warning system and investigative tools.

A senior UTI Bank official said, "Eighty per cent of the implementation (of Bankalert) is complete and will be operational in a couple of months. This would ensure avoiding of duplication of accounts. We could also detect and check accounts maintained by criminals by adhering to lists issued by international agencies like the Federal Bureau of Investigation (FBI) and the RBI."

Bank officials said the actions stipulated by the RBI against banks indicted in the recent IPO scam further emphasise the need for strengthening KYC and AML policies and processes in banks.