FIU Fines Union Bank of India Rs 54 Lakh for Violations of Anti-Money Laundering Laws

FIU Fines Union Bank of India Rs 54 Lakh for Violations of Anti-Money Laundering Laws

The Financial Intelligence Unit (FIU) has imposed a Rs 54 lakh fine on Union Bank of India for failing to report suspicious transaction reports (STRs) and for not conducting due diligence under the Prevention of Money Laundering Act (PMLA). The violations were found in specific accounts held at the bank's Hill Road branch in Mumbai.

The federal agency issued its order under Section 13 of the PMLA on October 1, 2024, after concluding that the bank's failures were "substantiated" following a detailed review of its operations and compliance practices. The FIU’s investigation stemmed from an observation that triggered a comprehensive review of the bank’s adherence to anti-money laundering (AML) regulations.

The investigation revealed significant irregularities related to KYC/AML compliance in accounts connected to a non-banking financial company (NBFC) and its associated entities. These accounts were involved in substantial circular fund transfers between entities under common control. The FIU highlighted that these entities had a shared registered address and common beneficial owners. Despite having an authorized capital of just Rs 1 lakh, they exhibited disproportionately high credit turnovers, particularly through RTGS (Real Time Gross Settlement) transfers from the NBFC’s accounts.

The FIU noted that Union Bank’s oversight was "insufficient," as only one suspicious transaction report was filed, despite the large volume of transactions and numerous alerts generated in the affected accounts. The alerts were reportedly closed with "minimal justification," raising concerns about the adequacy of the bank’s due diligence and monitoring mechanisms.

Following these findings, a notice was issued to the bank, and after considering the bank’s written and oral submissions, the FIU Director imposed a fine for the bank's failure to meet several key compliance requirements. These violations included failure to report suspicious transactions, failure to maintain ongoing due diligence, and failure to ensure that transactions aligned with the client’s business profile, risk, and source of funds. The bank was also criticized for not conducting due diligence based on materiality and risk and for lacking a proper internal mechanism to detect and report suspicious activities.

The FIU directed Union Bank to conduct a comprehensive review of its due diligence processes, specifically recommending enhanced diligence for newly opened accounts with transaction volumes inconsistent with declared business activities. The agency also called for a reassessment of the bank’s internal monitoring approach, particularly where client account alerts are closed without sufficient investigation.

Despite these findings, Union Bank recently reported a 34% growth in net profit, reaching Rs 4,720 crore for the quarter ending in September 2024. As a reporting entity under the PMLA, Union Bank regularly submits reports to the FIU as mandated by anti-money laundering laws.