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FIU fines Axis Bank Rs 1.66 cr for not detecting fraud in NSG account | Company News
A total fine of Rs 1,66,25,000 was issued by the FIU against the bank on alleged charges of violating anti-money laundering law, the order said.
4 min read Last updated: June 12, 2024 | 11:15 pm IST
The Financial Intelligence Unit has slapped a fine of over Rs 1.66 crore on Axis Bank for “failing to implement” a mechanism to detect and report suspicious transactions carried out at one of its branches, creating a “fraud” account in the name of the force NSG anti-terrorist command.
The federal agency issued an order on June 3 under Section 13 of the Prevention of Money Laundering Act (PMLA) that authorizes its Director to impose a monetary penalty on a reporting entity (such as Axis Bank) if the agency finds that its designated director on the board or any of its employees did not comply with the obligations imposed by said law.
A query sent to Axis Bank did not elicit an immediate response.
According to the summary order accessed by PTI, the case refers to a case in which “an employee of Axis Bank was accused of having been complicit in a large-scale fraud and corruption scandal, in collusion with third parties”.
The order from the Financial Intelligence Unit (FIU) said this “alleged misconduct concerned the creation of a fraudulent bank account in the name of the National Security Guard (NSG), a government agency”.
“Reports indicated that a manager at Axis Bank played a role in establishing this account, allegedly for the purpose of aggregating illicit funds,” the order said.
A total fine of Rs 1,66,25,000 was issued by the FIU against the bank on alleged charges of violating anti-money laundering law, the order said.
The UIF, under the Union Ministry of Finance, is an agency tasked with implementing certain sections of the anti-money laundering law, like the Enforcement Directorate (ED). It (UIF) carries out analysis of the measures taken to check money laundering and other financial frauds, by banks and other financial institutions designated as ‘subject entities’ under the PMLA, in the country’s financial channels.
Under the PMLA, subject entities include banks, stock exchanges, insurance companies and other financial bodies.
Officials said the said case dates back to 2021 and took place in Gurugram in Haryana. Local police and the DE had been investigating the case for a few years.
The ED, last year, attached assets worth Rs 45 crore of an accused NSG officer (on behalf of the BSF) and his family members, including his sister who worked as a manager at Axis Bank.
The NSG “black cat” commandos are tasked as a federal contingency force to undertake specialized counter-terrorism and counter-kidnapping operations.
The order said Axis Bank was being fined for “failing to implement” a system to detect and report suspicious transactions; its “apparent failure” to properly investigate and close the alerts based on application of mind and the apparent failure to address the alerts and close them within a reasonable period of time.
The bank was also accused of failing to submit suspicious transaction reports (COS) to the FIU in relation to transactions on the fraudulent account that did not appear to be in line with the account profile and that were not subject to any verification or verification. in violation of the PMLA Act and Rules and also for failing to adequately verify whether the accused bank official was authorized to act on behalf of the NSG.
The UIF said its investigation, completed after considering the written and oral submissions made by the bank, concluded that the allegations against Axis Bank Limited were “substantiated”.
The agency also issued a four-point directive for the bank to implement, which includes a review of its “existing mechanism” to see why alerts were not being issued in this case and violations of customer due diligence mandates.
The UIF requested the bank to provide a certification, within 90 days, of the measures taken by it to implement a “robust transaction monitoring mechanism”.
The FIU criticized the fact that the bank in this case provided “disorganized data dumps, which led to unnecessary confusion and hampered the scrutiny process.”
“To avoid such discrepancies in the future, the bank is strongly advised to simplify its data sharing practices while maintaining clarity and consistency in all submissions to regulatory authorities.”
It also “advised” the bank to implement “stringent” procedures for employee screening as required by the RBI’s “master direction” on KYC (know your customer).
“In addition, the bank is required to establish and maintain rigorous screening procedures to ensure high standards in hiring employees.”
“An ongoing employee training program must also be instituted to maintain these standards and ensure ongoing compliance with regulatory requirements,” the order stated.
First Published: June 12, 2024 | 3:31 pm IST