The Financial Intelligence Unit (FIU) has imposed a fine of Rs 54 lakh on the Union Bank of India for failing to report suspicious transactions and for not following proper due diligence procedures under the anti-money laundering law. This penalty is related to certain accounts at the bank’s Hill Road branch in Mumbai.
On October 1, the FIU issued a notice under the Prevention of Money Laundering Act (PMLA) after finding that the bank had not complied with its obligations. The decision came after a thorough investigation, during which the FIU reviewed both written and oral statements from the bank.
The investigation began when the FIU noticed irregularities in how the bank was handling its “know your customer” (KYC) and anti-money laundering (AML) requirements. A detailed review of the bank’s operations revealed significant issues, especially concerning accounts belonging to a non-banking financial company (NBFC) and related entities.
According to the FIU, these accounts were involved in large-scale circular fund transfers between entities under common control. Despite the NBFC and its related companies having only Rs 1 lakh in authorized capital, their accounts showed large transactions that didn’t align with their declared business activities. Funds from the NBFC were quickly transferred to other group entities, raising red flags.
One of the key issues highlighted was the bank’s insufficient monitoring of these accounts. Although there were multiple alerts and high volumes of transactions, the bank filed only one suspicious transaction report (STR). The FIU found that the alerts were closed with minimal explanation, raising concerns about the bank’s diligence and monitoring.
As a result, the FIU concluded that the bank had violated the PMLA by failing to report suspicious transactions and not conducting proper due diligence. In addition to the fine, the FIU ordered the bank to reassess its internal procedures and improve how it monitors transactions. The FIU recommended that the bank take extra care with new accounts that show unusual transaction patterns.
Despite this penalty, Union Bank of India reported a 34% increase in net profit for the second quarter of 2024, reaching Rs 4,720 crore. As a reporting entity under the PMLA, the bank is required to submit regular reports to the FIU in compliance with anti-money laundering regulations.
This case highlights the importance of strict monitoring and due diligence by banks to prevent money laundering and other financial crimes.
