Money Laundering

International Best Practices against terrorist financing through Cash Couriers (-

Source www.fatf.org )

Introduction

1. The use of cash couriers is now recognised as a major method for terrorists to move funds. To
address this issue, the Financial Action Task Force (FATF) issued Special Recommendation IX
and its Interpretative Note which were developed with the objective of preventing terrorists and
other criminals from using cash couriers to finance their activities or launder their funds.
2. While the Interpretative Note is intended to further explain the obligations set out in Special
Recommendation IX, this Best Practices Paper is intended to give additional details and
guidance for jurisdictions on how to detect cash couriers and how to implement effective
measures to prevent the use of cash couriers by terrorists and other criminals.

Statement of the Problem

3. Reporting by intelligence and law enforcement indicates that cash smuggling is one of the
major methods used by terrorist financiers, money launderers and organised crime figures to
move money in support of their activities. Over many years, FATF typologies exercises have
repeatedly highlighted the key role that cash couriers often play in money laundering
operations. However, in recent years, evidence has emerged that cash couriers also play a
significant role in the international financing of terrorism.
4. Cash couriers use a variety of methods to smuggle cash; however, a preferred method is the
use of commercial airlines for the following reasons: (1) the passenger (courier) can stay close
to his money during transport, (2) many foreign destinations can be quickly reached; and (3)
little preplanning is required. Land border crossings also offer advantages to the cash courier,
including the ability to conceal the currency in the courier's vehicle. Another leading method of
cash smuggling is through the mail.

Definitions

5. For the purposes of Special Recommendation IX and this Best Practices Paper, the definitions
set out in the Interpretative Note to Special Recommendation IX apply.

Implementing Measures: General Considerations

Thresholds in the declaration system

6. In a declaration system, the obligation to make a written declaration is triggered if the person
istransporting currency or bearer negotiable instruments of a value exceeding the pre-set
threshold. While the Interpretative Note to Special Recommendation IX prescribes a maximum
threshold of EUR/USD 15,000, it is acknowledged that many countries have decided to adopt
thresholds below this limit.

Technical capabilities

7. Countries are also encouraged to develop specific technical expertise to increase their capacity
to detect cash at the borders. For example, jurisdictions should consider developing
mechanisms to detect cash within baggage or shipments through the use of canine units that
are specially trained to sniff out currency, X-ray technology, scanners and other sophisticated
 equipment. All mechanisms employed should be utilised on a risk and intelligence led basis
given the volume of cross-border movement. In line with this, jurisdictions need to ensure that
their cross-border currency reporting systems are adequately resourced and funded.

Large Denomination Bank Notes

8. Countries should give consideration to the elimination of large denomination bank notes. These
notes can be used by cash smugglers to substantially reduce the physical size of cash
shipments being transported across borders and, by doing so, significantly complicate
detection exercises.

Other forms of cash

9. Countries should apply Special Recommendation IX and its Interpretative Note to the
crossborder transportation of currency and bearer negotiable instruments. Additionally,
countries are encouraged to consider applying these measures to other forms of cash and
bearer negotiable instruments that may keep the anonymity of the bearer, payer or payee.

Targeting Cash Couriers

10. In developing measures to detect the physical cross-border transportation of currency and
bearer negotiable instruments for terrorist financing or money laundering purposes, it is critical
that countries conduct interdiction operations to disrupt this criminal activity. Countries should
develop effective and feasible procedures to detect, stop or restrain, and where appropriate,
confiscate such currency and bearer negotiable instruments. Countries are encouraged to
coordinate these operations with all relevant law enforcement authorities1 and, when
appropriate, commercial air/sea carriers. Law enforcement authorities should contact airline
personnel to discuss their co-operation and assistance prior to commencing currency
interdiction operations. For example, airline agents should be asked to report suspicious
behaviour of passengers noted at check-in, and when necessary, be able to co-operate with
law enforcement regarding the investigation of cash courier cases.
11. Countries are encouraged to base targeting efforts upon intelligence and analysis together with
risk and threat assessments. Authorities must first identify travel routes, flights, ships and
concealment methods that are considered high-risk because of known or possible links to
terrorist financing or other illicit finance movement. High-risk passengers should then be
identified. The use of "profiling" or targeting passengers for examination on the basis of race,
religion or ethnicity should be strictly prohibited. Detection methods should be focused on key
transit, destination and source countries, and the authorities in these countries should co-
ordinate activities, intelligence and information on targeted carriers or individuals. When
targeting individuals, names should be checked against the various jurisdictional and UN
terrorist watch lists, as well as other law enforcement databases according to domestic data
protection laws. Access to intelligence reports, seizure analysis and historical data, both
domestically and internationally, is essential in identifying trends used by cash couriers. This
information should be shared in a timely manner between countries.

Identifying Cash Couriers

12. Countries are encouraged to establish passenger screening systems to analyse the behaviour,
appearance and communications (verbal and non-verbal) of potential cash couriers. Authorities
should take note of behaviour anomalies. An integral part of the screening process is the
conducting of interviews on passengers who merit further examination. Authorities should
 develop a baseline of questions before interviewing the subject. A list of red flag indicators to
aid in the detection of cash couriers is available to the appropriate authorities through FATF
channels. 1 In many countries, customs departments are not considered law enforcement
agencies and thus do not have the background, training or authority to conduct enforcement
operations.

Collection of Data

13. Most inspections, detections and seizures result from an initial "document review" process.
When conducting interviews, it is best practice to ensure that an analysis of identification and
travel documentation includes the following: passport, visa, airline/cruise ticket, and declaration
or suspicious disclosure documentation.
14. When targeting cash from cargo examinations, it is best practice to ensure that some or all of
the following shipping documents are made available for review: manifest, airway bill, shipper's
export declaration and invoice/packing list.

Restraint/Confiscation of Currency

15. When a false declaration or false disclosure occurs, or when there are reasonable grounds for
suspicion of money laundering or terrorist financing, countries are encouraged to consider
imposing a reverse burden of proof on the person carrying currency or bearer negotiable
instruments across borders on the question of the legitimacy of such currency and bearer
negotiable instruments. Therefore if, under these circumstances, a person is unable to
demonstrate the legitimate origin and destination of the currency or bearer negotiable
instruments, those funds may be stopped or restrained.Countries may consider confiscation of
currency or bearer negotiable instruments without criminal conviction in a manner consistent
with FATF Recommendation

Inspections

16. Countries should consider establishing procedures to conduct thorough inspections of

passengers, vehicles, cargo, etc. when it is suspected that currency and bearer negotiable
instruments may be falsely declared or undisclosed or that it may be related to terrorist
financing or money laundering. If possible, inspections should be conducted by a minimum of
two individuals. As stated earlier, the use of X-ray equipment, scanners and canine units that
are specially trained to sniff out currency should also be used to the maximum extent possible.
When suspicious currency and bearer negotiable instruments are discovered, the
baggage/cargo should be kept intact with the currency and negotiable instruments so that
photographs can be taken to preserve evidence. Authorities should have in place appropriate
systems for the handling, storage, security and accounting for seizures of cash and bearer
negotiable instruments.
17. When inspecting for currency which may be falsely declared or undisclosed, or which may be
related to terrorist financing or money laundering, it is best practice to give particular attention
to the potential use of counterfeit currencies. The unique forensic characteristics of counterfeit
currency can be quite valuable to investigators attempting to disrupt terrorist or other criminal
networks. In some cases, counterfeiters employ either their own smugglers or other already
established smuggling networks to accomplish this cross-border activity. Some countries have
established mechanisms to detect counterfeit currency. For example, when encountering
questionable or suspicious U.S currency, authorities should check these notes using the U.S.
Secret Service Counterfeit Note Search Website (www.usdollars.usss.gov) or the European
Central Bank website (www.eur.ecb.int/en/section/recog.html) in the case of euro notes.
 18. Likewise, it is best practice to examine currency closely to determine if "chop marks" or other
external markings that could tie the currency to particular individuals or currency traders is
present. Such information also should be shared among domestic law enforcement and with
the international community, as appropriate
19. Customs authorities and other enforcement agencies are encouraged to work with
prosecutorial or judicial authorities to establish guidelines for the stopping or restraining of
currency and bearer negotiable instruments, and the arrest and prosecution of individuals in
cases involving falsely declared or disclosed currency and bearer negotiable instruments, or
where there are suspicions that the currency or bearer negotiable instruments are related to
terrorist financing or money laundering.These guidelines should also address individuals who
fail to truthfully answer questions posed by customs officers or fail to co-operate with the
authorities in the inspection process.

International and domestic co-operation

20. Countries are encouraged to have co-operation arrangements with other countries which would
allow for bilateral customs information exchanges between customs and other relevant
agencies on cross-border reports, the stopping or restraining of cash and bearer negotiable
instrument, and red flag indicators. This co-operation could also extend to operations involving
controlled deliveries and other investigative techniques when unaccompanied cash and bearer
negotiable instruments are detected at the border. Countries are also encouraged to enhance
customs and border capabilities, information sharing and passenger targeting. Increased
information between domestic customs authorities and police forces, and international police
forces (such as Interpol and Europol) is also encouraged. In cases where countries have a
disclosure obligation, systems should be in place to record information collected from
suspicious or false oral statements for international cooperation purposes.
21. Countries are also encouraged to enhance domestic law enforcement co-operation between
customs, immigration and the police to respond to detections of currency and bearer
negotiable instruments, and to develop intelligence. FIUs also have a useful role to play in the
dissemination of this type of information domestically. For instance, jurisdictions are
encouraged to ensure that false declarations / disclosures are reported or otherwise made
available by the designated competent authorities to the financial intelligence unit.

ANNEX 1

Typologies of Cash Couriers

Example 1: Use of Commercial Airline

Airport security officials at an x-ray security point discovered a large amount of currency hidden in a
false-bottom briefcase. The security officials then notified customs authorities who responded by
performing a search of passengers who were boarding the same international flight. An announcement
was made prior to the passengers boarding the flight notifying them of the requirement (in the departure
country) to declare cash. One suspect then declared cash in the amount under the reporting
requirement. While boarding the aircraft, the suspect was stopped in the jet way and advised of the
reporting requirement and was afforded the opportunity to amend his previous declaration. After he
chose not to avail himself of that option, an inspection disclosed that the suspect was carrying
significantly more currency than he had declared. This currency was immediately seized.

Example 2: Use of Private Vehicle

As a result of a lookout at a land border port, Country B intercepted a total of $165,000 USD in
suspected proceeds of crime. The subject of the lookout was returning from Country A. Upon inspecting
the pick up truck, officers noticed that the airbag cover in the passenger side was loose. Officers
removed the plastic cover revealing a false compartment, which was found to be concealing the bundles
of currency. In addition, the passenger of the vehicle was carrying a large quantity of currency on her
person.

Example 3: Use of Air Parcel

Law enforcement authorities in Country C initiated an investigation based on two bulk currency seizures
over USD 200,000 discovered in express outbound courier shipments intended for a particular business
in Country X. This currency was destined for a country of concern. The business and its owner located
in Country X were ultimately identified as members of a known and designated Middle Eastern terrorist
organisation.

UPDATES OF RBI INSTRUCTIONS REGARDING AML AND KYC GUIDELINES

1. Not to open an account or close an existing account where the bank is unable to apply appropriate
customer due diligence measures i.e. bank is unable to verify the identity and /or obtain documents
required as per the risk categorisation due to non cooperation of the customer or non reliability of the
data/information furnished to the bank. It is, however, necessary to have suitable built in safeguards to
avoid harassment of the customer. For example, decision by a bank to close an account should be
taken at a reasonably high level after giving due notice to the customer explaining the reasons for such
a decision;

2. It has been observed that some close relatives, e.g. wife, son, daughter and daughter and parents
etc. who live with their husband, father/mother and son, as the case may be, are finding it difficult to
open account in some banks as the utility bills required for address verification are not in their name. In
such cases, banks can obtain an identity document and a utility bill of the relative with whom the
prospective customer is living along with a declaration from the relative that the said person (prospective
customer) wanting to open an account is a relative and is staying with him/her. Banks can use any
supplementary evidence such as a letter received through post for further verification of the address.
Banks should keep in mind the spirit of instructions issued by the Reserve Bank and avoid undue
hardships to individuals who are, otherwise, classified as low risk customers.

3. Banks should pay special attention to any money laundering threats that may arise from new or
developing technologies including internet banking that might favour anonymity, and take measures, if
needed, to prevent their use in money laundering schemes. Many banks are engaged in the business of
issuing a variety of Electronic Cards that are used by customers for buying goods and services, drawing
cash from ATMs, and can be used for electronic transfer of funds. Banks are required to ensure full
compliance with all KYC/AML/CFT guidelines issued from time to time, in respect of add-on/
supplementary cardholders also. Further, marketing of credit cards is generally done through the
services of agents. Banks should ensure that appropriate KYC procedures are duly applied before
issuing the cards to the customers. It is also desirable that agents are also subjected to KYC
measures.
4. As and when list of individuals and entities, approved by Security Council Committee established
pursuant to various United Nations' Security Council Resolutions (UNSCRs), are received from
Government of India, Reserve Bank circulates these to all banks and financial institutions.
Banks/Financial Institutions should ensure to update the consolidated list of individuals and entities as
circulated by Reserve Bank. Further, the updated list of such individuals/entities can be accessed in the
United Nations website at http://www.un.org/sc/committees/1267/consolist.shtml. Banks are
advised that before opening any new account it should be ensured that the name/s of the proposed
customer does not appear in the list. Further, banks should scan all existing accounts to ensure
that no account is held by or linked to any of the entities or individuals included in the list. Full
details of accounts bearing resemblance with any of the individuals/entities in the list should immediately
be intimated to RBI and FIU-IND.

Banks are also advised to take into account risks arising from the deficiencies in AML/CFT regime of
certain jurisdictions viz. Iran, Uzbekistan, Pakistan, Turkmenistan and Sao Tome and Principe, as
identified in FATF Statement of February 25, 2009.

5. The guidelines shall apply to the branches and majority owned subsidiaries located abroad,
especially, in countries which do not or insufficiently apply the FATF Recommendations, to the extent
local laws permit. When local applicable laws and regulations prohibit implementation of these
guidelines, the same are required to be brought to the notice of Reserve Bank. In case there is a
variance in KYC/AML standards prescribed by the Reserve Bank and the host country regulators,
branches/overseas subsidiaries of banks are required to adopt the more stringent regulation of the two.

6. Banks use wire transfers as an expeditious method for transferring funds between bank accounts.
Wire transfers include transactions occurring within the national boundaries of a country or from one
country to another. As wire transfers do not involve actual movement of currency, they are considered
as a rapid and secure method for transferring value from one location to another.

i. The salient features of a wire transfer transaction are as under:

a. Wire transfer is a transaction carried out on behalf of an originator person (both
natural and legal) through a bank by electronic means with a view to making an
amount of money available to a beneficiary person at a bank. The originator and the
beneficiary may be the same person.
b. Cross-border transfer means any wire transfer where the originator and the
beneficiary bank or financial institutions are located in different countries. It may
include any chain of wire transfers that has at least one cross-border element.
c. Domestic wire transfer means any wire transfer where the originator and receiver are
located in the same country. It may also include a chain of wire transfers that takes
place entirely within the borders of a single country even though the system used to
effect the wire transfer may be located in another country.
d. The originator is the account holder, or where there is no account, the person (natural
or legal) that places the order with the bank to perform the wire transfer.
ii. Wire transfer is an instantaneous and most preferred route for transfer of funds across the
globe and hence, there is a need for preventing terrorists and other criminals from having
unfettered access to wire transfers for moving their funds and for detecting any misuse when it
occurs. This can be achieved if basic information on the originator of wire transfers is
immediately available to appropriate law enforcement and/or prosecutorial authorities in order
to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing
their assets. The information can be used by Financial Intelligence Unit - India (FIU-IND) for
analysing suspicious or unusual activity and disseminating it as necessary. The originator
information can also be put to use by the beneficiary bank to facilitate identification and
 reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing threat
posed by small wire transfers, the objective is to be in a position to trace all wire transfers with
minimum threshold limits. Accordingly, banks must ensure that all wire transfers are
accompanied by the following information:

( A ) Cross-border wire transfers

i. All cross-border wire transfers must be accompanied by accurate and meaningful originator
information.
ii. Information accompanying cross-border wire transfers must contain the name and address of
the originator and where an account exists, the number of that account. In the absence of an
account, a unique reference number, as prevalent in the country concerned, must be included.
iii. Where several individual transfers from a single originator are bundled in a batch file for
transmission to beneficiaries in another country, they may be exempted from including full
originator information, provided they include the originator’s account number or unique
reference number as at (ii) above.

( B ) Domestic wire transfers

i. Information accompanying all domestic wire transfers of Rs.50000/- (Rupees Fifty Thousand)
and above must include complete originator information i.e. name, address and account
number etc., unless full originator information can be made available to the beneficiary bank by
other means.
ii. If a bank has reason to believe that a customer is intentionally structuring wire transfer to below
Rs. 50000/- (Rupees Fifty Thousand) to several beneficiaries in order to avoid reporting or
monitoring, the bank must insist on complete customer identification before effecting the
transfer. In case of non-cooperation from the customer, efforts should be made to
establish his identity and Suspicious Transaction Report (STR) should be made to FIU-
IND.
iii. When a credit or debit card is used to effect money transfer, necessary information as (i) above
should be included in the message.
iv. Exemptions: Interbank transfers and settlements where both the originator and beneficiary are
banks or financial institutions would be exempted from the above requirements.

7. Banks should introduce a system of maintaining proper record of transactions prescribed under Rule
3, as mentioned below:

a. all cash transactions of the value of more than Rupees Ten Lakh or its equivalent in foreign
currency;
b. all series of cash transactions integrally connected to each other which have been valued
below Rupees Ten Lakh or its equivalent in foreign currency where such series of transactions
have taken place within a month and the aggregate value of such transactions exceeds
Rupees Ten Lakh;
c. all cash transactions where forged or counterfeit currency notes or bank notes have been used
as genuine and where any forgery of a valuable security or a document has taken place
facilitating the transaction and
d. all suspicious transactions whether or not made in cash and by way of as mentioned in the
Rules.

Explanation - Integrally connected cash transactions referred to at (b) above

 The following transactions have taken place in a branch during the month of April , 2008:
Date Mod Dr (in Rs.) Cr (in Rs.) Balance (in Rs.) BF -
e 8,00,000.008,00,000.00

02/04/2008 Cash 5,00,000.00 3,00,000.00 6,00,000.00

07/04/2008 Cash 40,000.00 2,00,000.00 7,60,000.00

08/04/2008 Cash 4,70,000.00 1,00,000.00 3,90,000.00

Monthly summation 10,10,000.00 6,00,000.00

e.

f. As per above clarification, the debit transactions in the above example are integrally connected
cash transactions because total cash debits during the calendar month exceeds Rs. 10 lakhs.
However, the bank should report only the debit transaction taken place on 02/04 & 08/04/2008.
The debit transaction dated 07/04/2008 should not be separately reported by the bank, which
is less than Rs.50,000/-.
g. All the credit transactions in the above example would not be treated as integrally connected,
as the sum total of the credit transactions during the month does not exceed Rs.10 lakh and
hence credit transaction dated 02, 07 & 08/04/2008 should not be reported by banks.

Know Your Customer (KYC) Norms / Anti-Money Laundering (AML)

Standards / Combating of Financing of Terrorism (CFT) - Wire Transfers

Banks use wire transfers as an expeditious method for transferring funds between bank accounts. Wire
transfers include transactions occurring within the national boundaries of a country or from one country
to another. As wire transfers do not involve actual movement of currency, they are considered as a rapid
and secure method for transferring value from one location to another.

The salient features of a wire transfer transaction are as under :

i. Wire transfer is a transaction carried out on behalf of an originator person (both natural and
legal) through a bank by electronic means with a view to making an amount of money available
to a beneficiary person at a bank. The originator and the beneficiary may be the same person.
ii. Cross-border transfer means any wire transfer where the originator and the beneficiary bank or
financial institution are located in different countries. It may include any chain of wire transfers
that has at least one cross-border element.
iii. Domestic wire transfer means any wire transfer where the originator and receiver are located in
the same country. It may also include a chain of wire transfers that takes place entirely within
the borders of a single country even though the system used to effect the wire transfer may be
located in another country.
iv. The originator is the account holder, or where there is no account, the person (natural or legal)
that places the order with the bank to perform the wire transfer.
Wire transfer is an instantaneous and most preferred route for transfer of funds across the
globe and hence, there is a need for preventing terrorists and other criminals from having
unfettered access to wire transfers for moving their funds and for detecting any misuse when it
occurs. This can be achieved if basic information on the originator of wire transfers is
immediately available to appropriate law enforcement and/or prosecutorial authorities in order
 to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing
their assets. The information can be used by Financial Intelligence Unit - India (FIU-IND) for
analysing suspicious or unusual activity and disseminating it as necessary. The originator
information can also be put to use by the beneficiary bank to facilitate identification and
reporting of suspicious transactions to FIU-IND. Owing to the potential terrorist financing threat
posed by small wire transfers, the objective is to be in a position to trace all wire transfers with
minimum threshold limits. Accordingly, we advise that banks must ensure that all wire transfers
are accompanied by the following information:

(i) Cross-border wire transfers

a. All cross-border wire transfers must be accompanied by accurate and meaningful originator
information.
b. Information accompanying cross-border wire transfers must contain the name and address of
the originator and where an account exists, the number of that account. In the absence of an
account, a unique reference number, as prevalent in the country concerned, must be included.
c. Where several individual transfers from a single originator are bundled in a batch file for
transmission to beneficiaries in another country, they may be exempted from including full
originator information, provided they include the originator's account number or unique
reference number as at (b) above.

(ii) Domestic wire transfers

a. Information accompanying all domestic wire transfers of Rs. 50000/- (Rupees Fifty Thousand)
and above must include complete originator information i.e. name, address and account
number etc., unless full originator information can be made available to the beneficiary bank by
other means.
b. If a bank has reason to believe that a customer is intentionally structuring wire transfers to
below Rs. 50000/- (Rupees Fifty Thousand) to several beneficiaries in order to avoid reporting
or monitoring, the bank must insist on complete customer identification before effecting the
transfer. In case of non-cooperation from the customer, efforts should be made to establish his
identity and Suspicious Transaction Report (STR) should be made to FIU-IND.
c. When a credit or debit card is used to effect money transfer, necessary information as (a)
above should be included in the message.

(iii) Exemptions

a. Interbank transfers and settlements where both the originator and beneficiary are banks or
financial institutions would be exempted from the above requirements.

Role of Ordering, Intermediary and Beneficiary banks

(i) Ordering bank

An ordering bank is the one that originates a wire transfer as per the order placed by its customer. The
ordering bank must ensure that qualifying wire transfers contain complete originator information. The
bank must also verify and preserve the information at least for a period of ten years.

(ii) Intermediary bank

For both cross-border and domestic wire transfers, a bank processing an intermediary element of a
chain of wire transfers must ensure that all originator information accompanying a wire transfer is
retained with the transfer. Where technical limitations prevent full originator information accompanying a
cross-border wire transfer from remaining with a related domestic wire transfer, a record must be kept at
least for ten years (as required under Prevention of Money Laundering Act, 2002) by the receiving
intermediary bank of all the information received from the ordering bank.

(iii) Beneficiary bank

A beneficiary bank should have effective risk-based procedures in place to identify wire transfers lacking
complete originator information. The lack of complete originator information may be considered as a
factor in assessing whether a wire transfer or related transactions are suspicious and whether they
should be reported to the Financial Intelligence Unit-India. The beneficiary bank should also take up the
matter with the ordering bank if a transaction is not accompanied by detailed information of the fund
remitter. If the ordering bank fails to furnish information on the remitter, the beneficiary bank should
consider restricting or even terminating its business relationship with the ordering bank.

Source : RBI

Financial Inclusion by Extension of Banking Services - Use of Business

Facilitators and Correspondents and adherence to KYC norms

With the objective of ensuring greater financial inclusion and increasing the outreach of the banking
sector, it has been decided in public interest to enable banks to use the services of Non-Governmental
Organisations/ Self Help Groups (NGOs/ SHGs), Micro Finance Institutions (MFIs) and other Civil
Society Organisations (CSOs) as intermediaries in providing financial and banking services through the
use of Business Facilitator and Correspondent models as indicated below.

2. Business Facilitator Model: Eligible Entities and Scope of Activities

2.1 Under the "Business Facilitator" model, banks may use intermediaries, such as, NGOs/ Farmers'
Clubs, cooperatives, community based organisations, IT enabled rural outlets of corporate entities, Post
Offices, insurance agents, well functioning Panchayats, Village Knowledge Centres, Agri Clinics/ Agri
Business Centers, Krishi Vigyan Kendras and KVIC/ KVIB units, depending on the comfort level of the
bank, for providing facilitation services. Such services may include (i) identification of borrowers and
fitment of activities; (ii) collection and preliminary processing of loan applications including verification of
primary information/data; (iii) creating awareness about savings and other products and education and
advice on managing money and debt counselling; (iv) processing and submission of applications to
banks; (v) promotion and nurturing Self Help Groups/ Joint Liability Groups; (vi) post-sanction
monitoring; (vii) monitoring and handholding of Self Help Groups/ Joint Liability Groups/ Credit Groups/
others; and (viii) follow-up for recovery.

2.2 As these services are not intended to involve the conduct of banking business by Business
Facilitators, no approval is required from RBI for using the above intermediaries for facilitation of the
services indicated above.

3. Business Correspondent Model: Eligible Entities and Scope of Activities

3.1 Under the 'Business Correspondent' Model, NGOs/ MFIs set up under Societies/ Trust Acts,
Societies registered under Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts
of States, section 25 companies, registered NBFCs not accepting public deposits and Post Offices may
act as Business Correspondents. In engaging such intermediaries as Business Correspondents, banks
should ensure that they are well established, enjoying good reputation and having the confidence of the
local people. Banks may give wide publicity in the locality about the intermediary engaged by them as
Business Correspondent and take measures to avoid being misrepresented.

3.2 In addition to activities listed under the Business Facilitator Model, the scope of activities to be
undertaken by the Business Correspondents will include (i) disbursal of small value credit, (ii) recovery
of principal / collection of interest (iii) collection of small value deposits (iv) sale of micro insurance/
mutual fund products/ pension products/ other third party products and (v) receipt and delivery of small
value remittances/ other payment instruments. 3.3 The activities to be undertaken by the Business
Correspondents would be within the normal course of the bank's banking business, but conducted
through the entities indicated above at places other than the bank premises. Accordingly, in furtherance
of the objective of increasing the outreach of the banks for micro-finance, in public interest, the Reserve
Bank hereby permits banks to formulate a scheme for using the entities indicated in paragraph 3.1
above as Business Correspondents. Banks should ensure that the scheme formulated and implemented
is in strict compliance with the objectives and parameters laid down in this circular.

4. Payment of commission/ fees for engagement of Business Facilitators/

Correspondents

Banks may pay reasonable commission/ fee to the Business Facilitators/ Correspondents, the rate and
quantum of which may be reviewed periodically.. The agreement with the Business Facilitators/
Correspondents should specifically prohibit them from charging any fee to the customers directly for
services rendered by them on behalf of the bank.

5. Other Terms and Conditions for Engagement of Business Facilitators and

Correspondents

5.1 As the engagement of intermediaries as Business Facilitators/ Correspondents involves significant

reputational, legal and operational risks, due consideration should be given by banks to those risks.
They should also endeavour to adopt technology-based solutions for managing the risk, besides
increasing the outreach in a cost effective manner. 5.2 The arrangements with the Business
Correspondents shall specify:

a. suitable limits on cash holding by intermediaries as also limits on individual customer payments
and receipts,

b. the requirement that the transactions are accounted for and reflected in the bank's books by
end of day or next working day, and

c. all agreements/ contracts with the customer shall clearly specify that the bank is responsible to
the customer for acts of omission and commission of the Business Facilitator/ Correspondent.

6. Redressal of Grievances in regard to services rendered by Business Facilitators/

Correspondents

a. Banks should constitute Grievance Redressal Machinery within the bank for redressing
complaints about services rendered by Business Correspondents and Facilitators and give
wide publicity about it through electronic and print media. The name and contact number of
designated Grievance Redressal Officer of the bank should be made known and widely
publicised. The designated officer should ensure that genuine grievances of customers are
redressed promptly.

b. The grievance redressal procedure of the bank and the time frame fixed for responding to the
complaints should be placed on the bank's website.
 c. If a complainant does not get satisfactory response from the bank within 60 days from the date
of his lodging the compliant, he will have the option to approach the Office of the Banking
Ombudsman concerned for redressal of his grievance/s.

7. Compliance with Know Your Customer (KYC) Norms

Compliance with KYC norms will continue to be the responsibility of banks. Since the objective is to
extend savings and loan facilities to the underprivileged and unbanked population, banks may adopt a
flexible approach within the parameters of guidelines issued on KYC from time to time. The KYC
guidelines issued vide RBI circulars dated November 29, 2004 and August 23, 2005provide sufficient
flexibility to banks. In addition to introduction from any person on whom KYC has been done, banks can
also rely on certificates of identification issued by the intermediary being used as Banking
Correspondent, Block Development Officer (BDO), head of Village Panchayat, Post Master of the post
office concerned or any other public functionary, known to the bank.

Source: RBI