New Delhi: The Financial Intelligence Unit (FIU-Ind) has imposed a penalty of Rs 15.62 crore on state-owned Punjab National Bank (PNB) for breaching anti-money laundering rules. The FIU move against PNB is significant because it is based on inspection and review of the Bank during April 2016-November 2017, which covers the crucial months before and after demonetisation that was announced on 8 November 2016 by the government to neutralize black money.
The FIU which is primarily responsible for safeguarding the financial system from the abuses of money laundering, terrorism financing and other economic offences said the PNB not only failed to submit threshold-based transaction reports but also did not file suspicious transaction reports accurately. The central agency is also of the view that PNB was found wanting in evolving and implementing an effective internal mechanism for suspicious transactions and submitting the correct data to FIU for further analysis and probe. Interestingly, just two months after the FIU review, PNB was hit by the Nirav Modi scam.
According to FIU officials, after the inquiry was completed, a show-cause notice was issued to the PNB on 9 November 2018 under relevant rules of section 12 and 13 of Prevention of Money Laundering Act (PMLA), which makes it mandatory for banks and other financial institutions to maintain proper records of beneficial owner of accounts, transactions and business correspondence related to clients. A detailed reply was submitted by the Bank and it was also granted the opportunity to personally brief the FIU.
The huge monetary fine was imposed on 29 July 2019 because the list of violation by the PNB is rather long. The FIU said PNB failed to identify and verify beneficial owner in accounts of several of its customers. The Bank failed to record suspicious pattern where multiple transactions just below the threshold were carried out by walk-in customers. The PNB also failed to carry out risk assessment and to identify and assess its money laundering and terrorist financing risk for products, services and delivery channels. It also did not implement fully a client due to diligence programme approved by the Bank’s board to identify beneficial account owner details and their risk assessment.
While the PNB has been warned to act in accordance with the provisions of money-laundering rules in the future, it has been directed by the FIU to submit a detailed report on transactions carried out by the non-profit organizations by 29 August 2019.
In the case of the Nirav Modi scam, the glaring loopholes in the Bank’s mechanism were exposed and at every level, an investigation revealed it failed to check the fraudulent LoUs issued in connivance with officials over the SWIFT messaging network. The Reserve Bank of India (RBI) has also directed the PNB to conduct a comprehensive KY audit of the branch and, the Bank’s board of directors should subsequently decide the corrective actions.
The FIU has also pulled up Indian Overseas Bank (IOB), a Chennai headquartered public sector bank for not acting as per PMLA rules and slapped a penalty of Rs 10.40 lakh. Based on an inquiry, IOB was issued a show-cause notice on 26 March 2019. According to the FIU, IOB failed to fully implement a client due to diligence program specifically with regard to screening names of prospective customers in the latest UNSC sanction list. The Bank also did not file certain threshold based reports with prescribed timeline and was not able to evolve and implement an effective internal mechanism for suspicious transaction reports.
After demonetisation during 2017-18, the FIU had received over 14 lakh suspicious transaction reports, 93 lakh cross border wire transfer reports, 1.33 crore cash transaction reports and 8 lakh non-profit organisation transaction reports from various banks. Cash transaction reports which are above Rs 10 lakh has to be filed by the Banks every month. In 2017-18, more than 87 lakh cash transaction reports were filed by public sector banks followed by 34.96 lakh reports by the private banks. On the basis of these reports, the Central Board of Direct Taxes (CBDT) had unearthed unaccounted income of Rs 19,627 crore and Enforcement Directorate (ED) seized more than Rs 984 crore.