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The Reserve Bank of India (RBI) will carry out a comprehensive review of the progress made by banks in implementing the know your customer (KYC) guidelines. The review, to be undertaken soon, is aimed at curbing money laundering.

Money laundering is the process whereby proceeds of crimes such as drug trafficking, smuggling are converted into legitimate money though a series of financial transactions making it impossible to trace back the origin of funds.

The international community considers money laundering as serious crime. The RBI had come out with a timetable in December, 2003, for banks to adhere to the KYC procedures for individual and corporate clients.

"We expect phased implementation of the system to be in place by December 2004," Usha Thorat, executive director, RBI, said at a seminar on 'Anti-Money Laundering' jointly organised by the Indian Banks' Association and KPMG.

Separate scrutiny will be done by special teams of the RBI to assess the action taken at the branch level. Banks have to undertake enhanced due diligence while opening accounts and also monitor operations more closely.

KYC guidelines call for information on the income, wealth and financial/ business transactions of the account holder to be documented at the time of opening of the account to prepare a profile on the customer.

They also require monitoring of activities of customer accounts for suspicious transactions on an on-going basis.

Detailed rules relating to money laundering monitoring will be notified soon, Thorat said. Banks should designate an officer to report data on questionable transactions to the financial intelligence unit.

"Post 9/11 terrorist attacks in the US, the international banking system has become alert. Financing of terrorist activities, closely linked to arms and drug trade, could give impetus to tainted money," Thorat said.

The IBA working group on money laundering has observed that absence of anti-money laundering measures in India could come in the way of international banking transactions and correspondent relationships.