Combating money laundering by the banks in India: compliance and challenges

Abstract

Purpose

The study was conducted to assess the level of compliance with regulatory guidelines on anti-money laundering (AML) in the scheduled commercial banks in India, and to understand the bottlenecks in AML implementation.

Design/methodology/approach

The respondents were employees working in the banks located in the States of Puducherry and Tamilnadu. Snowball sampling method was adopted in selecting the sample. The sample consisted of 392 employees from the public sector, private sector, and foreign banks in India. The data was collected by administering the structured questionnaire during the period June, 2014 to January, 2015. Descriptive and non-parametric tests were applied, and the significance was considered at þ ≤ 0.5.

Findings

Results indicated that the banks were largely complying (3.67 ± 1.39) with the AML measures under study. The compliance with guidelines on KYC updation was found to be higher (79.9 per cent), followed by reporting requirements (72.7 per cent), and customer identification procedures (57.4 per cent). The practice of customising or amending the AML policy of the bank according to the bank ' s business risks and evolving regulatory obligations was found unsatisfactory (67.1 per cent). The respondents in majority agreed to the identified issues such as deficit of resources, lack of customer support, training, feedback and information exchange as constraints in the practice of AML.

Originality/value

There is a dearth of studies examining the AML/CFT implementation in the financial institutions of India. Accordingly, the present study attempts to assess the practices of AML/CFT in commercial banks and understand their challenges faced in implementing it.

Citation

Viritha, B., Mariappan, V. and Venkatachalapathy, V. (2015), "Combating money laundering by the banks in India: compliance and challenges", Journal of Investment Compliance, Vol. 16 No. 4, pp. 78-95. https://doi.org/10.1108/JOIC-07-2015-0044