Axis Bank Fraud: Fake account created in name of NSG, Bank Staff involved in large Fraud

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Axis Bank Ltd. has been fined Rs 1.66 crore by the Financial Intelligence Unit (FIU) for its failure to identify and report suspicious transactions at one of its branches. The penalty was imposed after the discovery of a fraudulent account created in the name of the National Security Guard (NSG), a counter-terrorist commando force.

The FIU, an agency under the Union Finance Ministry responsible for enforcing anti-money laundering laws, investigated the creation of this fraudulent account, which was allegedly used to aggregate illicit funds. It was found that an Axis Bank employee was involved in this large-scale fraud and corruption scandal.

Investigation and Enforcement Actions

The fraudulent activities took place in Gurugram, Haryana in 2021 and have been under investigation by the local police and the Enforcement Directorate (ED) for several years. As part of their investigation, the ED had already seized assets worth Rs 45 crore belonging to an NSG officer and his family members, including his sister who worked as a manager at Axis Bank.

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After considering written and oral submissions from Axis Bank, the FIU concluded its investigation and found the bank’s actions to be in violation of anti-money laundering laws. The agency highlighted several failures on the part of the bank, including the lack of a system to detect and report suspicious transactions, inadequate investigation and closure of alerts, and delays in addressing alerts.

Corrective Measures Imposed on Axis Bank

In its order issued on June 3 under Section 13 of the Prevention of Money Laundering Act (PMLA), the FIU directed Axis Bank to implement several corrective measures:

  1. Review of transaction monitoring system: Axis Bank must examine its current system for monitoring transactions to understand why alerts were not raised in this particular case and ensure compliance with customer due diligence requirements.
  2. Certification of steps taken: The bank is required to provide certification within 90 days, confirming the actions taken to establish a robust transaction monitoring mechanism.
  3. Streamlining data-sharing practices: The FIU criticized Axis Bank for submitting disorganized data dumps that hindered the scrutiny process. The agency advised the bank to streamline its data-sharing practices to maintain clarity and coherence in all submissions to regulatory authorities.
  4. Employee screening and training: Axis Bank must implement stringent procedures for employee screening as mandated by the Reserve Bank of India’s (RBI) know-your-customer (KYC) guidelines. The bank is also required to establish an ongoing training program to ensure continuous compliance with regulatory requirements.

Importance of Anti-Money Laundering Measures

The FIU, similar to the Enforcement Directorate, plays a crucial role in enforcing anti-money laundering laws. It reviews the measures taken by banks and other financial institutions, known as ‘reporting entities’ under the PMLA, to prevent money laundering and financial fraud.

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The penalty imposed on Axis Bank serves as a reminder of the importance of robust mechanisms to detect and report suspicious transactions in the banking sector. It emphasizes the need for financial institutions to maintain strict compliance with anti-money laundering regulations to safeguard against fraud and corruption.

Monitoring Axis Bank’s Compliance

As the investigation continues, the actions taken by Axis Bank in response to the FIU’s directives will be closely monitored to ensure the effective implementation of anti-money laundering measures. Continuous vigilance and adherence to regulatory requirements are essential in the financial sector to maintain integrity and prevent illicit activities.

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