BoB: Anti-money laundering norms may be tightened

Bank rules out financial loss; stocks tank 5.5%; RBI may tighten AML norms but says no systemic implications

Allegedly illegal foreign exchange transactions at a Bank of Baroda (BoB) branch in New Delhi are likely to prompt the central bank to tighten anti-money laundering norms. Sources at the Reserve Bank of India (RBI) say systemic implications have been ruled out.

The government-owned lender has already suspended two officials, while the Central Bureau of Investigation (CBI) is carrying out searches at many other branches of the bank.

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The allegedly illegal transactions came to light after BoB noticed its Ashok Vihar branch in the national capital had unusually heavy foreign exchange transactions.

Between May 2014 and August 2015, 5,853 outward foreign remittances, amounting to Rs 3,500 crore, primarily for “advance remittances for import” were recorded. In a communication to stock exchanges, the bank said the funds were transferred through 38 current accounts to foreign parties, numbering 400, primarily based in Hong Kong, and one in the UAE.

“The branch did not adhere to FEMA (Foreign Exchange Management Act) guidelines,” the bank said, adding the matter came to its notice in mid-July, after which it ordered an internal investigation. The bank had mailed cash transaction reports of 33 accounts to the Financial Intelligence Unit (FIU). Subsequently, the matter was reported to the central bank.

“Of the total amount involved, only 10 per cent has been by way of cash deposits with our branches’ the rest was received by real time gross settlement (RTGS)/national electronic fund transfer (NEFT) from banks numbering about 30,” BoB said.

While the central bank has ruled out systemic implications and said the incident is a one-off, it is likely to quiz several banks from which money was transferred. A BoB official said the funds were transferred from public sector, private and foreign banks.

RBI sources say the incident might prompt the banking regulator to tighten anti-money laundering norms.

The central bank has voiced concern over adherence to banking guidelines. RBI has a zero-tolerance policy on violations of money-laundering or know-your-customer (KYC) norms.

“A similar problem has also been observed in meeting the KYC/AML (anti-money laundering) norms. Not only is there a general lack of sensitivity about KYC/AML compliance needs, the adherence to norms at the field level is often sidestepped on account of a lack of skill set, time or performance pressure,” RBI Deputy Governor S S Mundra had said at an event earlier this month. “My sense is a centralised, technology-supported surveillance system will perhaps serve better for ensuring compliance to KYC/AML norms.”

BoB has clarified the alleged violations haven’t led to any financial loss to the bank. On Monday, however, the BoB stock fell 5.5 per cent to close at Rs 176.8 on the BSE, against the Sensex’s 0.65 per cent fall.