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TaxTMI 
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TaxTMI 
2018 (1) TMI 273
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....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 of the undercover reporter with the employees of the A....
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....MI 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 verbal conversations with the Bank employees about openins of bank accounts....
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....peration: "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 the branch maintains Large Cash Transaction Report ("LCTR")/LTR which is reviewed and audited by internal audi....
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....nt, 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), which the Cobrapost reporter allegedly had with the Appellant's officials for their response. The Appellant submitte....
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....ank. 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 was filed by the appellant Bank. It was stated that, the appellant Bank had contravened the provisions of Sec. 12(b) of Prevention of Money laundering Act, ....
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....ld 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, stringent action has been taken against such employees and 14 employees have been removed from service, and monetary penalty was imposed on 11 while a caution letter was sent to 2, following an internal pro....
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....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 also sent a letter dated 07.07.2014 bearing No. AXI/INSP/AML/2014-2015/118 mentioning that the authenticity of the Transcript is doubtful and denied as the concerned officials of Bank have also specifically submitted that....
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....r 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 Limited. Cobra Post conducted sting operation in two branches of the Federal Bank Limited, viz. Ghaziabad branch and Moradabad branch and alleged violation of AML/CFT measures. It is reported that the reporters of the Cobra Post vis....
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....tor 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 report in respect of violating the provisions of section 12(b) of PMLA, 2002, it is liable for penal action under section 13(2) of the said Act". The Appellant had vide its letters dated 14.02.2014, 24.03.2014 given its reply inter-alia denying the char....
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....elligence 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 cooperating in the investigation the appellant bank was issued a show cause notice u/s. 13 of the Prevention of Money Laundering Act by the respondent wherein it was alleged that the appellant bank failed to file suspicious transactions report in respect of above incide....
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....ules. 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 down in section 12 of the Prevention of Money Laundering Act read with Rules 2,3,5 and 7 of the Rules. 14. FPA-PMLA-1146/DLI/2015 filed by Punjab National Bank. The videos and transcripts of the 'Sting Operations' held at three branches of the Appellant bank. Appellant bank herein submitted ....
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....or 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 herein sent its reply vide letter dated 10.06.2014 stating inter-alia that the contents of the transcript. were general in nature and there was no attempt to execute any transaction in cash or in any form as referred to Sec.2(h) of PML Act, 2002. Further the entire conversation was more in the nature of business queries, leaving....
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....ter 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 place in any of the incidents whose recordings were posted on the Cobrapost website. A mere enquiry or discussion in the abstract by a walk-in person would not amount to an "attempted transaction" and hence would not fall within the scope of a "suspicious transaction" as defined in Rule 2(g) of the said Rules. 15.3 The Appellant sought a ....
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....d. 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 filing an STR was stated as under: "While, YES Bank has these procedures in place to report suspicious transactions 'Attempted Suspicious Transactions', please note that no actual transaction actually took place on the basis of the interactions of the Cobrapost reporter with the six employees of the Bank. The Identity of the person proposing to open ....
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....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 the matter of media reports/sting operation by Cobra Post. The Appellant Bank in response to the same submitted the report to FTU-Ind by E-Mail on 17.05.2013. Thereafter the Appellant Bank also received a Letter No. F. No. 25-1/2013/FIU-IND/PT.I dated 10.07.2013 from the financial intelligence Unit-India. In response to the same the Appellant Bank submitted th....
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....TRs 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/discussion which transpired illegal activities in all their communications. 18. FPA-PMLA-1144/FIU/2016 appeal filed by Indusind Bank. 18.1 By a letter dated May 16, 2013, the FIU took cognizance of the News Report and sought a preliminary report from the Appellant Bank on the matter. The appellant Bank submitted the preliminary report sought by the FIU on May 28, 2013 ....
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....ployees 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 17.05.2013. 19.3 However, FIU-India vide its letter dated 10.07.2013 asked the Appellant if any alert in respect of the sting operation were generated in its concern branches and whether any STR was reported for any attempted transaction. 19.4 The appellant in its reply to the aforesaid letter confirmed that no STR have been filed as there was no transaction or attempted transaction had taken plac....
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....r 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, obligates reporting entity to maintain records. Section 13 of PMLA empowers the Director to impose fine/penalty with regard to obligations of the reporting entity under the said Chapter. Section 13 of PMLA, 2002 read as under:- "13. Powers of Director to impose fine.- (1) The Director may, either of his own motion or on an application made by any authority, officer or person, call for records referred to in sub-section (1) of section 12 and may....
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....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 years after the business relationship a client and the reporting entity has ended or the account has been closed, whichever is later. (5) the Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under this Chapter." 23. Rule 2 (g) of the PML Rules defines a "suspicious transaction" and Rule 2 (h) defines the term "transaction" and the same are reproduced as under: "(g) "suspicious transaction" means a transaction referred to in clause (h) including an attempted transaction, whether or not made in c....
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....e 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 money into white", which if at all an offence is an offence under the Income Tax Act, which is not a part of the Schedule given under the Prevention of Money Laundering Act, 2002. 28. It is argued by them that for every crime there are four stages. Firstly, there is an intention to commit a crime, secondly, a preparation to commit the said crime, thirdly an attempt to commit the said crime and fourthly completion of the crime. Only once an attempt is successful can a crime be said to have been committed. Therefore every act done in preparation to commit an offence cannot be considered an attempt to commit the offence. 29. It is also argued that an offence cannot be said ....
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....thing, 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 consequently be defined as that which if not prevented would have resulted in the full consummation of the act attempted. The illustrations given in Section 511 clearly show the legislative intention to make a difference between the cases of a mere preparation and an attempt." [Emphasis Supplied] By referring the above mentioned decision, it is interpreted that an 'attempt' is recognized in law as a situation where a transaction is initiated but cannot be completed for some extraneous reason. It requires an overt act beyond mere preparation as illustrated in Illustrations (a) and (b) of Section 511 of the IPC, which have been extracted out below; "(a) A makes an attempt to steal some jewels by brea....
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....ep 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 Acts or Rules. Consequently, no culpability can be attached on the Appellant Bank for not having reported the STR's. 32. It is argued on behalf of the banks that number of unwarranted consequences would follow if banks were forced to report every suspicious enquiry with a customer or a potential customer: (a) Potential as well as existing clients, unaware of banking procedures and rules, could have legitimate transactions needlessly flagged and scrutinized for making a genuine enquiry with the bank. This may not result in a benefit, as the banks would end up loading the system with STRs without necessarily improving compliance with the law. In fact, such STRs without even complete details, may result in directing....
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.... 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 automatically generates for certain kinds of transactions. (g) Once an alert was generated, the Appellant Bank's independent AML cell would be required to scrutinize all transactions in respect of which an alert had been generated. (h) Once a transaction is reported by either the AML cell or a branch executive, the case would be referred to the Principal Officer appointed by the Bank. Upon his concurrence, AML cell would then file the requisite STR with the FIU within 7 days of arriving at the conclusion that a transaction was suspicious. (i) Finally, the Appellant Bank's Audit Committee would consider all STRs, CTRs and SSRs filed by the Appellant Bank on a quarterly basis and periodically review KYC/AML systems and policies to ensure continued compliance with the Act and the RBI guidelines on t....
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....t; (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 the subject conversations of the bank Employees give the Cobrapost reporter, the transaction is not complete within the meaning of Rule 2(1)(h) of PMLA, 2002. The appellants hence are not covered within the range of the provision of Section 12 of the Act as in terms of Section 12 of PMLA Act the Reporting Entity is required to maintain records of all the transactions mentioned in Section 12(1) including the attempted transaction, the nature and value of which may be prescribed. It is submitted that before a transactions can be reported in terms of Section 12 of the Act, the transaction must necessarily fall within the category of one of the transaction referred to in section 2(h). Further there must be in existence a banker customer relationship. For creation of any banker customer relationship it is necessary that such person or entity must share its details with the bank as mandated by KYC norms. Only one the details....
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....n 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 referred in Rule 4. 39. It is argued that the ld. Adjudicating Authority failed to consider the fact that in all the five instances under the AML/KYC Policy, the said instances would be a valid ground for recording STR only if the customer had taken all or any necessary steps to execute a transaction i.e. the customer should have at least disclosed his identity given his name, address, phone number which would enable the Bank to raise STR. In the Cobra post sting operation no such details/documents were made available so as to enable the Bank to raise STR. The discussions being in the nature of roving inquiry, the same would not be covered within the meaning of "a transaction" as defined under the Act and the Rules. Accordingly, the Cobra post sting operation at the branches of the Appellants would not be covered within the definition of a transaction or a suspicious transaction or an attempted transaction and therefore, non-reporti....
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.... 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 only of existing Clients of the reporting entity. It is doubtful that those are also applicable to a person who had not even provided a name while enquiring from the officials of the Appellants in general types of cases. 44. It is not in dispute that the obligation to report under the Act must be read strictly as non-compliance thereof carries penal consequences. The provisions specifying transactions for which records are required to be maintained (Rule 3), manner of maintaining such records (Rule 5) and reporting requirements for such transactions (Rule 7), all apply to actual transactions and not to mere enquiries.. Rule 3(1)(D) when read with the definition of "suspicious transaction" {Rule 2(g)) makes clear that mere enquiries cannot constitute a "transaction" or a "suspicious transaction". If Rule 3 is not triggered, Rules 5 (manner of maintenance of records) and Rule 7 (reporting of transactions) are also not triggered. Accordingly,....
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....sit 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 he would certainly help him get one in another branch. "Lockers nahin hai... dekh lenge pehle account khul jayega. Jaakar dilwa denge. Bahut saari branches haj humari. Rajendra Nagar mein humari Sir branch hai. Wahan par hum locker facility aapko de sakte hain. bada to nahin medium size mil payega. Bade to pata hat kya hota hai? Jaise branches khulti hain na to pehle malik le lete hain. Panch-chhe hain bade locker doh mil jayenge (There are no lockers here. We will see. First, account will be opened, then 1 will personally go there to get you one. We have so many branches. We have a branch in Rajendra Nagar, Sir. We can offer you locker facility there, not of big size but medium. You know as soon as branches open, people grab them all. There are five-six big lockers. You will get two)." Has he handled such transactions in the past? Replies Singh: "Sir humnein toh, humnein jo hai Janakpuri, Rohini mein punch crore rupaye dalwaye hue hain (Sir, I have got cas....
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....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 here. It will go there and from there...)" 48. In this context, it is also useful to refer to the "Forensic inquiry and fact finding review of transactions and allegations of inappropriate practices made against HDFC Bank by Cobrapost" conducted by Delloitte which were published on March, 14, 2013 and April 5, 2013" during the course of which few statements of concerned employees were also recorded for clarifications purposes. Portion of the same read as under:- * That recalled reporting about the incident to his senior, who had instructed him to be cautious of the reporter. * According to Priyanka the reporter had suggested opening of three accounts and she had agreed to the same (one for the politician, one for the politician's wife and one for the reporter. She had however informed the reporter about the requisite documents that would be required for opening of the account. * Simrandeep clarified that at the end of the meeting he had informed the reporter that PAN and source of f....
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....t the failure of the appellant banks to report the said attempted suspicious transactions within the meaning of Section 12 of the Act read with Rule 2(g) of the said rules was clearly established. 50. Learned ASG has also referred the contents of the report "Project Discovery, Investigation into potential allegations of inappropriate practices by Cobrapost.com (Attorney Client Privileged and Confidential Work Product) conducted by KPMG in relation to one of the appellants-Axis Bank, in June, 2013, wherein certain themes arising out of the discussions were mentioned. The extracts of a few of them are read as under:- "Employees do not entirely recollect the events which transpired on the date of meeting with undercover journalist but confirmed that most of the content of the transcripts is correct. However, they stated that transcripts are not complete and point discussed relating to introductory discussions, client's banking requirement understanding and certain other generic topics unrelated to banking are not captured in the transcripts." "employees informed us they had converse with the customers to understand their requirements and sometime they talk in the customer languag....
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....r gives false identification documents or documents that appears to be counterfeited, altered or inaccurate 3 CV2.2-Identity documents are not verifiable * Identity documents presented are not verifiable i.e. Foreign documents etc. 4 CV3.1-Address found to be non existent * Addressed provided by the customer is found to be non existent 5 CV3.2-Address found to be wrong * Customer did not staying at address provided during account opening 6 CV4.1-Difficult to identify beneficial owner * Customer uses complex legal structures or where it is difficult to identify the beneficial owner 7 LQ 1.1-Customer is being investigated for criminal offences * Customer has been the subject of inquiry from any law enforcement agency relating to criminal offences 8 LQ 2.1-Customer is being investigated for TF offences * Customer has been the subject of inquiry from any law enforcement agency relating to TF or terrorist activities. 9 MR1.1-Adverse media report about criminal activities * Match of customer details with persons reported in local media/open sources for criminal offences 10 MR2.1-Adverse media report about TF or terrorist activities of customer * Match of customer ....
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.... They also dropped the names of some prominent politicians, for whom or for whose relations they claimed to have worked in similar situations. 56. It is urged by the Appellant that the incident in question does not amount to an "attempted transaction", the Appellant relied upon the case of Koppula Venkat Rao v. State of Andhra Pradesh [Appeal (Crl.) No. 84 of 1998, dated 10-3-2004] and Aman Kumar (supra) where the accused had been charged with the offence of committing rape. The ratio for decision in cases of Koppula Venkat Rao (supra) and Aman Kumar (supra) are not applicable to facts and circumstances. The said cases pertain to criminal liability. The issue in the present is to whether or not an attempted suspicious transaction has taken place, for the bank officers to report. In the present case, the proceedings are civil in nature. 56.1 The definition of the word "attempt", as referred to by the appellant in its written submission, as defined in Wharton's Law Lexicon means "attempt means an endeavour to commit a crime or unlawful act....in criminal law means an overt act that is done with an intention to commit a crime but that falls short of completing the crime. . . . . " ....
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....ing reported as STR, and the Bank wanted to report attempted STRs, it could have contracted FIU through any means of communication e.g., by fax or email. The Bank has now shown any evidence that it made any attempt to report. The new TRN (transaction) reporting format of FIN net, which is FIU's online reporting system, allows filing reports for attempted transactions where several fields such as account number etc are not mandatory. The Bank has the flexibility to describe an attempted transaction in the space provided for grounds of suspicion. 19. Various case laws have been cited by the Bank to show what could be called an 'attempt' and how the instant cases are not 'attempted suspicious transactions'. The gist of the case laws is as under:- (a) Ram Kripal son of Shri Shyam Lal Charmakar v. State of Madhya Pradesh (2007) 11 SCC 265 Supreme Court of India The word "attempt" is not itself defined, and must, therefore, be taken in its ordinary meaning ---. The moment one commences to do an act with the necessary intention, he commences his attempt to commit the offence. (b) State of Maharashtra v. Mohd. Yakub, reported as AIR 1980 SC 1111 The term attempt is wide enough to....
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....nance of Records) Rules, 2005 and Rule 2(g) thereof places a "good faith" obligation on a reporting authority (i.e., the Bank) to report suspicious transactions including attempted suspicious transactions which would lead a person who acts in good faith to believe that the source of funds is dubious. It cannot be contended now that appellant did not believe that a suspicious transaction was involved. 59. Some of the appellant Banks submitted that a Bank can never be held responsible for the actions of its officers while the learned ASG argued that banks could not divest itself and avoid responsibility from the actions of his officers. We are of the view that this would depend upon case to case basis. In serious matters, the bank may be responsible for a situation as it happens in the present case, our opinion is that as in the present case bank officers failed to report attempted suspicious transactions which they are required to report U/s. 12 of PMLA and such instances have been repeated over several branches of the bank, they (the banks) cannot be absolved of the responsibility. If, senior level officers were involved/party to the conversations and the manner in which they read....
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.... have been reported as attempted suspicious transactions in terms of Section 12(1) (b) of the Act read with Rule 2(g) of Money Laundering (Maintenance of record) Rules, 2005. In having not sent the required reports, the banks are liable for action in terms of Section 13 of the Act. and benefit of Section 13(2)(a) would have been availed in the nature of the peculiar circumstances in the matters as discussions are covered as reported matters within the meaning of section 12 (2) of the respondent. 64. However, at the same time we are of the considered opinion that the present matter is not a case of imposition of maximum penalty provided under the statute as imposed by the respondent under section 13 (2) (d) but one of penalty under section 13 (2)(a). The orders passed vide Director FIU imposing major penalty of 13(2)(d) is not sustainable. On this aspect, the impugned orders are required to be modified/set-aside on the following reasons:- (i) The respondent has failed to give reasons why the maximum penalty as imposable under the Act was imposed in respect of the present appellants. The impugned order passed in this regard imposing maximum penalty uniformly on all the appellant b....
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....We now deal with the point regarding admissibility of the evidence in the case. The entire case of the Respondent is based on electronic evidence, i.e. video recordings and their transcripts uploaded online as the proceedings were initiated on the basis of sting operation conducted by Journalists of Cobra post in respect of allegation on the banks are not complying with (RBI) Master circular dated 01.07.2013 regarding reporting of attempted suspicious transactions to the department, therefore the penalty was imposed. 66. It is the common submission on behalf of all the appellants that the Ld. Director could not have relied on the sting operation in as much as the evidence of the so called sting, which is electronic in nature, is not accompanied by a certificate under Section 65 B of the Evidence Act. The said evidence is therefore inadmissible in law. In support of this contention, various decisions were referred and also oral arguments are addressed. 67. The video-recordings and the transcripts are electronic records and hence governed by Sections 65A and 65B of the Evidence Act. In the present case, admittedly the electronic records are not accompanied by a certificate required....
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....rtain terms that the evidence relating to electronic record being a special provision, the general law on secondary evidence Under Section 63 read with Section 65 of the Act would have to yield thereto. It has been propounded that any electric record in the form of secondary evidence cannot be admitted in evidence unless the requirements of Section 65B are satisfied. This conclusion of ours is inevitable in view Of the exposition of law pertaining to Sections 65A and 65B of the Act as above." [Emphasis Supplied] 70. The electronic evidence in addition to the above legal requirement is also required to satisfy the tests laid down by the Hon'ble Supreme Court in the case of Ram Singh v. Col Ram Singh 1985 Supp SCC 611 which are as follows: "32. (1) The voice of the speaker must be duly identified by the maker Of the record or by others who recognise his voice. In other words, it Manifestly follows as a logical corollary that the first condition for the admissibility of such a statement is to identify the voice of the speaker. Where the voice has been denied by the maker it will require very strict proof to determine whether or not it was really the voice of the speaker. (2) The ....
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....by the enforcement agencies are yet to be experimented and tested in India and legal acceptance thereof by our legal system is yet to be answered. In this regard, reliance was placed on the judgment of the Hon'ble Supreme Court in Rajat Prasasd v. CBI [2014] 6 SCC 495, the relevant portion of which reads as under: "11. Unlike the U.S. and certain other countries where a sting operation is recognized as a legal method of law enforcement, though in a limited manner as will be noticed hereinafter, the same is not the position in India which makes the issues arising in the present case somewhat unique. A sting operation carried out in public interest has had the approval of this Court in R.K. Anand v. Registrar, Delhi High Court[1] though it will be difficult to understand the ratio in the said case as an approval of such a method as an acceptable principle of law enforcement valid in all cases. . . . . . . . . . 13. Thus, sting operations conducted by the law enforcement agencies themselves in the above jurisdictions have not been recognized as absolute principles of crime detection and proof of criminal acts. Such operations by the enforcement agencies are yet to be experiment....
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...., based on the law in some other countries, lead us to conclude as follows: 1. A sting operation by a private person or agency is, by and large, unpalatable or unacceptable in a civilized society. A sting operation by a State actor is also unacceptable if the State actor commits an offence so that an offence by another person is detected. 2. A State actor or a law enforcement agency may resort to hidden camera or sting operations only to collect further or conclusive evidence as regards the criminality of a person who is already suspected of a crime. 3. The law enforcement agency must maintain the original version of the actual sting operation. Tampering with the original video and audio clips of a sting operation may lead to a presumption of the spuriousness of the entire operation. 4. A sting operation cannot be initiated to induce or tempt an otherwise innocent person to commit a crime or entrap him to commit a crime. 5. Normally, if a private person or agency unilaterally conducts a sting operation, it would be violating the privacy of another person and would make itself liable for action at law. 6. A sting operation must have the sanction of an appropriate authori....