{"id":18514,"date":"2020-10-28T14:38:44","date_gmt":"2020-10-28T09:08:44","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=18514"},"modified":"2021-04-29T15:20:54","modified_gmt":"2021-04-29T09:50:54","slug":"terrorist-financing-and-money-laundering-for-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/terrorist-financing-and-money-laundering-for-nbfcs\/","title":{"rendered":"A Comprehensive Analysis on Terrorist Financing &#038; Money Laundering for NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">For years, banks and other financial institutions fight against\nthe stringent force of terrorist financing and money laundering. Since such\ntransactions mostly remain undercover and flow through unique patterns, it\nbecomes hard for the NBFCs to detect them on the first attempt. And that\u2019s\nwhere risk assessment comes into the picture. <\/p>\n\n\n\n<p>A few months back, the reserve bank rolled out the notification regarding the amendment to the Master direction on KYC. This guides the existing <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFCs<\/strong><\/a> to perform a periodic assessment of risk related to terrorist financing and money laundering periodically. In this article, we will come across some crucial insights regarding the same.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/terrorist-financing-and-money-laundering-for-nbfcs\/#Concept_of_Terrorist_Financing_Risk_Assessment_Money_Laundering\" >Concept of Terrorist Financing\nRisk Assessment &amp; Money Laundering&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/terrorist-financing-and-money-laundering-for-nbfcs\/#The_Process_of_Risk_Assessment_by_NBFCs\" >The Process of Risk Assessment by NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/terrorist-financing-and-money-laundering-for-nbfcs\/#Post_Compliances\" >Post Compliances<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/terrorist-financing-and-money-laundering-for-nbfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Terrorist_Financing_Risk_Assessment_Money_Laundering\"><\/span>Concept of Terrorist Financing\nRisk Assessment &amp; Money Laundering&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Financial Action Task Force, aka FATF, came with an idea of Terrorist Financing and money laundering risk assessment. The authority provides the detailed guidelines for the same and it is specially made for the existing NBFCs. Terrorist financing is a risk that operates via vulnerability and consequence. It is referred to as a non-legitimate method of fund raising for terrorist organizations.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Process_of_Risk_Assessment_by_NBFCs\"><\/span>The Process of Risk Assessment by NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"789\" height=\"350\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-104.png\" alt=\"Process of Risk Assessment by NBFCs\" class=\"wp-image-18547\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-104.png 789w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-104-300x133.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-104-768x341.png 768w\" sizes=\"(max-width: 789px) 100vw, 789px\" \/><\/figure><\/div>\n\n\n\n<p>The risk assessment techniques adopted by NBFC should not be a complicated one. The process must encompass the nature and the size of the business for better results. A moderate risk assessment is sufficient for smaller and less intricate NBFCs.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/guidance-on-nbfc-compliances-as-specified-by-the-rbi\/\">Guidance on NBFC compliances as specified by the RBI<\/a><\/mark><\/p>\n\n\n\n<p><em><strong>The process of risk assessment by NBFCs may be categorized into the following stages. Those are as follows:-<\/strong><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Information\nGathering<\/h3>\n\n\n\n<p>The process of risk assessment initiates with the accumulation\nof raw information by taking different variable into the account such as:&nbsp;<\/p>\n\n\n\n<ul><li>General criminal\nenvironment<\/li><li>Terror threats<\/li><li>Terror financing&nbsp;<\/li><\/ul>\n\n\n\n<p>Such information can be gathered internally or externally.&nbsp; The Directorate of Enforcement looks into the matters of Terrorist Financing and Money laundering in India. They have access to a comprehensive database related to terrorists and their activities. Furthermore, the <strong><em>Central Bureau of Investigation<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Central_Bureau_of_Investigation\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> (CBI) can also contribute valuable information in this regard.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Threat\nIdentification<\/h3>\n\n\n\n<p><strong>After information gathering, the experts must pinpoint the&nbsp;<\/strong>sector-specific threats based on such information. Although the\nthreat analysis must be conducted on the national level, it can be expanded\nfurther based on the severity of threats. The threat identification cannot be\ndone without considering the nature and size of the business entity.&nbsp; The\nNBFCs must look into the preventive measures that are incorporated including\nthe functioning of internal functions and risk management quality.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Assessment\nof Vulnerabilities related to Terrorist Financing &amp; Money Laundering<\/h3>\n\n\n\n<p>In this step, the analytic team must measure the impact of the\nidentified threats. During such assessment, the team must take scale, nature,\nand intricacy of their business into the account for a better outcome. In\naddition to that, the team should take advantage of transaction volume,\ninternal audit, and regulatory authority to get a clear picture. The NBFCs\nmust&nbsp;<strong>link&nbsp;<\/strong>such data with information received\nfrom external and internal sources.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Analysis\nof Vulnerabilities and Threats&nbsp;<\/h3>\n\n\n\n<p>Once vulnerabilities and threats are identified, it\u2019s important\nto determine the root cause for them. Such analysis encompasses the\nconsideration of how local and overseas financing threats utilized the\nidentified vulnerabilities. The analysis also takes potential consequences into\nthe account for a thorough assessment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Risk Alleviation<\/h3>\n\n\n\n<p>After the completion of the above step, the NBFCs must develop and deploy policies related to the omission of risks linked with Terrorist Financing and Money Laundering. Customer <a href=\"https:\/\/corpbiz.io\/due-diligence\"><strong>Due Diligence<\/strong><\/a> processes must be laid down for the identification of the customers. This also includes the customer\u2019s working background and their requirement for finance.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Customer Due Diligence Procedures<\/h4>\n\n\n\n<p>The customer due diligence is the first step towards the\ncustomer relationship. It is a process of collecting and examining customer\u2019s\ndata to curb the activities related to terrorist financing and money\nlaundering.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Ongoing Monitoring<\/h4>\n\n\n\n<p>Ongoing monitoring is nothing but an investigation of the\ntransactions. It is used to identify the intricate transactions that seemingly\nadhere to fraudulent patterns.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Reporting<\/h4>\n\n\n\n<p>The NBFCs must pinpoint the unusual fund movement for the\nanalysis. Thereafter, the identified funds of suspicious nature must be\naddressed to the Financial Intelligence Unit (FIU) as per the authority\u2019s\nguideline.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Internal control<\/h4>\n\n\n\n<p>For complete omission of risks, it is vital to have sufficient\ninternal controls. Internal controls enclose governance arrangements where the\naccountability for Anti-money laundering and CFT is placed. It must also\nencompass the monitoring setup to examine the effectiveness of the policies and\nprocesses to pinpoint assess and potential risk.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Recruitment and Training<\/strong><\/h4>\n\n\n\n<p>NBFCs must ensure that hired individuals must possess the\nabilities to perform their respective tasks with ease. The employees must be\nadequately trained to conduct a risk assessment for Money laundering and\nterrorist financing. NBFCs must incorporate suitable training modules to serve\nsuch a purpose.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Post_Compliances\"><\/span>Post Compliances<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As soon as the analytic team is done with the assessment work,\nthey must measure the identified risks against the scale of severity.&nbsp;The\nteam must figure out the possible measures to omit these risks. The information\nlaying the foundation of the risk assessment process must be updated regularly.\nThe slightest of alternation in the information must be handled with due\ndiligence and care.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> The  <a href=\"https:\/\/corpbiz.io\/nbfc-compliance\"><strong>NBFC compliance<\/strong><\/a> officers must have enough authority at their disposal to perform their jobs without obstacles. This also encompasses due diligence of transaction patterns and verification of the suspicious account. By curbing such intricacies, NBFCs can uplift the quality of the services and productivity at the same time. Risk analysis seeks continual improvement with evolving data and technology. The experts take the initiative to deploy the updated version of technology within the system in order the maximize control over suspicious and fraudulent transactions.&nbsp;&nbsp; <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-nbfc-annual-compliances-prescribed-by-the-rbi\/\">Are you running an NBFC? Get updated about the list of Annual Compliances Prescribed by the RBI<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For years, banks and other financial institutions fight against the stringent force of terrorist financing and money laundering. Since such transactions mostly remain undercover and flow through unique patterns, it becomes hard for the NBFCs to detect them on the first attempt. And that\u2019s where risk assessment comes into the picture. A few months back, [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":18541,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1152],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4249,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18514"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=18514"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18514\/revisions"}],"predecessor-version":[{"id":29507,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18514\/revisions\/29507"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/18541"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=18514"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=18514"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=18514"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}