The Reserve Bank of India (RBI) is examining the policies of all the 27 public sector banks (PSBs) regarding mobilisation of the foreign currency non-resident (FCNR-Bank) deposits, the non-resident external (NRE) deposits and the non-resident non-repatriable (NRNR) deposits. The objective is not only to plug loopholes via which the money is laundered but also to protect the banks by making them aware about the modus operandi.
The issues coming under the central bank's scanner are whether these banks have established an effective "know your customer" (KYC) policy and whether they are alert about large value funds transfers/ customer transactions inconsistent with the clients' business activities. The RBI is also trying to find out whether the banks generate elaborate reports on activities in various classes of deposits, cash-in/ cash-out reports and incoming/ outgoing wire transfer logs among others.
A senior banker pointed out that the foreign branches of the PSBs generally do take care to verify the bonafides of a non-resident Indian -- who wants to open an account with a PSB -- by getting his/ her passport verified with the Indian embassy/ high commission/ consulate. The concern about money being laundered to conceal criminal activity associated with it, including crimes that generate it such as drug trafficking and illegal tax avoidance, requires closer scrutiny as to the source and destination of funds.
"The RBI has called for information from the banks to gauge their level of preparedness in tackling this malaise. The central bank possibly intends coming up with some early warning signals that will help bankers avoid getting involved with launderers," the official pointed out.
Money laundering is driven by criminal activities that conceal the true source of funds so that they can be used freely. As per international literature, it involves three independent steps (Placement - physical placing bulk cash proceeds; Layering - separating the proceeds from criminal activity from their origins through layers of complex financial transactions; and Integration - providing an apparently legitimate explanation for the illicit proceeds) that often occur simultaneously.
