TMI Blog2018 (1) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... ced 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. The Report of the independent forensic investigator engaged by the one of the Appellants 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 available do not provide the complete conversation or complete record of events as they have possibly been rearranged and edited to provide a misleading picture (Annexure D at Page 121 of the Appeal has been filed along with the appeal by the said appellant). It was also been reiterated by the Appellant at multiple instances including its reply dated 24 January 2014 to the Show Cause Notice, during the personal hearing granted to the Appellant on 24 February 2014, additional submissions placed by the Appellant on 05 March 2014 and in Appellant’s detailed response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttacharya 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 Appellant and transcripts of such meetings were publicly released during a press release on 14th March 2013 and 05 April 2013, and were also posted on the website of Cobrapost. The Sting Operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned 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, investment in insurance products, etc. without actually undertaking such transaction to its losical end and more importantly, the identity of the person openine the account/or maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 audit. 5.4 Thereafter, on the basis of the Investigation as well as the interviews held with the Featured Employees, the Appellants took appropriate action agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 submitted a detailed response to the Ld. Director on 6th May 2014 providing reasons as to why such transcripts should not be taken to constitute a conclusive re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eps 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, 2002 read with Rules 2(g), 7(3) and 8(3) of PML (Maintenance of Records) Rules and as such the Appellant Bank was liable fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranscripts 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 process and enquiry. 6.11 By the Impugned Order dated 20.02.2015, the Director, FIU-IND held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 the Transcript is highly edited. The FIU-IND thus passed the impugned j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion/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 ₹ 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 visited in disguise, the officials of the Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 charge against the Bank, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, 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 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 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 susp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 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 interact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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. 25-1/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/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 sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 17.05.2013. 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 att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribes 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, 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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 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 attemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fence. 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 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirements. (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 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 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 transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 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 mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious 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 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-Axi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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, altered or inaccurate 3 CV2.2-Identity documents are not verifiable Identity documents presented are not verifiable i.e. Foreign documents etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction. Customer taking instructions for conducting transactions. Customer is accompanied by unrelated individuals. 16 EI3.2-Multiple customers working as a group Multiple customers arrive together but pretend to ignore each other. 17 EI4.1-Customer avoiding nearer Customer travels unexplained distances to From the above, those 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 De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity thus are not applicable to the facts of the issue in hand. 57. In one of the impugned orders, the respondent in para 17-20 thereof has held as under: 17. The Bank has stated that some parts of the conversation in the Cobrapost transcripts where the Bank officials have insisted on submission of submission of KYC documents have been sliced/edited. The queries made by the reporter in the said discussions have however not been disputed; these have rather been confirmed by the employees in an independent enquiry conducted by the Deloitte at the behest of the Bank, and a copy 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 throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiving the university admission card. He failed to sit in the examination as forgery came to light before he could succeed. The moment one commences to do an act with necessary intention, he commences his attempt to commit the offence. (d) Rasila Mehta v. Custodian-2011 6 SCC 220 In paragraph 47 the Hon ble court stated that the statutes must be construed in a manner which will suppress the mischief and advance the object the legislature had in view. A narrow construction which tends to stultify the law must not be taken. There 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the reasons mentioned by us in paras 46 to 60 of this order and the contents of Para-2.16 of RBI Master Circular dt. 1.7.2013 regarding attempted suspicious transactions to be reported taken together, it appears to us that the subject conversations are to be treated as required to be reported to Director FIU as attempted suspicious transactions in terms of the PMLA Act and the PML (Maintenance of Records) Rules, 2005. 62. The appellants may be correct about modus operandi used by the Cobra investigator but at the same time, it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed vide a separate order issued today. The said letter dated 13.09.2015 reads as under: F. No. 25-1/2013/FIU-IND Dated 18th Sep, 2014 The Designated Director ING Vysya Bcink 6th Floor, ING Vysya House No. 22, IvJG Road Bangalore Dear Sir, Sting Operation by Cobra Post Please refer to your letter dated February 21, 2014 on the above mentioned subject vide which you had submitted your reply to the enquiries made by us-under section 12A of the Prevention of Money 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Some relevant paragraphs from this judgment are extracted below: 75. Under Section 65B (4) of the Evidence Act, if it is desired to give a statement in any proceedings pertaining to an electronic record, it is permissible provided the following conditions are satisfied: (a) There must be a certificate which identifies the electronic record containing the statement; (b) The certificate must describe the manner in which the electronic record was produced; (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 elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) The recorded cassette must be carefully sealed and kept in safe or official custody. (6) The voice of the speaker should be clearly audible and not lost or distorted by other sounds or disturbances. 71. In the present case, the conversation has been recorded in the recorder. It is a settled law that tape recorded evidence is merely corroborative and cannot form the basis of a finding. Reliance in this regard 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexplicable is why, at least at the beginning of the proceeding, the High Court did not put NDTV, along with the two appellants, in the array of contemnors. Looking back at the mailer (now that we have on the record before us the appellants affidavits in reply to the notice issued by the High Court as well as their first response to the telecast in the form of their live interviews), we are in the position 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. 75. Admittedly, the afore mentioned requirements and those in the judgments cited above have not been complied with in the present case.. Therefore the video tapes and their transcripts are inadmissible as evidence. The Ld. Director could not have relied upon inadmissible evidence in passing the Impugned Order without such compliance. Further, it is also a matter of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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