2015 (9) TMI 1602 - AT - Money Laundering

Non filing the Cash Transaction Report (in short CTR) in respect of two cash transactions - Held that - A careful consideration of the provisions as contained in Rule 3(1)(B) of the rules prescribe that banking company shall maintain the record of all transactions including the record of all series of cash transactions integrally connected to each other which has been valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and Rule 7(2) of the Rules provides that the Principal Officer of the banking company shall furnish the information referred to in Rule 3(1)(B) of the Rules to Director. The provisions of Rule 3(1)(B) of the Rules clearly states in respect of all series cash transactions integrally connected to each other which have been valued below rupees ten lakh (emphasis supplied) and it does not provide that the total value of all series of integrally connected cash transactions should be over rupees ten lakh. Thus in the present case even if the service charges are excluded from consideration, the value of integrally connected cash transactions i.e. two demand drafts is ₹ 10 lakh which was valued below rupees ten lakh by splitting into two demand drafts of ₹ 2 lakh and ₹ 8 lakh and thus falls within the four corners of the provisions of Rule 3(1)(B) of the Rules. The show cause notice was clearly on account of failure of the appellant to report cash transactions integrally connected to each other which have been valued below ₹ 10 lakh where such series of transactions have taken place within a month. Show cause notice did not say that the aggregate value of the integrally connected cash transactions is more than Rs. ten lakh. As regards argument of the appellant that service/bank charges for issue of demand draft should be excluded from the value of transactions as it does not form part of the transactions as it is directly credited by the appellant to bank charges account and in view of the guidelines issued by the regulator RBI vide para 2.20(a)(iv) of the Master Circular, is without merits and the same cannot be sustained Further the plea of the appellant that the above cash transactions were bona fide in nature is also without merits as the provisions of PMLA and Rules made there under does not provide any such exclusion in respect of CTR. All the cash transactions irrespective of their bona fide nature which are covered by the provisions prescribed at the relevant time as per PMLA and Rules made thereunder are to be reported in CTR and if any cash transaction is suspicious in nature then irrespective of its value, the same is also to be reported in Suspicious Transaction Report. If it were a clear and bona fide transaction, there could have been no need to split up the payment of ₹ 10 lakh to the same recipient on same day at the same time so that each component remains below ₹ 10 lakh. If such a transaction did not raise an alert, then the internal system of the bank is inadequate. As regards argument of the appellant that in case any question arises relating to the interpretation of the Rules, the Director should have referred the matter to the Central Government for its decision under Rule 11 of the Rules, the same is without merit as there is no ambiguity in the interpretation of the Rules as propounded by the appellant bank.

Summary

Issues Involved:
1. Failure to Report Cash Transaction Report (CTR)
2. Internal Mechanism for Furnishing Information
3. Interpretation of Rules under PMLA
4. Jurisdiction of Director vs. Regulator (RBI)

Detailed Analysis:

1. Failure to Report Cash Transaction Report (CTR):
The appellant, a banking company, was fined for not filing the CTR for two cash transactions totaling Rs. 10,04,964/- in April 2011. The appellant argued that the transactions did not exceed Rs. 10 lakh, excluding exchange and service tax. However, the tribunal found that the total amount, including bank charges, exceeded the threshold and should have been reported. The tribunal emphasized that all cash transactions over Rs. 10 lakh must be reported, regardless of whether they are bona fide or involve existing customers.

2. Internal Mechanism for Furnishing Information:
The appellant was also fined for not having an internal mechanism to report such transactions. The tribunal noted that the appellant failed to evolve an internal mechanism for maintaining and furnishing information as required by the rules, despite previous fines for similar failures. The tribunal highlighted that the appellant's internal system was inadequate, as evidenced by the failure to detect and report the transactions.

3. Interpretation of Rules under PMLA:
The appellant contended that the bank charges should be excluded from the transaction value as per RBI guidelines, which state that CTR should exclude transactions between the internal accounts of the bank. The tribunal rejected this argument, clarifying that the transactions were not between internal accounts but between the customer and the bank's internal account. The tribunal also dismissed the appellant's plea that the Principal Officer's discretion under Section 12 of PMLA should determine whether transactions are integrally connected, stating that the proviso to Section 12(1) adds to the obligations rather than derogates from them.

4. Jurisdiction of Director vs. Regulator (RBI):
The appellant argued that only RBI, as the regulator, had jurisdiction under PMLA to impose fines, not the Director. The tribunal refuted this, stating that Section 13 of PMLA clearly authorizes the Director to impose fines. The tribunal also noted that the RBI's acceptance of the appellant's explanation was irrelevant to the Director's jurisdiction to initiate proceedings and impose fines under PMLA.

Conclusion:
The tribunal upheld the Director's order, finding no merit in the appellant's arguments. The appeal was dismissed, and the fines for failing to report the CTR and not having an internal mechanism were affirmed. The tribunal emphasized the importance of compliance with PMLA provisions and the need for robust internal mechanisms to detect and report cash transactions.