Page 41 - A Banker Down the Rabbit Hole

7. Fall out of not following the KYC

procedure

K YC stands for "Know Your Customer". This actually means to

establish the identity of the account holder beyond doubt
that he is actually the same person who he claims to be with
the bank. Moreover, it helps to reach and detect the people
using the bank account as conduit for laundering drug money, terrorist
funds or illegal payments or unaccounted money. If bank collects a
cheque for the account holder without proper KYC procedure and later
it is found that the account holder was not the true owner of the cheque,
banker loses protection in law. Banker is charged for 'conversion' (helping
someone to misappropriate the property or money of the true owner
of the cheque). Bank has to compensate the true owner for the loss
suffered. That is why there is so much stress on KYC in banks.

At one bank branch, the deposit In-charge was requested by a person to
open a saving bank account. He was asked to provide "Introduction" (now
known as KYC) in the account. Customer brought the security guard of
the same branch and being a permanent employee, his introduction was
accepted as per rules and account was opened. He deposited several large
amount cheques totaling Rs. 15 lakhs approx. and withdrew the amount
so credited to his account.

After about four months, the police approached the branch to give details
of that account holder. He allegedly had opened account in name of Payee
(the true owner) of the cheque and got cheques collected in this account
and went missing. As a natural course of inquiry, the officer opening the
account was questioned. He maintained that the KYC procedure was
observed by accepting "Introduction" of a permanent employee with 12

38 | A Banker down the Rabbit Hole