Axis Bank Fined Over Rs 1.66 Crore For Fraud Account

Axis Bank Ltd. has been slapped with a Rs 1.66-crore fine due to failure to put in place a mechanism to detect and report suspicious transactions carried out at one of its branches.

The Financial Intelligence Unit imposed the penalty after a 'fraud' account was created in the name of counter-terrorist commando force NSG.

On June 3, the federal agency issued an order under Section 13 of the Prevention of Money Laundering Act, allowing its director to impose a financial penalty on the lender.

According to the summary order accessed by PTI, an employee of Axis Bank was allegedly complicit in a large-scale fraud and corruption scandal, in collusion with others. The FIU order said this "alleged misconduct pertained to the creation of a fraudulent bank account in the name of the National Security Guard, 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.

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

Officials said the case took place in Gurugram, Haryana in 2021. 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 counterterrorist and counter-hijack operations.

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

The FIU, under the Union Finance Ministry, is an agency entrusted with implementing certain sections of the anti-money laundering law, much like the Enforcement Directorate. It 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.

(With text inputs from PTI)