AI Drafter 
TaxTMI 
TaxTMI 
2018 (1) TMI 273
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....dvocate Mr. Ayush Sharma, Advocate, Shri Vikas Pahwa, Senior Advocate Shri E.R. Kumar, Advocate Shri Ritesh Isaac, Advocate, Shri B.P. Singh, Advocate, Ms. Sonia, Legal Consultant, Shri Rajesh Kumar Gautam,Shri Brijesh Kumar Tamber And Shri Chandrachur Bhattacharya For The Respondent : Shri Neeraj Kishan Kaul, Sr. Advocate Additional Solicitor General. Shri Satish Aggarwal, Advocate, Shri Neeraj Kishan Kaul, Sr. Advocate Additional Solicitor General. Shri Satish Aggarwal, Advocate, Shri Satish Aggarwala, Advocate, Shri Satish Aggarwala, Advocate, Shri Satish Aggarwala, Advocate, Shri Satish Aggarwala And Shri Neeraj Kishan Kaul, Sr. Advocate Additional Solicitor General. Shri Satish Aggarwal, Advocate JUDGMENT 1. By this common judgment, we propose to decide the above mentioned fifteen appeals filed by the respective Banks as the broad facts and legal issues involved in the matters are same. 2. Admittedly during the year 2012-2013, a sting operation purportedly named as "Operation Red Spider" was conducted on a number of financial institutions/banks by an online media portal Cobrapost (hereinafter referred to as the "Sting Operation"). The videos containing interactions....
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....ned employees to identify any apparent breaches of the Bank's AMI policy. Once, DTTIPL completes its report with its comprehensive findings, the Bank will take appropriate action as deemed necessary. The senior management of the Bank is deeply concerned with the, allegations raised by Cobrapost and has treated the allegation of money laundering with utmost urgency and priority. The Bank has also constituted an internal committee to prepare a special audit report to examine if the Bank has adequate controls/procedures in place to prevent/detect the nature and type of alleged transaction from an AML/KYC perspective. The Bank will initiate immediate action to further strengthen and monitor its systems and procedures from an AML and KYC perspective based on the findings and recommendations of the special audit report. 5.1 It is also stated that the Bank has communicated to the entire front desk/at branch level the indicative alert indicators of suspicious transaction and has in place a system of reporting "Attempted suspicious Transactions*1 by customers as STRs. However, with reference to the Cobrapost sting/operation, the Cobrapost reporter was merely inquiring through verba....
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....ngs on the video footage and transcripts recorded as a part of the Sting Operation: "The sting video footage and the transcripts available do not provide the complete conversation or complete record of events as the same has been possibly rearranged and edited to provide a misleading picture. According to majority of the employees, their conversation regarding KYC documentation requirements and the Bank's compliance requirements have not been shown in the videos in its entirety. Also the reporter was deliberately prompting the Bank employees to make certain responses and controlling the conversation. They have not facilitated transactions as mentioned in the sting operation at the Bank during this period or in the past. Also some of the employees stated that considering the checks and balances at the Bank, such transactions cannot go through. . . . . . . . . . . . . . . . . . . . The employees also indicated that the account opening process is robust at the Bank. We were also informed of multi-level controls that exist at the backend to track new account activity and large value transactions. A majority of the employees indicated that th....
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....discharging the Show Cause Notice and not proceed against the Appellant under Section 13(2) of the PMLA. The Appellant, in its response, also requested FIU-IND that in the event it contemplated further proceedings in the matter, an opportunity for a personal hearing along with an authorized representative/counsel be granted to the Appellant for further discussing the matter. The respondent FIU-IND, vide its letter dated 14 February 2014, informed the Appellant that an opportunity for a personal hearing was being granted to the Appellant on 24 February 2014, at the office of the FIU-IND. A personal hearing was granted to the Appellant on 24 February 2014 at the office of the FIU-IND, in the presence of the Ld. Director, wherein detailed factual and legal submissions were made in support of the Appellant not having filed STRs for the Sting Operation as the same did not qualify as an Attempted Suspicious Transaction". On 05 March 2014, the Appellant placed additional submissions on record, wherein it further elaborated the factual submissions made. 5.8 On 17 April 2014, the Appellant received from the FIU-IND, the transcripts of conversations (as available on the Cobrapost website)....
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.... FIU - IND. The Additional Director, FIU-IND vide letter dated 08.05.2013 sought for additional information from the Appellant Bank. 6.2 The Appellant Bank replied on 28.05.2013 to the FIU-India's letter dated 08.05.2013 wherein it stated that: (i) various steps including undertaking internal inquiry committee review/interim review by an independent external consultant were done; (ii) the committee found no instances of money laundering, (in) That certain steps for strengthening internal process are noticeable, (iv) the Appellant Bank has taken up the observations made by the Committee for implementation. 6.3 The Appellant's Bank vide its letter dated 11.07.2013 furnished the final report of internal inquiry Committee as also the final report of External Auditor (Deloitte) to FIU-India. 6.4 The Director, FIU India issued 05.12.2013 notice to the Appellant Bank stating therein that Cobra Post attempted transactions at all 14 branches of the Appellant Bank visited by the alleged Cobra Post qualified under the definition of suspicious transaction and as such the Appellant Bank should have filed STRs for attempted suspicious transactions but no STR w....
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.....2014 at 3:00pm instead of earlier date i.e. 24.02.2014. 6.8 The Appellant Bank on 10.03.2014 submitted its oral arguments and thereafter prayed for permission to file written submissions which would also include the oral arguments made. Further the Appellant Bank was also furnished copies of transcripts of employees in the edited video during the hearing. The Director, FIU-IND was pleased to grant permission to file written submissions. 6.9 The Appellant Bank on 14.03.2014 filed its written submissions before the Director, FIU-IND which included the oral submissions made during personal hearing on 10.03.2013 and also prayed that submissions made vide Appellant Bank's letter dated 10.01.2014 may also be referred and the same may also be considered to be part of the written submissions being filed. 6.10 The Additional Director FIU - IND on 28.05.2014 asked the Appellant Bank to make additional submissions in regard to the contents of the transcript (of the sting operation), if the Appellant Bank considered it necessary within 7 working days from the date of receipt of the letter. The Bank on 14.6.2014 furnished its response to FIU letter dated 28.5.2014 In the meanwhile, st....
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....The Appellant replied vide letter dated 13.01.2014 informing the FIU-IND that the appellant bank had always complied with the provisions under the PML Act and Rules by having suitable mechanism in place. It was also submitted by the Appellant Bank that neither any account whatsoever, nor any banking facility whatsoever was opened or availed by the Cobrapost representatives at either of the Appellant's Branches. Thus in the absence of account and/or banking facilities the relationship between Bank and Cobrapost representative cannot be termed as client-banker relationship. The said PMLA Act and Rules envisages that the relationship of "Client and Bank" is sine qua non for bestowing obligation of Banking Companies. In the absence of which no "Transaction" or "Attempted Transaction" within the ambit of Rules has taken place. 7.3 The Appellant Bank again wrote a letter to FIU-IND informing that the two branches viz 0794 Greater Kailash Branch, New Delhi and 1295-Sushant Lok Branch-Gurgaon where Cobra Post sting operation took place, have not utilized the sundry/suspense/internal accounts to route cash transactions in respect of the customers/walk-in customers. The Appellant Bank als....
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....iness enquiries from the Cobrapost reporter which had not resulted in to any transaction/attempted transaction warranting filing of an STR. 8.3 The appellant further highlighted action taken by them in respect of procedure for processing Anti Money Laundering (AML) alerts and escalation/filling of suspicious transaction reports (STRs) vide its submission dated 19.04.2014. The appellant further submitted its representation vide its letter dated 10.06.2014 and reiterated its commitment to take all the possible Anti Money Laundering preventive measures and expressly denied the allegation as alleged in the said sitting operation and indicated its suspicion that the report/video as aired by Cobrapost might be edited version and requested for authenticity confirmation of the same. 8.4 However, the Learned Director, Financial Intelligence Unit-India vide its order dated 29.10.2015 held that there was a failure in the Appellant's internal mechanism for detecting and reporting attempted suspicious transactions in terms of section 12 of PMLA, 2002 read with Rules 2, 3, 5 and 7 of Rules, 2005 and imposed a fine of Rs. 3, 00, 000/- 9. FPA-PMLA-1076/DLI/2015 filed by The Federal Bank L....
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....r considering various aspects imposed a penalty of Rs. 2 lakhs on the bank vide its order No. 10/DIR/FIU - IND/2015 dated 28.08.2015. 10. FPA-PMLA-1160/DLI/2015 filed by Bank of India. By Notice dated 16.05.2013, Shri. A.Y. Gokhale, Dy. Director advised the Appellant to submit the Preliminary Report. Accordingly the Appellant had vide Letter No.HO.CMPL.TM.102 dated 28.05.2014 submitted its preliminary report inter-alia informing that pursuant to the alleged sting operation by Cobrapost, the appellant had carried out special audit on 10.05.2013 and 11.05.2013 of the two branches allegedly involved in the sting operation and the special audit team so appointed by the Appellant concluded the report stating that during the period 01.04.2012 to 09.05.2013, no transaction which violated the AML/KYC guidelines were observed. By notice dated 10.07.2013 Shri. A.Y. Gokhale, Dy. Director of HU-IND advised the appellant to provide certain clarification in respect of the Computer Assisted Audit Techniques. 10.1 Thereafter, Director of FIU issued notice u/s. 13 of PML Act to the Appellant on 21.01.2014 inter alia alleging that "as the appellant failed to file suspicious transactions rep....
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....k responsible for failure in its obligation under provisions of PMLA read with Rules, 2005, and imposes fine of Rs. 3,00,000/-. 12. FPA-PMLA-1118/DLI/2015 filed by Indian Bank. A notice dated 16.05.2013 was issued by Sh. A.Y. Gokhale, Dy. Director, Financial Intelligence Unit, Ministry of Finance whereby the appellant bank was asked to forward a preliminary report in the matter with reference to the above noted sting operation. The said notice was duly replied by the appellant bank vide its reply dated 20.05.2013 wherein it was submitted that the sting operation did not result in any violation of KYC norms and that the officer in question has been suspended and special audit of the branch is ordered. That subsequently vide its letter dated 10.07.2013, Dy. Director, Financial Intelligence Unit, Ministry of Finance sought further information from the appellant bank through its form for survey of computer systems and sought details and responsibilities assigned to the officials identified in the Cobrapost.com. The appellant bank duly supplied the said letter and furnished the desired information vide its letter dated 06.08.2013 It is stated that despite clarifying the bank's ....
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....14 a show cause notice was issued to the appellant bank. In the said notice the bank was asked to show cause as to why action should not be taken against it for violation of section 12 (b) of the Prevention of Money Laundering Act read with Rules 2[(1) (g), 3(D), 7(3)] and 8(3) of the Rules. The appellant bank replied to the above show cause notice, vide its letter dated 04.03.2014. In the said letter, the bank denied all the allegations. 13.2 Personal hearing was also granted to the bank on 05.05.2014 which was attended by 4 senior officials of the bank. On 19.05.2014, the appellant bank placed on record its revised submissions in which the internal circulars relating to the KYC/AML guidelines of the bank were enclosed. 13.3 On 27.10.2015, the final order was passed by the Director, Financial Intelligence Unit, which held that there was failure in the Appellant Bank's internal mechanism for detecting and reporting attempted suspicious transactions in terms of section 12 of the Act, read with Rules 2,3,5 and 7 of the Rules. As a result of this finding a fine of Rs. 5,00,000/- has been imposed on the Appellant bank for 5 instances of failure to comply with obligations laid dow....
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....YC norms as well as the provisions of the Act of 2002 and that: (i) Bank has not opened any sundry account relating to cash of and only one STR was submitted of one Ms. Nirupama Jain and Mr. Ashok Jain at Kalakaji Branch; (ii) That none of the multiple transactions of multiple DDs/Pos qualified for STR; (iii) Out of 61 alert indicators given by IBA working group on risk based transaction monitoring, 49 alert indicators have been incorporated and rest 12 will be uploaded latest by 14.08.14." 14.4 Appellant bank submitted its reply dated 21.03.2014 to the said show-cause notice stating inter-alia: "since, details of so called prospective depositor were unavailable with the concerned branches. STRs could not be submitted based on attempted transactions, by the bank." 14.5 A personal hearing was held on 07.05.2014 to give an opportunity to the Appellant Bank herein to reply further and was also served with the transcripts obtained in the said sting-operation. 14.6 Appellant Bank herein was informed by letter dated 30.05.2014 by the Financial Intelligence Unit-India to submit further response if any to the contents of the transcript. Appellant bank he....
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....empted transactions comprising the conversations reported on the Cobrapost website. As per the said show cause notice, the said alleged failure of the Appellant resulted in violation of Section 12(b) of the said Act and rendered the Appellant liable for penal action under section 13(2) thereof. 15.2 The appellant received another letter dated 18.02.2013 from the FIU-IND seeking certain further information. By its letter dated 24.01.2014, the appellant furnished its reply to the show cause notice dated 17.12.2013, issued by the FIU-IND denying any violation of section 12(b) of the said Act. In its view, the said conversations between its staff and the personnel of Cobrapost website as contained in the sting operations would not qualify to be reported by a STR under the said Rules. It was pleased that the meaning of both the terms "attempted transaction" and "suspicious transaction" referred to in Rule 2(g) of the said Rules were required to be understood in conjunction with the meaning of the terms "transaction" defined in Rule 2(h), which required either deposit, withdrawal, exchange or transfer of funds as defined in the said Rule; however, none of the said events had taken pla....
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....ch of section 12 of the said Act read with rules 2, 3, 5, and 7 of the said Rules. As the sting operations pertained to thirteen branches of the appellant, the director imposed upon the appellant total fine of Rs. 13 lakhs in purported exercise of his powers under section 13(2) of the said Act. 16. FPA-PMLA-1245/DLI/2016 filed by Yes Bank Ltd. After alleged sting operation was carried out by reporter of website Cobrapost in three branches of the appellant, viz., at Gurgaon, Delhi, and Jaipur. It was alleged that an attempt was made to enter into suspicious transactions with the Appellant bank, however the Appellant failed to report the same by way of a STR. By letter dated 10/07/2013 even, the Respondent sought clarification/information with respect to the alleged sting operation by Cobrapost. In particular details of Computer Assisted Audit Techniques of the Appellant and details of roles and responsibilities assigned to all officials identified in the alleged stings were sought. 16.1 Vide reply dated 20/09/2013, the Appellant gave a detailed reply to the questionnaire sent by the Respondent alongwith relevant annexures. Amongst other clarifications, the reason for not fi....
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....erein the officer appearing on behalf of the appellant made submissions to demonstrate that the Appellant bank was not in violation of the provisions of the PMLA and the Rules. The appellant submitted its additional submission vide letter dated 27/05/2014. 16.5 By Impugned Order 11/01/2016 dated even the Respondent, inter alia, held that the act of the reporter of Cobrapost of making known his intention to launder black money and the possible ways to do so was the penultimate act before initiating a transaction. Thus, it had all the ingredients of an attempt to do a transaction. Rejecting the contentions of the Appellant, the Respondent held that there was failure on part of the Appellant for detecting and reporting attempted suspicious transactions in terms of Section 12 of the Act read with the Rules 2, 3, 5 and 7 of the Rules and imposed a penalty of Rs. 3 lakhs for the 3 instances of failure in compliance with its obligations laid down under Section 12 of the PMLA and the relevant Rules. 17. FPA-PMLA-1018/DLI/2015 filed by Corporation Bank. The Financial Intelligence Unit-India through E-Mail dated 16.05.2013 asked the Appellant Bank to forward a Preliminary Report in ....
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....he Act. 17.2 The Appellant Bank has also submitted that the discussion of the Cobrapost reported with the concerned Branch manager of the Appellant Bank was on various business propositions and the schemes of the Bank, and no attempted transaction took place, consequently no STR was filed by the Appellant Bank. However, the Appellant Bank has a policy to file STRs in case of attempted transaction and has also filed STRs in the past for such attempted transactions in line with Appendix D of IBA letter CIR/RB/KYC & AML/3208 dated 18.05.2011. 17.3 The Ld. Adjudicating Authority failed to appreciate the fact that reporter had only a casual discussion on the various business proposition and the schemes of the Appellant Bank. There was neither any attempted transaction on the day of discussion or on subsequent days or there was any intention on the part of the reporter to do any transaction with the Bank. The Ld. Adjudicating Authority has failed to appreciate that for any attempted transaction, there have some action or advancement, which in this case was not there, a mere discussion cannot be formed as attempted transaction. The Appellant Bank denied the any such transcript/discu....
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....o the FIU's letter No. F. No. 25-1/2013 FIU IND dated January 21, 2014 and provided the additional information. 18.10 The personal hearing in the case was completed on April 15, 2014. Thereafter the appellant Bank made further post hearing submission by their letter dated April 30, 2014. 18.11 The FIU issued the impugned order on September 30, 2015 wherein it found that the Bank's employees were involved in discussions to launder money by converting cash into demand drafts, opening various accounts, storing cash in big lockers, opening NRI accounts to remit money outside India and not disclosing PAN number of investment. 19. FPA-PMLA-1167/DLI/2015 appeal filed by Canara Bank. 19.1 Cobrapost conducted sting operation in two branches of the Appellant i.e. Kalkaji-Okhla, New Delhi and Vasant Vihar, New Delhi and one circle office, Agra of the Appellant. On 06.05.2013, the videotape was made public which was allegedly suggesting violations of statutory obligations under the PMLA, 2002. 19.2 On 17.05.2013, the Appellant reported FIU-India with regard to its investigations/actions taken in response to the said media report vide its letter INSW KYC F-RBI 086 2013 dated 17.0....
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....ng information including an obligation to evolve an internal mechanism for detecting the prescribed transactions. Rule 8 of the Rules prescribes the time of furnishing such information and Rule 9 of the Rules prescribes the procedure and manner of verification of records of identity of clients. Rule 2 of the Rules defines a transaction to include any payment made or received in whole or in part of any contractual or other legal obligation. The rules also specify-rule 2(g) the situations that could indicate the existence of suspicious transactions that would warrant filing suspicious transaction reports (STR) under Rule 7 of the Rules. These situations are as follows: a. Transaction which gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the schedule to the PMLA regardless of the value involved. b. Appears to be made in circumstances of unusual or unjustified complexity. c. Appears to have no economic rationale or bonafide purpose; or d. Gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism. 20.2 Section 12 of the PMLA 2002, ob....
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....actions, including information relating to transactions covered under clause (b) in such manner as to enable It to reconstruct individual transactions; (b) furnish to the Director within such time as may be prescribed, information relating to transactions, whether attempted or executed, the nature and value of which may be prescribed; (c) verify the identity of its clients in such manner and subject to such conditions as may prescribed; (d) identify the beneficial owner, if nay, of such of its clients, as may be prescribed; (e) maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients, (2) Every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential. (3) The records referred to in clause (a) of sub-section (1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity. (4) The records referred to in clause (e) of sub-section (1) shall be maintained for a period of five ye....
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....his is different from any roving inquiry or suspicious behavior which fails to leave any formal imprint on the banking system. Similarly, in the present case, no actual transaction including deposit, withdrawal, exchange or transfer of funds (which form a part of normal banking activities) took place which could have been the basis for reporting. 26. It is contended by all the financial institutions/banks that the obligation on the Appellants to report a suspicious transaction or attempted suspicious transaction arises only when the act in question qualifies as a transaction; in view of mandatory provision of Section 12 of the Act. 27. It is submitted on behalf of the appellants that assuming, that the enquiry made by the Cobrapost Reporter falls under the definition of "suspicious transaction", even then there was no obligation on the Appellant to report the same. Suspicious Transaction includes a transaction, which gives a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act. In the present case the alleged conversation between the reporter and the employees of the Appellant Bank is centered around "converting black ....
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....nale or gives rise to suspicion that it may involve financing activities of terrorism. Thus, a conjoint reading of the definition of "transaction" and "attempted suspicious transaction" evidences that the sting operation to be termed as an 'attempted suspicious transaction' should have been formally initiated in the banking channels, i.e. should leave some footprints in the banking channel, which may later be abandoned midway. The following decision was referred. The Supreme Court in Ramkripal (supra) has endorsed this view in the following terms: "10. An attempt to commit an offence is an act, or a series of acts, which leads inevitably to the commission of the offence, unless something, which the doer of the act neither foresaw not intended, happens to prevent this. An attempt may be described to be done in part-execution of a criminal desisn. amounting to more than mere preparation, but falling short of actual consummation, and, possessing, except for failure to consummate, all the elements of the substantive crime. In other words, an attempt consists in it the intent to commit a crime, falling short of its actual commission or consummation/completion. It may consequ....
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....or intention to commit an offence. In the second stage, he makes preparation to commit it. The third stage, is reached when the culprit takes deliberate over steps to commit the offence." Similarly in the case of Aman Kumar (supra), the Hon'ble Supreme Court has distinguished between intention to commit an offence, preparation for commission of offence and commission of offence. The Ld. Adjudicating Authority in the present case failed to consider the aforesaid Judgment as also the distinction elucidated in the said Judgments and arrived at an erroneous conclusion. It is submitted that an attempt of any nature can only commence after a person has completed all the preparation and is intending to take the first step towards the commission of offence. In the present case the Cobra post Journalist after the discussions to execute a transaction. Therefore, the actions of the Cobrapost journalist were still in the realm of preparations only and did not fall within the definition of steps taken to execute the transactions and as such the same would not be covered under the definition of attempted transaction much less in the category of attempted suspicious transactions under the PML ....
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....uspicious transaction to the FIU in a timely manner had they been attempted by the Cobra Post reporters: (a) At the customer acceptance stage, the Appellant Bank would have categorized the reporters as High Risk on account of their being politically exposed. (b) Account opening and document verifications which occurs on a centralized basis would have captured any unfulfilled customer due diligence requirements. (c) PAN card and Forms 60/61 would have been sought along with proof of identity, address and existence. (d) Compliance with the Appellant Bank's KYC norms was assured since such a process would be undertaken by an independent, centralized unit which is dedicated to ensuring KYC compliance in all cases. (e) In case an account was opened, the Appellant Bank's AML cell would be required to closely monitor the newly opened account for three months. Any high value cash transaction would have automatically triggered an alert incorporated by the Appellant Bank pursuant to the IBA Guidelines. (f) Further such an alert would be system generated since the Appellant Bank has implemented the state-of-the-art ERASE software which aut....
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....d only roving inquiries were made by the Cobrapost reporter. The PMLA and PML Rules do not contemplate reporting of any suspected behavior in the nature of conversations and roving inquiries. Thus, no requirement of reporting the transaction had arisen since the reporting requirement is of suspicious transactions and not of suspicious behavior. 34. It is submitted that in the present case there has been no "Transaction." As per the definition of "transaction" under Rule 2(1) (h) of The Prevention of Money Laundering (maintenance of Records) Rules, 2005 and it is admitted that nothing following has been in any of the cases. (i) Opening of any account neither there is any knowledge of the same. (ii) There has been no deposits, withdrawals, exchange or transfer of funds in whatever currency whether in cash or in cheque, etc whatsoever in respect of any account of the respondent; (iii) There has been no use of any safety box or any other form of safe deposit within the knowledge of the appellant; (iv) There has been no established fiduciary relationship; (v) no payment made or received, in whole or in part. 35. It is alleged that in th....
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....ecessarily has to be a customer of the bank. Only when a person or entity is a customer that the bank is presumed to have all the necessary details of such customer i.e. person or entity. And if such a customer attempts or executes any of the types of suspicious transaction referred to in section 2(g) and (h) that banks is under duty to report the same via filing of STRs with the Respondent authority. 38. The obligation of maintaining the record is specifically given in Rule 3 and Rule 3 (D) is the only place where 'suspicious transaction' is mentioned and it uses the words "whether or not made in cash or by way of" suggest that the transaction have to be transaction actually executed. Rule 4 specifies which records are required to be maintained in terms of Rule 3 by the Reporting Entity. It refers to the information regarding (i) the nature of the transactions (ii) amount of transactions (ii) date on which the transaction was conducted and (iv) the parties to the transaction. In the instant case what has been relied upon by the Department are some oral conversations between the reporter of Cobra Post and some of the employees of the Bank. They are not the information referre....
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....es, and continue to update the KYC records of the Client as defined in Rule 2(cc) of the Rules. 42. Rule 9 contemplates existence of a "Client" and in the absence of any formal document with the reporter, it is argued on behalf of appellants that it cannot be said that the reporter had become the Client of the Appellant Bank. The process of the reporter, or the alleged politician allegedly represented by the Reporter becoming the Client of the Appellant Bank may have commenced only from the point of filling up of the Know Your Customer ("KYC") form or an account opening form type of cases. 43. It is also true that a person has to be involved in some financial transaction or activity with the Appellant Bank before he/she can be termed as a 'Client' of the Appellant Bank. It is correct in the present case no financial transaction of any nature whatsoever was initiated by the Reporter, we have to decide that in the present appeal as to whether the reporter could not be termed as a 'Client' of the Bank in respect of whom the Appellant Bank was required to maintain the prescribed records and furnished report. Further, the Act as well as the Rules have been formulated in respect on....
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.... opinion and comments are mentioned therein and therefore the transcripts cannot be relied up on the department. 47. As far as admissibility of the transcripts is concerned, the same would be discussed in the later part of our order. However, in order to have an idea/assessment of the type of conversation that were had by the concerned bank employees with the Cobrapost reporter, it is necessary to refer to some of the recordings. Small portion of the same in the case of the one of the appellant banks are mentioned below:- A. Suggesting a one-time payment scheme. Singh elaborates on how this could be done: "Account khulega unka... passport se account khulega. Usmein cash jama kar denge hum. Usmein fir kisi bhi amount ka DD bana ke investment kar denge. Fir account hum band kar denge... band kar sakte hain ek sal baad (We will open an account, with your passport. We will deposit the cash in it. Then we will make DD for any amount from the deposit and make an investment. After that we will close the account. We can close the account after a year)." Could the bank provide him with a locker to stash Rs. 5-7 crore? Although his branch didn't have a locker. Singh says....
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....rt. Invest in two different policies. If you invest black money, there is no problem. Nobody asks about it. God forbid, if somebody casts his evil eye on it ... 110 per cent ... even courts can't pick it up." C. What if the Income Tax authorities come knocking on the door after such a large investment in cash is made, asks the reporter? Nothing of that sort is going to happen, assures Bhowmik: "Aapko kuch nahin aayega, humari surety hai. Wo bank draft bhi nahin lagta ki aap kahan se cash de rahe hain. Hum kahin nahi batate. Aap note kaun kaun sa de rahe hain, ye mention nahin hoga (Nothing will come to you, this is the surety we give you. We don't need even a bank draft for this so as to know from where you got all this cash. We don't tell it to anybody. We will not mention even what types of currency notes you're giving)." After more such assurancs, Bhowmik tells the reporter the cash will be kept hidden in a chest at her branch: "Ye kahin leak nahin hoga. Humne aapse kya liya wo hum kahin nahin dene wale. Humare yahan chest hota hai. Wo wahan pe jayega fir wahan se (We will not leak it any where. We are not going to disclose ever what we took from you. We have a chest he....
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....angement of the conversation, its sequencing etc, but the heart and soul of the conversation is not disputed. It was his submission that under the provisions of Section 12 of the Act and the rules framed under the PMLA (Maintenance of Record Rules), 2005 a scheme has been created that when banks come across an instance where some suspicious transaction has occurred or has been attempted, the same should be reported to the appropriate authority in the manner provided. The subject conversations not only reveal that the bank employees, some of whom are placed at senior positions in some cases, not only conversed freely with a person coming to invest having large amount of unaccounted money which he was wanting to keep with the bank, but also lent a helping hand to the concerned person with ideas how to conceal the said amount. It was his submission that the statutory provisions are to be interpreted in a manner so as to advance the purposes of the statute and a narrow construction must not be taken. Viewed in this background, he submitted that the failure of the appellant banks to report the said attempted suspicious transactions within the meaning of Section 12 of the Act read with R....
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....undering Act, 2002 of July 1, 2013 (RBI Master Circular 2013") deals with the obligations of banks in relation to submitting cash and suspicious transaction reports in the following manner: "2. Suspicious Transaction Reports (STR) [...] ii. It is likely that in some cases transactions are abandoned/aborted by customers on being asked to give some details or to provide documents. It is clarified that banks should report all such attempted transactions in STRs, even if not completed by customers, irrespective of the amount of the transaction" 54. Further, it is also observed that in the Report of the IBA Working Group on Parameters for Risk Based Transaction Monitoring dated March 30, 2011, in the Appendix D thereof, the indicative Alert Indicators for Branches/Department of the banks are given as follows: S. No. Alert Indicator Indicative Rule/Scenario 1 CV1.1.-Customer left without opening account * Customer did not open account after being informed about KYC requirements 2 CV2.1-Customer offered false or forged identification documents * Customer gives false identification documents or documents that appears to be counterfeited, alte....
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.... at serial nos. 1, 11 and 15 are relevant in the present case where the details of alert indicator and indicative rule/scenario are mentioned. As per the said indicative list the subject conversations ought to have triggered alert indicators in the concerned branches which did not happen in respect of any of the appellants. 55. It cannot be denied that the transcripts contained serious conversations between the reporter and the bank employees about laundering of huge amount of cash through the Bank. Some of the Bank employees spoke openly about flouting the system, e.g., conversion of cash into Demand Draft, opening of various accounts by altering the PAN number, storing cash in big lockers, providing counting machines to help count cash, keeping the matter confidential, using hawala for transferring funds or rotating funds, investment in insurance policy, investment in the name of minor, investment in mutual funds, investment in gold, remittance of Rs. 40 lakh to England, transferring of amount through third person into the account, RTGS method to transfer money, transferring of amount through third person into the account, RTGS method to transfer money, remittance of Rs. 5-7 c....
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.... of which was furnished as a part of these proceedings. These queries were explicit and made no secret of the fact that the reporter posing as customer was taking about black money. However, none of the staff found this a sufficient basis for raising an alert. The Bank has admitted that it became aware of the matter only after it was reported in the media. It is obvious that the Bank (its Principal Officer) would not be in a position to file a STR if it was unaware of the underlying transaction or an attempted transaction. 18. The Bank has also argued that it could not report the transactions through the forms prescribed for STRs. This argument cannot be accepted. The question of how the transactions could be reported to FIU would arise only after the transaction has been brought to the attention of the Principal Officer, who has the statutory responsibility to file reports with FIU-IND. In the instant cases, the Bank has admitted that it came to know of the matter only after it was reported in the media. The Bank cannot fulfill its obligations of filing STRs for attempted transactions if the alerts are not raised by the branches to the Central AML Cell. Once the alerts ha....
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....re is nothing in the above pronouncements that would seem to support the contention of the Bank that the Cobrapost incidents do not fall in the category of 'attempted suspicious transaction' 20. The object of the PMLA is to prevent the menace of money laundering. If this object is taken as the guiding factor in discharge of the statutory obligations like filing STRs, then it would be difficult to believe why a reporting entity should not get alarmed or alerted when a customer explicitly discusses black money and the ways to launder it across its branches. In the instant cases, the reporter had made known his intention to launder black money. He had selected beforehand the branches of the Bank that he visited, had prepared in advance, and conceived of a similar theme to ascertain the possibility of laundering money and the ways to do laundering in detail. This was the penultimate act before initiating a transaction. Thus it had all the ingredients of an attempt to do a transaction. There is no evidence that any of the branches doubted his intention or story at the material time and this should be an important consideration in judging the Bank's or its employees' response to....
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....t is also true that the conversations are not between the two private parties. One of the parties is a bank who are responsible to comply their obligations under Section 12 of the Act and in case of violations of obligations, the body appointed by the Government of India is entitled to impose the penalty. Thus, we are of the view that since the discussions are of serious nature even orally which are by the way not denied by any of the bank, thus, these types of conversations are liable to be reported. It is for the department to accept their explanation or not. 63. In the referred master circular of the RBI, it is mentioned that it is likely that in some cases transactions are abandoned/aborted by customers but even then all such attempted transactions are to be reported in STRs even if abandoned or not completed by the customers. In the present cases, if the nature of recording conducted by the official of Cobra Post is examined, it is apparent that the reporter introduced himself as the representative of the customer and after discussion the further steps were abandoned/aborted. The bank officials have provided him details though orally at the time of discussions and even sugg....
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....ney Laundering Act, 2002. It is observed that you have filed 3STRs covering 79 transactions for the year 2012-13 subsequent to our queries on the subject under reference. This implies that the system prevalent in your bank failed to capture the said transactions at the material time. As you may be aware, this implies that the bank failed to put in place a mechanism to examine, detect and report suspicious transactions thereby violating the provisions of Sec 12(1)(b) of PMLA, 2002 read with rules 3(D), 7(3), 5(2) and 8(3) of the PML Rules. You are hereby advised to be more vigilant and exercise caution in future by making necessary modifications and strengthening the PML related procedures in your bank to prevent the recurrence of such events in the event of recurrence of these lapses, we will be constrained to initiate compliance proceedings against the bak or the persons responsible in accordance with Section 3 of PMLA. This issues with the approval of Director, FIU. Yours sincerely, (Renu Amitabh) (Emphasis Supplied) (iii) The respondent is not supposed to discriminate the present appellant banks when the respondent itself in some case....
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....uced; (c) The certificate must furnish the particulars of the device involved in the production of that record; (d) The certificate must deal with the applicable conditions mentioned Under Section 65B(2)of the Evidence Act; and (e) The certificate must be signed by a person occupying a responsible official position in relation to the operation of the relevant device. ......17. Only if the electronic record is duly produced in terms of Section 65B of the Evidence Act, the question would arise as to the genuineness thereof and in that situation, resort can be made to Section 45A-opinion of examiner of electronic evidence. 18. The Evidence Act does not contemplate or permit the proof of an electronic record by oral evidence if requirements Under Section 65B of the Evidence Act are not complied with, as the law now stands in India.' [Emphasis Supplied] 69. The mandatory requirement of an electronic evidence being supported by a Section 65B certificate has been recently upheld by the Hon'ble Supreme Court in judgment of Harpal Singh v. State of Punjab [2017] 1 SCC 734 in the following terms; "56. . . . . . . . As apparently the pr....
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....gard is placed on the judgment in Nilesh Dinkar Paradkar v. State of Maharashtra [2011] 4 SCC 143 (paragraphs 31 to 39) where the Hon'ble Supreme Court categorically stated as under: "31. In our opinion, the evidence of voice identification is at best suspect, if not, wholly unreliable. Accurate voice identification is much more difficult than visual identification. It is prone to such extensive and sophisticated tampering, doctoring that the reality can be completely replaced by fiction. Therefore, the Courts have to be extremely cautious in basins a conviction purely on the evidence of voice identification. This Court, in a number of judgments emphasized the importance of the precautions, which are necessary to be taken in placing any reliance on the evidence of voice identification." [Emphasis Supplied] Similar such observations have been made by Hon'ble Supreme Court in Mahabir Prasad Verma v. Surinder Kaur [1982] 2 SCC 258, where the Court has held as follows: "22. Tape-recorded conversation can only be relied upon as corroborative evidence of conversation deposed by any of the parties to the conversation and in the absence of evidence of any such conversation, ....
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....osition to say that since the contents of the sting recordings were admitted there was no need for the proof of integrity and correctness of the electronic materials. But at the time the High Court issued notices to the two appellants (and two others) the position was completely different. At that stage the issue of integrity, authenticity and reliability of the sting recordings was wide open. The appellants might have taken the stand that not only the sting recordings but their respective responses shown by the TV channel were fake and doctored. In such an event the TV channel would have been required to be subjected to the strictest proof of the electronic materials on which its programmes were based and. In case it failed to establish their genuineness and correctness, it would have been equally guilty, if not more, of serious contempt of court and other criminal offences. By all reckoning, at the time of initiation of the proceeding, the place of NDTV was along with the appellants facing the charge of contempt." [Emphasis Supplied] As per the ratio of the said decision, if the department was relying upon certain video tape of the conversation could not have simply relied on ....
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....f fact that original equipment used in the recording of the evidence were not produced in order to establish the case for the purpose of imposing the major penalties u/s. 13(2)(d) of PMLA, 2002. Not only that the journalists who has conducted the sting operation of cobra post has not been examined and the department is merely relying on certain video tape recordings of the conversations between the bank officials and the journalists of cobra post. 76. It is also the admitted position that the transcripts and videos were not re-produced in the same condition. It was rearranged and sliced versions of the actual conversations and cannot be considered as conclusive proof of the actual conversations, certain Cobrapost reporter had with the featured employees of the Appellant Bank. The Cobrapost transcripts not only reflect selective conversation, the video and written transcripts do not match in entirety. 77. The Report of the independent forensic investigator engaged by the one of the Appellants in appeal no. 826/2015 who has carried out a forensic audit on the allegations made vide Cobrapost sting operation, clearly establishes that the sting video footage and the transcripts av....