The finance ministry has asked banks to install software to track all bank transactions so that any suspicious dealing can be detected and reported to the Financial Intelligence Unit (FIU). Banks are talking to software companies for developing in-built alert systems to detect suspicious transactions to keep a tab on money laundering and terror financing. So, each time a customer transacts with a bank, it would be scanned and an alert will be issued if it falls within the parameters of being suspicious.
"Suspicious transactions are being identified manually but there is a need to further streamline the process to make it more efficient," a government source said. The matter is being treated with lot of urgency as in the recent past, bank dealings have given key leads to security agencies in nabbing offenders in a drug racket case and a Maharashtra bomb blast case. This would make the system more efficient and information could be given to the concerned agencies well in time for their use.
Detecting suspicious dealings is a cumbersome and time-consuming process and makes it a difficult proposition for banks as it would require dedicated manpower in every branch. At times, agencies are unable to do much because details do not reach them in time. Software alerts can be sent out immediately to FIU. Some banks have already moved quickly on this.
For example, Punjab National Bank (PNB) has roped in TCS for a data warehousing project that will take off in six months. According to PNB GM (IT) RIS Sidhu, "We have developed an in-house software to track suspicious transactions based on abnormal findings with respect to the observed history of the account." If a customer can explain the discrepancy in a transaction to the FIU, he will not be implicated, he added.
"Most new accounts are classified based on the risk perception of the bank about the account holder, but the old accounts are not classified in this way. For such accounts, the history of transactions becomes important. There are in-built alarms in the software that throw up transactions that are inconsistent with the pattern of the account. Factors such as quantum and source of funds determine a suspicious transaction. Hawala transactions, terrorist financing and unaccounted NRI remittances can be detected by the software. Know-your-customer (KYC) norms are also crucial in giving leads for such transactions."
All banks have to mandatorily submit cash transaction reports to FIU. The reports have data about cash withdrawals and deposits above Rs 10 lakh. Around 13 lakh such cash transactions have been tracked by banks in the last year.
The provisions under the Prevention of Money Laundering Act requires the entities to maintain a record of transactions: all cash transactions of a value greater than Rs 10 lakh or equivalent foreign currency, series of cash transactions that have taken place within a month (integrally connected to each other) and total value of more than Rs 10 lakh, cash transactions where forged or counterfeit currency notes have been issued as genuine and all suspicious transactions whether or not made in cash.
It may be noted that in April, RBI had notified that all scheduled commercial banks will implement better procedures and systems to track wire transfers both domestic as well as cross-border. India — which got observer status in global force against money laundering, the Financial Action Task Force, in February — is keen to become its member.
It recently became a member of the Egmont group that will allow FIU to share information with other such bodies globally. Membership of FATF requires tightening of the monitoring mechanism in the financial sector as also giving more teeth to PMLA.
