Feb 12 2012

http://www.mydigitalfc.com/banking/politically-exposed-are-high-risk-category-money-laundering-485

Compared with other regions in Asia, a higher number of banks and financial institutions in India consider politically exposed persons as a high-risk category for money laundering, according to a recent survey by KPMG.

The survey was conducted among 200 firms, including banks, insurance companies and mutual funds, most of which, have an annual turnover of over Rs 6,000 crore. When asked what would be the important factor to check money laundering at the time of opening an account, 93 per cent of the respondents felt that politically exposed persons (PEP) were a high risk category, while 90 per cent felt that nature of the customer’s business and background was a factor; 60 per cent felt it was the location of the customer, while 47 per cent felt the mode of payment was an important factor.

Though, there is no clear global definition for a PEP, the most commonly used methods to identify are branch staff who help identify PEPs and using the commercial lists that the banks normally use. At least 77 per cent of the respondents in India said that they identify and monitor accounts of PEPs regularly compared with 73 per cent of the respondents in the Asia Pacific region.

“In the absence of a robust process for ongoing review of PEP relationships, firms may be unable to defend themselves against allegations of doing business with allegedly corrupt dictators,” the survey said.

Against 73 per cent of the respondents in 2009, who felt that the costs of anti-money laundering (AML) compliance would increase over the next three years, about 82 per cent of the respondents felt so in 2011. The costs for AML compliance are expected to go up by 10-20 per cent according to most respondents.

“Our Global AML survey has consistently shown an increase in AML costs, and there is no sign of respite for AML professionals given the surge of changes and new legislations on the horizon. AML will undoubtedly continue to be a high-cost activity in the foreseeable future,” says Rohit Mahajan, partner and co-head, forensic services at KPMG.

Surprisingly, know-your-customer (KYC) norms, which are an important aspect of checking money laundering, have been benchmarked against global best practices by only 51 per cent of the respondents. And a surprising 70 per cent of the respondents stated that they did not follow any proactive approach to refresh customer data.