FIU Imposes Fine on Axis Bank for Failure to Detect NSG Fraud

The Financial Intelligence Unit (FIU) has levied a penalty exceeding Rs 1.66 crore on Axis Bank for neglecting to implement adequate measures to identify and report suspicious transactions. This action stems from an incident where an Axis Bank employee allegedly colluded to create a fraudulent account in the name of the National Security Guard (NSG), facilitating illicit financial activities.

Background and Allegations

The case, originating in Gurugram in 2021, involved an Axis Bank manager purportedly setting up the fraudulent NSG account. This account was allegedly used for aggregating illicit funds, leading to investigations by local authorities and the Enforcement Directorate (ED). Last year, assets worth Rs 45 crore belonging to an accused NSG officer and family members were attached, including a sister who served as a manager at Axis Bank.

Violations and Penalties

The FIU’s order cites Axis Bank’s failure to establish a robust mechanism for detecting and reporting suspicious transactions promptly. It criticized the bank for not filing suspicious transaction reports (STRs) related to the fraudulent account, overlooking discrepancies in account profiles, and inadequately verifying the authority of the implicated bank employee.

FIU Directive and Remedial Measures

As part of its directive, the FIU instructed Axis Bank to review its existing mechanisms and ensure compliance with customer due diligence requirements. The bank must implement a stringent transaction monitoring system, streamline data-sharing practices to enhance clarity in regulatory submissions, and adhere strictly to RBI guidelines on employee screening and KYC procedures.

• Axis Bank has been fined over Rs 1.66 crore by the FIU for failing to detect and report suspicious transactions related to a fraudulent NSG account.
• An Axis Bank employee allegedly colluded to create the fraudulent account in the name of the National Security Guard (NSG), facilitating illicit financial activities.
• The FIU found Axis Bank negligent in establishing a robust mechanism to detect and report suspicious transactions promptly.
• The bank was criticized for not filing suspicious transaction reports (STRs), not verifying the authority of the involved employee properly, and overlooking discrepancies in account profiles.
• Axis Bank has been directed to review its mechanisms, enhance transaction monitoring, streamline data-sharing practices, and improve employee screening and compliance with KYC guidelines.