Bank faces Rs. 25.7 lakh penalty for failing to report cash transactions under Section 12(1)(b) PMLA 2002

The Appellate Tribunal under SAFEMA upheld a penalty of Rs. 25,70,000 imposed on a bank for failing to report cash transactions and delays in reporting under Section 12(1)(b) of the Prevention of Money Laundering Act, 2002. The bank violated reporting requirements by not furnishing transaction information to FIU India within prescribed timeframes. The Tribunal rejected the bank's argument for a warning instead of penalty, stating that ignoring contraventions would undermine the Act's sanctity. The penalty was deemed proportionate given the bank's continuous defaults over an extended period, with reports made only after RBI intervention. The appeal was dismissed as lacking merit.

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Issues Involved:

1. Alleged violation of Section 12(1)(b) of the Prevention of Money Laundering Act, 2002, and related rules.
2. Imposition of penalty by the Director, Financial Intelligence Unit India.
3. Interpretation of "each failure" under Section 13 of the Act.
4. Applicability of judicial precedents regarding penalty imposition.

Issue-Wise Detailed Analysis:

1. Alleged Violation of Section 12(1)(b) of the Act:

The appellant, a Co-operative Bank, was alleged to have violated Section 12(1)(b) of the Prevention of Money Laundering Act, 2002, by failing to report high-value cash transactions in two overdraft accounts during 2015-16. The transactions in question were not reported in a timely manner as required by Rule 3, 5, 7, and 8 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. The bank argued that the failure to report was due to a bona fide error and not intentional, and that they took corrective measures by filing revised Cash Transaction Reports (CTRs).

2. Imposition of Penalty:

The Director, Financial Intelligence Unit (FIU) India, imposed a penalty of Rs. 25,70,000/- on the appellant for the alleged violations. The penalty was calculated as Rs. 50,000/- for each of the 16 CTR violations and Rs. 16,70,000/- for cumulative delays in filing 6 CTRs, with an additional Rs. 1,00,000/- for not having an effective internal mechanism. The appellant contested the penalty, arguing that the imposition was excessive and that a warning could have been issued instead, as permitted under Section 13 of the Act.

3. Interpretation of "Each Failure" Under Section 13:

The tribunal examined the term "each failure" as used in Section 13 of the Act, which permits the imposition of a penalty for each instance of non-compliance. The tribunal clarified that "each failure" refers to each transaction that was not reported or was delayed, and not merely to each month of non-compliance. The tribunal emphasized that the penalty is intended to ensure compliance with the Act and that the appellant's argument for a more lenient interpretation was not persuasive.

4. Applicability of Judicial Precedents:

The appellant cited the Supreme Court's judgment in Hindustan Steel Ltd. v. State of Orissa, arguing that penalties should not be imposed for bona fide errors. However, the tribunal distinguished this case, noting that the judgment pertained to quasi-criminal proceedings, whereas the current case involved civil penalties under the Prevention of Money Laundering Act. The tribunal also referred to subsequent judgments, such as SEBI v. Cabot International Capital Corporation and Chairman, SEBI v. Shriram Mutual Fund, which clarified that mens rea is not required for civil penalties under regulatory statutes.

Conclusion:

The tribunal upheld the penalty imposed by the Director, FIU India, finding that the appellant had indeed violated the provisions of the Act and the Rules by failing to report transactions in a timely manner. The tribunal dismissed the appeal, emphasizing the importance of compliance with statutory obligations and the role of penalties in enforcing such compliance. The tribunal also noted that the penalty was not disproportionate given the appellant's repeated failures to report transactions over an extended period.

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