‘Deference to those with influence fuels money laundering’

SBI compliance chief flags lax culture.

Banks’ deferential treatment towards powerful and influential people is one of the reasons money laundering has risen in the country in recent years, India’s largest bank’s compliance chief said on Tuesday.

State Bank of India’s Group Compliance Officer Soma Sankar Prasad also stressed that India ‘unfortunately’ had no distinct norms in place for ‘politically exposed persons’ opening bank accounts.

“There are certain powerful and influential customers… In India, we still have this hierarchy in terms of power and influence with the result that you treat different people differently.

“That also happens in banks… so when certain important people come into the bank for opening an account, you don’t ask for all the details and you open the account. So that is again one of the reasons that things can go wrong,” he said.

Responding to a query on how banks should treat politically exposed persons, the senior SBI official said: “Unfortunately, we don’t have this concept to check for ‘politically exposed persons’ in India. We can open accounts for them, but extra details must be called for and transactions must also be monitored closely because there is a possibility that this person might use the account for money laundering by diverting money which is earned through illegal means.”

Several countries impose tougher monitoring norms on bank accounts operated by politically exposed persons, defined as those holding an important position in government, bureaucracy or is a relative of someone holding such a position.

The surge in digitisation, increasing complexity of banking transactions and fierce competition among banks has also created money-laundering opportunities, while the crores of transactions that take place in the system daily makes it tougher to detect suspicious transactions, Mr. Prasad said at an Anti-Money Laundering/Combating the Financing of Terrorism conference hosted by the Global Counter Terrorism Council.

Mr. Prasad, also deputy MD at SBI, said a ‘misplaced sense of loyalty’ towards customers and their interests also affects full disclosure at the time of opening accounts, with frontline staff also fretting about loss of business to other banks.

“The lax implementation of Know-Your-Customer norms… So when accounts are being opened, you don’t interview the customer properly, with the result that sometimes the occupation or the income level is not entered correctly,” he said, adding that this makes it difficult to tag suspicious transactions.

Indian banks have now begun using artificial intelligence and machine learning tools to identify transactions that don’t follow the usual pattern, while they seek to improve the compliance culture among their frontline staff.

“The compliance culture in the frontline staff of the banks in India is still very poor and they don’t have the compliance awareness they should have. We give them training, [make them] pass an exam and share stories about how money laundering is done so that they become more aware,” Mr. Prasad said.

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