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    Complicity of banks and financial institutions in instances of money laundering in India

    Money laundering is a major challenge faced by banks and financial institutions across the world. Money laundering is a challenge faced by almost all the banks across the world. Whenever there is a discussion on the challenges posed by money laundering, most people think that money launderers are alone responsible for money laundering. Because of this, focus of money laundering shifts to the launderers and bank’s complicity in the process of money laundering is often ignored, while the reality is opposite to this in many instances? For instance, when HSBC was fined $1.9 billion in US, the investigation process showed that there was complete lack of control on the part of bank in prevention of money laundering. Also when Reserve Bank of India (RBI) penalized 22 banks in India for cases of money laundering, post cobrapost investigation, once again bank’s complicity in the process of money laundering came to light. Video released by cobra post showed how bank employees were offering options of money laundering without any fear of law. Instances of bank’s complicity in the process of money laundering are not just restricted to these two cases. There are many such instances across the world in cases of money laundering.So why it is that bank’s are found to be guilty of cases of money laundering?

    Are these cases intentional or it is just a process lapse? The answers to these two questions are not so difficult to find. Let us first look at some of the cases where money laundering has been done intentionally by the banks. For instance when Standard Chartered Bank was penalized for money laundering charges, it was found guilty of facilitating ,” U turn’ transaction with entities in Iran. U turn transactions are money moved for Iranian clients among non-Iranian foreign banks such as in Britain and the Middle East and cleared through US but which was neither started nor ended in Iran. Standard Chartered Bank was accused of abusing this system and said to have made huge money in form of fees for 60000 secret transactions. This was a clear cut of process lapse on the part of bank. Owner of Cobrapost Hindi News,Latest News in Hindi - Cobrapost Hindi has said on record that three private sector banks i.e. HDFC Bank, Axis Bank and ICICI Bank have been involved in money laundering process. The case of Bank of Credit and Commerce International (BCCI) is one such case in which bank was accused of money laundering and the bank had to be eventually closed .So bank’s complicity is well established with these cases.
    Now let us look at cases in which banks have been found involved in money laundering in which process related mistakes have been done by the banks. What is meant by process related lapse? Banks have to follow risk based approach for complying with the guidelines of money laundering. For instance, banks are expected to check every account before opening the account to see if any of the account holders is a politically exposed person (PEPs). Many banks do not have robust process in place for checking PEPs. As a result of this cases of money laundering happen. Also banks are supposed to train their customer facing employees to ensure that they are well aware about steps required to prevent incidents of money laundering which does not happen very frequently. It is important to note that a chain is as strong as the weakest link in the chain. Human resource is the weakest link and hence needs to be trained to overcome this aspect of weakness. There can be several other instances of process lapse which a bank may have like absence of technology to prevent cases of money laundering.

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