The Delhi High Court has rejected 15 appeals by the Financial Intelligence Unit (FIU) of the finance ministry against an order of the appellate tribunal of the Prevention of Money Laundering (PML), which set aside the fine imposed on banks for failing to report suspected transactions.
In its order upholding the judgment of the appellate tribunal for PML, a single-judge Bench of Justice Vibhu Bakhru said as the FIU had already warned banks in writing about their failure to report suspected transactions, the fine imposed on them was an afterthought and, therefore, rightly set aside.
The case dates back to 2013, when a sting operation was conducted by a media outlet on various banks, which showed them to be favouring money laundering operations by sidestepping the know-your-customer (KYC) norms set by the Reserve Bank of India (RBI). The sting operation showed 23 public sector banks (PSBs) as well as private sector lenders' employees agreeing to launder money for a minister without asking for details. Based on the sting operation, the FIU had started investigation.
In September 2014, the FIU wrote to these banks, asking them to be more vigilant about reporting such suspicious transactions. However, later the agency also imposed a fine on these banks, including Corporation Bank, Federal Bank, Punjab National Bank, Axis Bank, Canara Bank, Kotak Mahindra Bank, YES Bank, Indian Bank, Allahabad Bank, IndusInd Bank, Bank of Maharashtra, Bank of India, State Bank of India, ICICI Bank, and HDFC Bank.
The FIU contended that the banks should have reported to the authorities when they were approached during the sting operation. The banks, meanwhile, said they had not offered any services and the employees involved in the sting had been sacked. The banks also contended that the transcript of the alleged sting operation that FIU put before them did not present the full picture, as “they have been edited and extracted in a manner so as to feed the perception that the respondent banks are complicit in money laundering”. The banks challenged the fine as well as the observation that they had not reported suspicious transactions deliberately.
The appellate tribunal for PML held that though banks had not reported the matter to the authorities, the director, FIU, should not have imposed the maximum penalty for the offence. While it reduced the penalty imposed on most banks, it set aside a penalty of Rs 300,000 imposed on Kotak Mahindra Bank (then ING Vysya Bank).