FIU Fines Axis Bank Over Rs 1.66 Cr For Failure To Detect NSG Fraud Account

FIU Fines Axis Bank Over Rs 1.66 Cr For Failure To Detect NSG Fraud Account

The Financial Intelligence Unit has imposed a fine exceeding Rs 1.66 crore on Axis Bank. This penalty was levied due to the bank's failure to establish a system for identifying and reporting suspicious transactions conducted at one of its branches. Specifically, Axis Bank created a fraudulent account in the name of the National Security Guard (NSG), a counter-terrorist commando force.

The federal agency issued an order on June 3 under Section 13 of the Prevention of Money Laundering Act (PMLA). This section empowers the agency's director to impose financial penalties on reporting entities like Axis Bank if their designated directors or employees do not adhere to the obligations mandated by the law.

Axis Bank did not respond immediately to a query sent regarding the matter. According to a summary order obtained by PTI, the case involves allegations that "an Axis Bank employee was allegedly complicit in a significant fraud and corruption scheme, working in collaboration with others."

The Financial Intelligence Unit (FIU) order stated that this "alleged misconduct involved the creation of a fraudulent bank account in the name of the National Security Guard (NSG), a government agency."

"The reports indicated that a manager at Axis Bank was involved in setting up this account, purportedly to aggregate illicit funds," the order added.

The FIU imposed a total fine of Rs 1,66,25,000 on the bank for alleged violations of the anti-money laundering law, according to the order.

The FIU, operating under the Union Finance Ministry, is tasked with enforcing specific sections of the anti-money laundering law, similar to the role of the Enforcement Directorate (ED). It conducts assessments to oversee measures taken by banks and other financial institutions designated as 'reporting entities' under the Prevention of Money Laundering Act (PMLA) in the financial channels of the country.

Under the PMLA, reporting entities encompass banks, stock exchanges, insurance companies, and other financial institutions.

Officials indicated that the incident in question occurred in 2021 in Gurugram, Haryana. Local police and the Enforcement Directorate (ED) have been investigating the matter for several years.

Last year, the ED seized assets worth Rs 45 crore belonging to an accused NSG officer (deputized from the BSF) and his family members, including his sister, who was employed as a manager at Axis Bank.

The NSG's 'black cats' commandos are a federal contingency force specialized in counter-terrorism and counter-hijack operations.

The order stated that Axis Bank was fined due to its failure to implement a system for detecting and reporting suspicious transactions. It also highlighted the bank's alleged inadequate investigation and closure of alerts and its failure to address alerts promptly within a reasonable timeframe.

The bank faced charges for its failure to file suspicious transaction reports (STRs) with the FIU regarding transactions in the fraudulent account. These transactions were inconsistent with the account's profile and lacked proper verification or checks, thus violating the PMLA Act and Rules. Additionally, the bank allegedly did not adequately verify whether the accused bank employee had authorization to act on behalf of the NSG.

After considering both written and oral submissions from the bank, the FIU concluded that the charges against Axis Bank Limited were substantiated. As part of its directive to the bank, the agency outlined four actions for immediate implementation. These include a thorough review of the existing mechanism to determine why alerts were not raised in this case and to rectify any breaches of customer due diligence requirements.

The FIU instructed the bank to submit a certification within 90 days detailing the actions taken to establish a robust transaction monitoring system. The agency criticized the bank for providing disorganized data dumps in this case, causing unnecessary confusion and hindering scrutiny.

To avoid future discrepancies, the bank was strongly urged to streamline its data-sharing practices, ensuring clarity and coherence in all submissions to regulatory authorities. Additionally, the FIU advised the bank to implement stringent procedures for employee screening as per the RBI's master direction on KYC (know your customer).

Additionally, the bank must establish and uphold rigorous screening procedures to maintain high standards during employee hiring.

The order also mandates the implementation of an ongoing employee training program to uphold these standards and ensure continuous compliance with regulatory requirements.