2015 (8) TMI 1425 - AT - Money Laundering

Proceedings under PMLA - non-reporting of integrally connected transactions cannot be condoned and the proceedings initiated cannot be dropped - Held that - Admittedly the appellant has not filed Cash Transaction Report in respect of 31 integrally connected cash transactions which took place in the month of August, 2009 which was required to be filed in the month of September, 2009 as per sub-rule (1) of Rule 8. The appellant has also admitted that initially automated systems were not in place and upon implementation, data for past transactions was captured to view violations and consequently violations were voluntarily reported vide letter dated 11-3-2010. The appellant except pleading that details of transactions were communicated to respondent voluntarily, Suspicious Transaction Report was filed, appellant was in its initial phase of business commencement, remedial steps have been taken by appellant and IRDA has condoned the non-compliance, has not been able to show any infirmity or illegality in the impugned order. All these points were also pleaded by the appellant during proceedings before the respondent who had after due consideration of the same took a lenient view and imposed a nominal fine of ₹ 1,00,000/- for failing to have an internal mechanism in place for not reporting 31 integrally connected cash transactions in the month of August, 2009. The act of filing Suspicious Transaction Report (STR) will not absolve the appellant of its compliance liability of filing Cash Transaction Report (CTR).

Issues Involved:
1. Failure to report 31 integrally connected cash transactions.
2. Non-compliance with Section 12 of the Prevention of Money Laundering Act (PMLA) and related rules.
3. Imposition of a penalty by the Director, Financial Intelligence Unit (FIU)-India.
4. Appellant's efforts to rectify initial non-compliance.
5. The relevance of the Insurance Regulatory and Development Authority (IRDA) condoning the non-compliance.

Issue-wise Detailed Analysis:

1. Failure to report 31 integrally connected cash transactions:
The appellant was penalized for not reporting 31 integrally connected cash transactions in August 2009, as required by the PMLA. The appellant admitted to failing to file the Cash Transaction Report (CTR) within the prescribed time and format but argued that they voluntarily reported these transactions in March and April 2010. The appellant contended that this voluntary disclosure demonstrated their commitment to compliance.

2. Non-compliance with Section 12 of the PMLA and related rules:
Section 12 of the PMLA mandates that financial institutions maintain records of transactions and report them to the Director, FIU-India. The appellant failed to comply with this provision by not reporting the transactions within the required timeframe. Rule 3 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, specifies the nature and value of transactions to be recorded and reported. The appellant's failure to report these transactions was a clear breach of these rules.

3. Imposition of a penalty by the Director, FIU-India:
The Director, FIU-India, imposed a fine of Rs. 1 Lakh on the appellant for failing to have an internal mechanism in place to detect, capture, and report the transactions. The appellant argued that the penalty was harsh given their voluntary disclosure and remedial measures. However, the respondent maintained that the penalty was justified due to the appellant's admitted failure to comply with the reporting requirements.

4. Appellant's efforts to rectify initial non-compliance:
The appellant argued that they were in the nascent stage of their business in 2009 and were still setting up their systems and processes. They claimed to have taken various remedial steps to ensure future compliance, including implementing an automated system for monitoring Anti-Money Laundering (AML) transactions. The appellant also highlighted that there had been no further lapses since these initial transactions.

5. The relevance of the IRDA condoning the non-compliance:
The appellant pointed out that the IRDA, a regulatory authority, had issued a show cause notice and subsequently condoned the non-compliance after considering the corrective steps taken by the appellant. The appellant argued that the FIU-India should have similarly condoned the non-compliance. However, the respondent countered that the IRDA's actions were separate and independent from the proceedings under the PMLA, and the condonation by the IRDA had no bearing on the FIU-India's enforcement actions.

Conclusion:
The tribunal concluded that the appellant's failure to file the CTR for the 31 integrally connected cash transactions in August 2009 was a clear violation of the PMLA and the related rules. The voluntary disclosure of these transactions and the filing of a Suspicious Transaction Report (STR) did not absolve the appellant of their obligation to file the CTR. The tribunal found no infirmity in the impugned order and upheld the penalty of Rs. 1 Lakh imposed by the Director, FIU-India. Consequently, the appeal was dismissed with no order as to costs.

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