Penalty was slapped by Financial Intelligence Unit, under the Finance Ministry, for questionable transactions, including cash withdrawals, at the bank between the years 2006 and 2010
Diamantaire Nirav Modi's uncle-business partner Mehul Choksi
Axis Bank, one of the two private banks, other being ICICI, summoned for questioning over loans issued to Nirav Modi's uncle Mehul Choksi, had been fined Rs 2.64 crore in 2016-17 by the Financial Intelligence Unit (FIU) for not following procedures to keep a check on money laundering and cash withdrawals beyond permissible limits. Experts and lawyers say had checks been in place, Choksi could never have got the huge loans.
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The Serious Fraud Investigation Office (SIFO) in Mumbai has summoned ICICI Bank CEO Chanda Kochhar and Axis Bank MD Shikha Sharma to probe how Choksi got the loans. Insiders tried to downplay the summons stating it was a routine inquiry and that SIFO officials were keen to get leads into the fraud.
Flashback
The letter dated April 13, 2016, issued by the department of revenue, asked Axis Bank to respond within 45 days of receipt of the letter as to why they had failed to verify the identity of customers and inform the director, FIU, of specified transactions, including cash transactions over Rs 10 lakh, suspicious transactions and counterfeit transactions.
Two show-cause notices were issued to Axis Bank in 2011 (November 15) and 2014 (September 5) for other accounts involving Balaji Bullion Group companies and Maple Advisory Services Pvt Ltd.
The November 15 notice stated that huge amounts were seen to have been introduced, layered and transferred abroad through the accounts of Balaji Bullion Group companies maintained at Axis Bank, but the transactions were not properly examined for suspicious transaction reports (STR). After the I-T department and FIU-India started probing the manner, Axis Bank filed STRs in case of 56 accounts of the Balaji Bullion group in March 2010. The bank was asked on December 8, 2009, to provide a list of account opening forms and KYC documents for two accounts initially, and later, in letters dated April 5, 2011, copies of KYC documents of the remaining accounts were also called for, which the bank provided later that year.
The November 15 notice, based on the information available, including that furnished by the bank and also gathered during onsite inspection of the bank on April 5, 2011, identified two main areas of violations of the Prevention of Money Laundering Act, 2002: failure to correctly report cash transaction reports (CTRs)and STRs, and failure to verify the identity of a client while opening the account of Narmada Pariyogjana, from which several crores of rupees were siphoned off.
Axis Bank, in its reply on December 26, 2011, provided a list of 56 related accounts of Balaji Bullion Group; 170 transactions relating to foreign remittances; 690 alerts for nine of the 56 accounts generated during July 2008 and May 2010 (closed without filing STRs); correspondence with branches on the basis of which alerts were closed; and copies of ledger accounts/invoices and documents to substantiate certain transactions highlighted during on-site reviews.
Suspicious transactions
The bank was slapped with fines of Rs 46 lakh for failing to evolve a proper internal mechanism for detecting and reporting suspicious transactions during the 46-month period from April 2006 to February 2010, calculated at R1 lakh per month; Rs 1.06 crore for not filing correct CTRs for 1,063 cash transactions from May 2006 to August 2009, calculated at Rs 10,000 per transaction; Rs 112 lakh for failure to carry out proper identification and verification for 56 accounts of Balaji Bullion Group companies calculated at R1 lakh per account; one account of Narmada Vikas Pariyojana calculated at Rs 1 lakh per account and, 55 accounts related to the Maple Advisory Services Pvt Ltd and related accounts, calculated at Rs 1 lakh per account. The total fine payable was Rs 2.64 crore.
Axis Bank senior officials were unavailable for comment. A mid-level official with the bank said, "We are cooperating with the investigators."
Bankerspeak
Rajesh Ranjan, chief manager, Bank of India, Navi Mumbai, admits that if the FIU had found lapses by Axis Bank in 2011, immediate corrective steps would have prevented sanction of loans to Choksi. "It is impossible for any banking official to verify KYC documents of a company or individual beyond what is submitted. But when it comes to sanctioning of loans, banks conduct in-depth verification."
Lawyerspeak
Advocate Majeed Memon said, "All banking operations within the country are subject to regular auditing. RBI operates as overall regulator of banking activities, including for sanctioning and recovery of loans. It has been observed that at PNB, where Nirav Modi is a beneficiary, all rules were flouted, and nepotism and favouritism discovered in connivance with bank staff. The same seems to have happened in the case of Choksi with Axis and ICICI banks, along with 31 other banks ...can't be considered as cases of offence of omission on part of a public servant or act of criminal negligence. These are offences where there's active participation of the public servant, including high-ranking bank officials. When Axis Bank was given notice by FIU in 2011, the offences thereafter should not have recurred; it is astonishing that in spite of detection of such huge scams, the same was allowed to be repeated over the years."
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