The Financial Intelligence Unit (FIU) has imposed a fine of Rs 54 lakh on the Union Bank of India for "failing" to report suspicious transaction reports and not undertaking due diligence under the anti-money laundering law for certain accounts at one of its branches in Mumbai.
The federal agency issued the penalty notice under section 13 of the Prevention of Money Laundering Act (PMLA) on October 1 as it observed that the charges against the lender were "substantiated" after it considered written and oral submissions made by the Bank.
The investigation started, pursuant to an observation by the FIU, and a "comprehensive review" of the Bank's operations was undertaken, which uncovered certain "irregularities" related to KYC/AML (know your customer/anti-money laundering laundering) compliance.
"An independent examination of specific current accounts maintained at Union Bank of India, Hill Road Branch, Mumbai, revealed that the accounts of an NBFC (non-banking financial company) and its associated entities were engaged in substantial circular fund transfers, orchestrated through entities under common control," the FIU said in a summary public order accessed by PTI.
The FIU found that there were "several critical irregularities" involving entities with a common registered address and identical beneficial owners.
"Despite their authorised capital being only Rs 1 lakh, each of these entities exhibited credit turnovers disproportionate to their declared business operations, with significant RTGS (real time gross settlement) inflows from the accounts of the NBFC in question.
"These funds were swiftly transferred to other group entities of the NBFC," the FIU said.
The agency said the Union Bank of India's scrutiny of these accounts were "insufficient" as only one suspicious transaction report (STR) was filed, despite the high volume of transactions and a number of alerts that were generated in the account concerned.
The alerts generated in these accounts were closed with "minimal justification", raising concerns "about the adequacy of the bank's due diligence and monitoring", the FIU said.
A notice was subsequently issued to the Bank by the FIU and after considering its submissions, an order was passed by the FIU Director on October 1 imposing a fine of Rs 54 lakh on the bank for "violation" of the PMLA on various counts.
The Bank, as per the order, "failed" to report suspicious transactions as required under the PMLA in respect of the account/s of said entities and in respect of several alerted transactions.
The Bank was also penalised for its "failure" to carry out ongoing due diligence and to examine the transactions to ensure that they are consistent with the knowledge of the client, its business, risk profile and the source of funds in respect of the specified accounts.
The lender was also charged with "failing" to review the due diligence measures, including verifying again the identity of the clients; "failure" to conduct due diligence of existing clients on the basis of materiality and risk and for "failure" to evolve an internal mechanism to detect and report suspicious transactions in respect of the accounts in question.
The FIU also directed the Bank to undertake a "comprehensive review" of its due diligence procedures and implement some of the suggested measures like "enhanced diligence be performed, particularly where newly opened accounts exhibit transaction volumes and velocities that are inconsistent with their declared business activities and turnover." "The Bank shall reassess its internal mechanism and transaction monitoring approach, especially where a significant number of alerts are generated on a client account but are subsequently closed in a cursory manner," the FIU said.
The Mumbai-based lender logged a 34 percent growth in its net profit at Rs 4,720 crore for the second quarter that ended September 2024. It is a reporting entity under the PMLA and submits timely reports to the FIU as per anti-money laundering laws and rules mandated for banks.
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