Anti Money Laundering Policy for Cryptocurrency
Background and objective
Money Laundering – Definition
Money Laundering Risks
AML Governance Framework Structure
4.1. AML/KYC Standards
4.1.1. Basic Due Diligence (KYC)
4.1.2. When should KYC be done?
4.1.3. Enhanced Due Diligence
4.1.4. Record Keeping
4.2. Appointment of ‘Designated Director’
4.3. Recruitment and training of employees
4.4. Liability of the Cryptocurrency Investors
Review of AML Framework
1. Background and Objective
The Prevention of Money Laundering Act is applicable to all the financial institutions, which include insurance institutions. The application of AML measures to non-depository financial institutions generally, and to the insurance companies in particular, has also been emphasized by international regulatory agencies as a key element in combating money laundering. Establishment of the AML program by financial institutions is one of the central recommendations of the Financial Action Task Force (FATF) and also forms part of the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS).
The key objectives of this document are:
- To lay down the detailed AML Framework of the Zlato.
- To protect Zlato’s reputation.
- To assist law enforcement agencies in their effort to investigate and track money launderers.
- To lay down AML compliance norms for the employees of Zlato.
2. Money Laundering – Definition
2.1. Money Laundering is moving illegally acquired cash through financial systems so that it appears to be legally acquired.
2.2. There are three common stages of money laundering as detailed below which are resorted to by the launderers and insurance institutions may unwittingly be exposed to a potential criminal activity while undertaking normal business transactions:
- Placement- the physical disposal of cash proceeds derived from illegal activity;
- Layering- separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the source of money, subvert the audit trail and provide anonymity; and
- Integration- creating the impression of apparent legitimacy to criminally derived wealth.
2.3. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing to be normal business funds.
3. Money Laundering Risks
Zlato is aware that it is exposed to several risks which are detailed as under:
- Reputation Risk - Risk of loss due to severe impact on Zlato’s This requires maintaining the confidence of authority, cryptocurrency investors and the general marketplace.
- Compliance Risk - Risk of loss due to absence of compliance along with key Regulations governing the Zlato’s
- Operations Risk - Risk of loss resulting from inadequate or failed internal processes and systems, or from external events.
- Financial Risk - Risk of loss due to any of the above risks or combination thereof resulting in negative financial impact on
4 AML Governance Framework structure
It is to be noted that there exists no AML Framework for the Zlato as Cryptocurrency is still unregulated and not centralized in India but certain standards need to be maintained as mentioned below:
4.1. AML/KYC Standards-
4.1.1. Basic Due Diligence [Know Your Customer (KYC)]:
Keeping in view the specific requirements and considering the potential threat of usage of financial services by a money launderer, Zlato shall make reasonable efforts to determine the true identity of all cryptocurrency investors by doing proper Due Diligence of the cryptocurrency investors. Effective procedures should be put in place to obtain requisite details for proper identification of new cryptocurrency investors.
- Agents / Financial Consultants (FCs) shall be required to provide information to indicate any behavioral aspects of a cryptocurrency investor that are found to be suspicious at the time of their registration.
- Special attention will be given to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose.
- Zlato shall not enter into a contract with a cryptocurrency investor whose identity matches with any person with known criminal background or with banned entities and those reported to have links with terrorists or terrorist organizations.
4.1.2. When should KYC be done?
- New cryptocurrency investors:
In case of new cryptocurrency investors, KYC / Due Diligence should be a mandatory step during the creation of an account for an E-wallet.
- Ongoing basis:
KYC should also be carried out at the claim payout stage and at times when additional top up remittances are inconsistent with the cryptocurrency investors’ known profile. Any change which is inconsistent with the normal and expected activity of the cryptocurrency investors, further KYC processes and / or action as considered necessary.
4.1.3. Enhanced Due Diligence:
It is imperative to ensure that the cryptocurrency being purchased is reasonable. Accordingly, cryptocurrency investors’ source of funds, his/her estimated net worth etc., shall be appropriately documented and the community shall obtain income proofs and details of sources of funds for any investment from time to time.
Payments are received or can be received only through online transfers. However, the community will have power to prescribe rules / limits etc. for any particular payment mode, or to disallow any payment mode(s) for any one or more channels.
4.1.4. Record Keeping:
Zlato shall maintain the records (in electronic form) of types of transactions and the copies of the verification of identity of customers for a period of 5 years in order to enable Zlato to comply swiftly with information requests from the competent authorities. Such records shall be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved (if any) so as to provide, if necessary, evidence for prosecution of criminal activity.
The Designated Director and staff of Zlato should have timely access to customer identification data, other KYC information and records.
4.2. Appointment of ‘Designated Director’
Zlato shall designate ‘Designated Director’who will be Managing Director or a whole-time Director duly authorized by Board of Directors.
The Designated Director shall:
be responsible for the overall working along with fulfilling the obligations of the Zlato.
4.3. Recruitment and Training of employees:
The selection process of the employee shall be monitored. It shall be ensured that if any unfair practice is being reported, then action is taken after due investigation. Zlato will have adequate screening procedures when hiring employees. Instruction manuals on the procedures for transactions related to purchasing the Crypto currency, Cryptocurrency Investor identification, record keeping.
The following training requirements are considered essential for the employees:
- A general appreciation of the background to money laundering, and the subsequent need for identifying and reporting of any suspicious transactions to the appropriate designated official shall be provided to all new employees who will be dealing with cryptocurrency investors or their transactions.
- AML training shall cover aspects related to:
- AML definition, guidelines and requirements
- Possible risks due to non-compliance with AML
- Prevention of fraud or suspicious transactions
- Mandatory documentation for AML
- Records of training imparted to employees detailed above shall be maintained.
4.4. Liability of the Cryptocurrency Investors:
The Cryptocurrency Investors shall be liable to inform Zlato of any Suspicious Transaction within 4-5 hours so that Zlato will be able to take appropriate action against such activity.
5. Review of AML Framework:
The AML framework shall be reviewed at least annually and changes effected based on experience and as Zlato deems fit, shall be incorporated from time to time.