Union Bank of India penalized with Rs.54 Lakh for PMLA violations

The Financial Intelligence Unit (FIU) penalised the Union Bank of India with Rs.54 lakh for failing to report suspicious transactions and failing to do due diligence under the Prevention of Money Laundering Act (PMLA).

The penalty notice was issued under Section 13 of the Prevention of Money Laundering Act (PMLA), as it was determined that the charges against the lender were “substantiated” after considering the Bank’s written and oral submissions.

The probe began following a FIU observation, and a “comprehensive review” of the operations of the Bank was conducted, revealing several “irregularities” in KYC/AML (know your customer/anti-money laundering) compliance.

An independent examination of specific current accounts maintained at Union Bank of India’s Hill Road Branch in Mumbai revealed that the accounts of an NBFC (Non-Banking Financial Company) and its associated entities were involved in significant circular fund transfers, orchestrated through entities under common control.

The FIU discovered several serious inconsistencies involving entities that shared common a registered address and had the same beneficial owners. It was claimed that the bank’s inspection of these accounts was inadequate, as just one suspicious transaction report (STR) was filed, despite the large number of transactions and a number of warnings issued in the account in concern.

The FIU sent a notice to the Bank, and after reviewing its submissions, the FIU Director issued an order imposing a punishment of Rs 54 lakh on the bank for violating the PMLA on multiple counts. According to the order, the bank neglected to notify suspicious transactions as required by the PMLA for the aforementioned entities’ accounts, as well as other flagged transactions.

The Bank was penalized for failing to do continuing due diligence and evaluate transactions to ensure that they were consistent with the client’s knowledge of the business, risk profile, and source of funds in respect of the designated accounts.

The lender was also charged with failing to review due diligence measures, including re-verifying the client’s identity, failing to conduct due diligence on existing clients based on materiality and risk, and failing to develop an internal mechanism to detect and report suspicious transactions in relation to the accounts in question.

The FIU also asked the Bank to conduct a thorough examination of its due diligence procedures and execute some of the recommendations. The authority stated that the Bank must examine its internal process and transaction monitoring methodology, particularly when a large number of alerts are generated on a customer account but are then closed in a casual manner.