FIU fines Axis Bank Rs 1.66 cr for failing to detect fraud NSG account

The Financial Intelligence Unit has slapped a fine of more than Rs 1.66 crore on Axis Bank for "failing" to put in place a mechanism to detect and report suspicious transactions carried out at one of its branches by creating a "fraud" account in the name of counter-terrorist commando force NSG.

The federal agency has issued an order on June 3 under Section 13 of the Prevention of Money Laundering Act (PMLA) that empowers its Director to impose a monetary penalty on a reporting entity (like Axis Bank) if the agency finds that its designated director on the board or any of its employees failed to comply with the obligations mandated under the said law.

A query sent to Axis Bank did not elicit an immediate response.

According to the summary order accessed by PTI, the case pertains to an instance where "an employee of Axis Bank was alleged to have been complicit in a large-scale fraud and corruption scandal, in collusion with others."

The Financial Intelligence Unit (FIU) order said this "alleged misconduct pertained to 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, purportedly 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 violation of the anti-money laundering law, the order said.

The FIU, under the Union Finance Ministry, is an agency entrusted with implementing certain sections of the anti-money laundering law like the Enforcement Directorate (ED). It (FIU) conducts examination of steps taken to check money laundering and other financial frauds, by banks and other financial institutions designated as 'reporting entities' under the PMLA, in the financial channels of the country.
 

According to the PMLA, reporting entities include banks, stock exchanges, insurance companies and other financial bodies.

Officials said the said case dates to 2021 that took place in Gurugram in Haryana. The local police and the ED had been investigating the case for some years now.

The ED, last year, had attached assets worth Rs 45 crore of an accused NSG officer (on deputation from the BSF) and his family members, including his sister who was working as a manager in Axis Bank.

The 'black cats' commandos of the NSG are tasked as a federal contingency force to undertake specialised counter-terrorist and counter-hijack operations.

The order said the Axis Bank was being fined as it "failed" to put in place a system to detect and report suspicious transactions; its "apparent failure" to properly investigate and close alerts based on application of mind and apparent failure to address alerts and close them within a reasonable period of time.

The bank was also charged for failing to file suspicious transaction reports (STRs) with the FIU in respect of transactions in the fraudulent account which did not appear to be in line with the profile of the account and which were not subject to any verification or checks in violation of the PMLA Act and Rules and also for failure to properly verify if the accused bank employee was authorised to act on behalf of the NSG.

The FIU said its probe, finalised after considering the written and oral submissions made by the bank, found that the charges against Axis Bank Limited were "substantiated".

The agency also issued a four-point directive to the bank for implementation that includes a review of its "extant mechanism" to see why alerts were not being raised in this case and violations of the customer due diligence mandates.

The bank has been asked by the FIU to provide a certification, within 90 days, of steps taken by it for implementing a "robust transaction monitoring mechanism."

The FIU took exception that the bank, in this case, furnished "disorganised data dumps, which led to unnecessary confusion and hindered the scrutiny process."

"To prevent such discrepancies in the future, the bank is strongly advised to streamline its data-sharing practices, maintaining clarity and coherence in all submissions to regulatory authorities."

It also "advised" the bank to implement "stringent" procedures for the screening of employees as mandated by the RBI "master direction" on KYC (know your customer).

"Furthermore, the bank is required to establish and maintain rigorous screening procedures to ensure high standards when hiring employees."

"An ongoing employee training program should also be instituted to uphold these standards and ensure continuous compliance with regulatory requirements," the order said.