ACTIVITY UNDER PREVENTION OF MONEY LAUNDERING

ACT 2002 AND INFORMATION TECHNOLOGY ACT 2005

WELCOME TO THE VLC SESSION
©Copyright 2014, All Right Reserved. Manipal Global Education Services Pvt. Ltd.
 ACTIVITY – DISCUSSION ON CASE LETS UNDER
PMLA 2002 AND INFORMATION TECHNOLOGY ACT
2005

OBJECTIVES OF THE SESSION

TO MAKE USE OF THE KNOWLEDGE GAINED IN THE WEBEX
SESSION ON THE SUBJECT ACTS -
TO BUILD UP SKILLS IN EFFECTIVELY FACING OPERATIONAL ISSUES
AT THE BANK
TO ENSURE COMPLIANCE WITH THE VARIOUS PROVISIONS UNDER
RTI ACT
TO MAKE USE OF THE SKILLS IN SECURING THE INTEREST OF THE
BANK
TO ENSURE EFFICIENT SERVICE TO CUSTOMERS SO AS TO AVOID
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 1:

On a day in your branch, your Head Cashier brings to your

notice, the BM, that a customer, who is running a petty shop
near the branch, has remitted an amount of Rs.20 lacs into his
SB account.

On further enquiry with the officer-in-charge of SB account, it

was revealed from the transactions in the account that three
credits of Rs.5 lacs, Rs.8 lacs and Rs.7 lacs were seen remitted
into the account on three different days in the last 15 days.
Both your officials doubt that the transactions may involve
money laundering and wants you to report these credits as
Suspicious Transactions.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 1:

SOLUTION:
Banks should report suspicious transactions, if they have reasonable ground to
believe that the transaction involve proceeds of crime generally irrespective of the
amount of transaction and/or the threshold limit envisaged for predicate offences in
part B of Schedule of PMLA, 2002.

In the present case, the BM will have to ascertain from the petty show owner the
source and purpose of remittance and decide whether the transaction amounts to a
suspicious one as per PMLA.

If the customer could explain the details of remittance to the satisfaction of the
branch, they may obtain a declaration and any proof for the source of remittance
and close the issue.
In case the transaction turns out to be a suspicious one, it should be reported within
7 days of the decision of the bank to FIU-IND by the Principal officer – AMU of the
bank in the prescribed format.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 2:
 
During the period of last three weeks, your branch has had remittance of counterfeit currency notes on
three occasions as below:
1. On 5th March 2019, three notes of Rs.2000 each were impounded from a C/A holder running a
petrol bunk. On enquiry, the proprietor has given in writing that these notes were received from
sale of petroleum products and could not ascertain the remitters/ source of remittance.
2. On 12th March 2019, six notes of Rs.100 each were impounded from a wholesale vegetable dealer
having a cash credit facility with the branch. On enquiry, he submits that the notes came into his
possession from the retail dealers who purchased vegetables from him and could not identify the
persons.
3. On 22nd March 2019, four notes of Rs.2000 each were impounded from a person while remitting
for purchase of a demand draft for Rs.25,000/- in favour of an Engineering college towards
admission fee for his son. He submits that these notes came into his possession from a friend of
him as borrowing.
Please discuss as to how you will deal the above situations in terms of PMLA.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 2:
SOLUTION:
All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported
by the Principal Officer to FIU-IND immediately in the specified format (Counterfeit Currency Report – CCR) .
HOW TO DEAL WITH THE CURRENCY NOTES IMPOUNDED?
Notes determined as counterfeit shall be impounded by issuing an acknowledgement to the tenderer and notes
stamped as "COUNTERFEIT NOTE”.
For cases of detection of counterfeit notes upto 4 pieces, in a single transaction, a consolidated report in the
prescribed form should be sent by the Nodal Bank Officer to the police authorities or the Nodal Police Station, along
with the suspect counterfeit notes, at the end of the month.
For cases of detection of counterfeit notes of 5 or more pieces, in a single transaction, the counterfeit notes should
be forwarded by the Nodal Bank Officer to the local police authorities or the Nodal Police Station for investigation by
filing FIR in the prescribed format.
A copy of the monthly consolidated report / FIR shall be sent to the Forged Note Vigilance Cell constituted at the
Head Office of the bank
In respect of the first and second instances, the currency notes to be impounded and reported to the Nodal Police
officer at the end of the month.
In the second case, immediate reporting to be done to the Nodal Police officer immediately.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 3:
 
On a day at the branch, a non-customer of your branch reports to you that three
notes of Rs.2000 each, out of the money withdrawn from the ATM of the branch, are
found to be counterfeit by the cashier of another bank when he remitted money into
his account with the bank.

He is vey upset that he has to face the ugly situation with his bank who also
impounded the said notes and informed him of reporting to the concerned
authorities. He demands with you that he be compensated for the loss of the amount.

Please discuss the case let as to

1. Your branch’s responsibility and accountability in this case
2. The measures that a branch should take in loading ATMs
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 3:
SOLUTION:
Banks should re-align their cash management in such a manner so as to ensure that cash receipts in the
denominations of ₹ 100 and above are not put into re- circulation without the notes being machine processed for
authenticity. Any non-compliance will be construed as violation of the Directive issued by the Reserve Bank.
With a view to facilitating the detection of counterfeit notes, all bank branches / identified back offices should be
equipped with ultra-violet lamps / other appropriate banknote sorting / detection machines.
In order to obviate complaints regarding receipt of counterfeit notes through ATMs, and to curb circulation of
counterfeits, it is imperative to put in place adequate safeguards/checks before loading ATMs with notes.
Dispensation of counterfeit notes through the ATMs would be construed as an attempt to circulate the counterfeit
notes by the bank concerned.
However, as to the issue of compensation, no clear cut instructions are in place from RBI as it is difficult to establish
the authenticity of the customer’s claim. Banks can impound the notes and follow the procedure in place.

However, Reserve Bank of India has directed banks to collect counterfeit notes from depositors, mark them
appropriately and also give credit to the customer for value of notes submitted. This applies to “Detection of
counterfeit notes, at banks, at the back office or currency chest only,”
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 4:
 
M/s Premier Infrastructure Ltd., enjoys substantial credit facilities from a consortium of banks led by your bank with
credit facilities totalling Rs.1500 crores.

However, the account has become NPA due to mismanagement and large scale diversion of bank finance by the
company. As the company has failed to regularise the bank accounts and also has become defunct and the promoters
of the company, including the CEO, have left the country fearing prosecution.

As such, the consortium has initiated proceedings under Insolvency and Bankruptcy Code. The NCLT has ordered,
after due process, resolution proceedings through sale of properties of the company for settlement of the dues of
the consortium banks and also declared a moratorium pending the resolution proceedings.

Meanwhile, your bank, as the lead bank, receives a communication from Enforcement Directorate that the properties
of the Corporate Debtor have been attached as they constitute value of proceeds of crime as defined under Section
2(1)(u) of the PMLA Act.

Please discuss the issues involved in the above case and how the banks will be able to protect their interest in view of
the order issued under PMLA.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 4:
SOLUTION:
As per Section 14 of IBC, a moratorium is imposed after admission of application under Section 7. During the
Moratorium period, institution of suits or proceedings against the Corporate Debtor including execution of any
judgment, decree or order of any court of law, tribunal or any other authority is prohibited. Hence, the order of the
Enforcement Directorate cannot me executed.

REFERENCE CASE:
IN THE NATIONAL COMPANY LAW TRIBUNAL, MUMBAI - STERLING SEZ INFRASTRUCTURE LTD. VS. DEPUTY DIRECTOR,
DIRECTORATE OF ENFORCEMENT, PREVENTION OF MONEY LAUNDERING ACT - MA 1280/2018 in C.P 405/2018]
dated: 12.02.2019

The Hon'ble Tribunal held that the attachment order of the Enforcement Directorate under the PMLA Act is null and
void and hence will not be having any binding value.

The Hon'ble Tribunal reiterated that the Enforcement Directorate established under the PMLA Act had no jurisdiction
in respect of the properties and assets in the current civil proceedings of the Corporate Debtor undergoing CIRP.
The court observed that in the present scenario, the beneficiaries are the corporate creditors and the criminal
proceedings under PMLA would take a longer time. This extended time-frame would erode the value of the attached
property, hence compromising the interest of the Corporate Creditors herein.
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 5:
 
Your branch has allotted two safe deposit lockers to an NRI and his fellow NRI wife, one of your most
valuable customers with large deposit connection. The locker rent for both the lockers are being paid
through a standing instruction in the NRE SB account of the husband.

Suddenly, you receive an order issued by Dy. Director, IFU-IND for impounding all the accounts of the
two NRIs and also seizure of both the lockers for charges of money laundering. On verification of the
records, you find that both the lockers were not operated for more than two lockers.
The lockers were subsequently broken open by ED officials and diamonds worth Rs.100 crores, were in
held in the lockers, were seized.

Your branch is issued a notice under PMLA for serious lapses of compliance in the monitoring and
reporting requirements.

Please discuss whether the bank is liable for operations done by customers in the safe deposit lockers
and any lapses on the part of the bank.
In your views, what additional precaution the bank could have taken in the allotment of lockers.

 
 VLC SESSION: IDBI T2-BL
TOPIC: PMLA 2002: CASE 5:
 SOLUTION:
In respect of safe deposit lockers, banks cannot be held responsible or accountable for the operations done by the
customers since privacy of operations is an essential part of SDL.

In the present case, the account holders are NRIs and come under High Risk category as per KYC norms. As such, if
there are no operations in the lockers for more than one year it should have been advised to the customers to either
operate or surrender the lockers. Bank will be held liable for negligence and non-compliance with RBI guidelines.

As per RBI guidelines, banks should comply with the following instructions:

Where the lockers have remained unoperated for more than three years for medium risk category or one year for a
higher risk category, banks should immediately contact the locker-hirer and advise him to either operate the locker or
surrender it. This exercise should be carried out even if the locker hirer is paying the rent regularly. Further, banks
should ask the locker hirer to give in writing, the reasons why he / she did not operate the locker.
In case the locker-hirer has some genuine reasons as in the case of NRIs or persons who are out of town due to a
transferable job etc., banks may allow the locker hirer to continue with the locker. In case the locker-hirer does not
respond nor operate the locker, banks should consider opening the lockers after giving due notice to him. In this
context, banks should incorporate a clause in the locker agreement that in case the locker remains unoperated for
more than one year, the bank would have the right to cancel the allotment of the locker and open the locker, even if
the rent is paid regularly.

 
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 6:
 
In one of the branches of the Bank, there was a complaint received from an account holder that there have been
fraudulent transactions in his account. Cash had been withdrawn from ATMs and also the debit card had been swiped
across many member establishments. The total amount of such questionable transactions amounted to Rs.3,51,450.

He categorically states that these are not transactions initiated by him as he was not at all in the country during that
period of 6 months. He had gone abroad to pay his son a visit. He also showed the VISA entries in the passport which
substantiated his claims. 

An enquiry revealed that the debit card and the PIN had been received at the branch during the absence of the
account holder from the country and there was clearly a staff involvement.

Please discuss the following:

1. What might have gone wrong leading to the above fraud?

2. What are the check points that should be adopted to avoid frauds of such nature involving ATM cards and PINs?
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 6:
 
SOLUTION:

A possible case of system failure to observe the caution points in the storage and handling of ATM cards and PINs
directly received by the branch.
If staff involvement or system lapse is established bank has to reverse the debit entries in the customer’s accounts.
CHECK POINTS:
• Undelivered ATM cards and PINs should be stored separately in security vaults/ cabinets. Each card (delivered as well as
undelivered) should be recorded in register. Both under the custody of two different officers.
• Card Issuing agency may be advised to deactivate debit cards lying undelivered for more than 90 days.
• Destroy PIN after 90 days in presence of two officers and record thereof to be maintained
• Customer must be told about the usage of card, access lock operations, and ATM menu navigation and requested to change
PIN in the first instance itself. Proper customer education would minimize customer complaints and frauds
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 7:
 
One of your branches received a request from one of its customers through mail to debit an amount of
Rs.3,75,000 to his SB Account and transfer the same through RTGS to some beneficiary whose account
details were also furnished along with the IFSC code of the beneficiary bank and branch. As the mail had
come from the registered mail ID of the customer, the same had been acted upon.

However, on noticing the entry in the pass book, the account holder rushed to the Bank after a fortnight
disputing the debit entry. When the mail copy was shown to him, he denied having sent any such mail.
When the beneficiary bank was contacted, they confirmed having received the remittance. However,
they informed that the account holder had closed the account in full just 3 days back.
Please discuss in the group as to:
1. What was the modus operandi adopted by the fraudster in the above case?
2. What were the lapses on the part of the branch and what are the check points to be adopted in such
instances?
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 7:
 
SOLUTION:
A clear case of cyber fraud through email spoofing. Bank will be held liable if proved of negligence in
acting without adequate safeguards in acting under the email instructions.
Banks should not normally act based on email requests/ instructions from customers for financial
transactions.
At the best, a reply message should be given to the same email ID asking for confirmation of the request
from the customer.
INSTRUCTIONS BY BANKS:
• Fax, email and scanned letters are not a valid mode of communication for banking transactions.
• Branches should not entertain request of fund transfer to third party received through fax, email or scanned letters.
• Branches to ensure the transactions are taken place on the basis of proper mandate.

With a view to reiterate and safeguard funds of NRIs & avoid any loss to bank, all the branches have been advised as under:
• No financial/non-financial transaction to be undertaken on email request (on standalone basis) in the Non-resident accounts,
forthwith
• Service related issues if received from the registered email address from an NRI account holder may be taken up after proper
due diligence and addressed, but response of such an issue on routine nature (not involving any Financial/nonfinancial transaction)
may also be sent on the registered Email address only.
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 8:
 
On 18th Dec 2019, an SB account holder complained to your Bank claiming that an amount of Rs.23,000 has been
debited to his account unauthorized by him and he wanted to know the details of transaction. Besides, he insisted for
immediate reversal of the entry in the account, failing which he would file a complaint with Banking Ombudsman and
also snap the business connections with the bank.

On verification of the transactions in the account, you note that there was a debit entry of Rs.23,000 on 14th Dec
2016. However, on further scrutiny of records, no supporting vouchers were seen available in the day’s voucher
bundle. The amount had been transferred by NEFT to an account in the name of Shivcharan with UBI at Gwalior.

You further note that the transaction had been put through in the name of Mr. Ashish, a probationary clerk and
authorized by the Branch Head. Though Ashish was on duty on 14th Dec 2016, the Branch Head was attending a
meeting at the Regional Office. Mr. Ashish, however, is very certain that he would not have done it without
supporting vouchers.

Please discuss in the group as to:

1. What was the modus operandi adopted by the fraudster in the above case?
2. What could be the possible lapses and what are the check points to be adopted in such instances?
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 8:
 
SOLUTION:
A case of fraud by misuse of the password of unsuspecting and negligent branch staff and the BM.

LAPSES: Non-compliance with the following safety measures by staff:

Password secrecy and infrequent change of PW

Logging out the systems when not in use
Suspension of user ID of staff on long leave, training etc.
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 9:
 
One of your customers has reported that there was an authorised withdrawal of Rs.2
lacs in his SB account over a period of last one week through his Internet Banking
account.
He further submitted that he came to know of this only when he logged on to his IB
account the previous day for putting through a transaction. He also claimed he did not
receive any SMS in respect of the above fraudulent debits to his account.
On verification, it was noticed by the branch that the SMS alert facility was not provided
to the customer.
 
Please discuss the merits of the case as to the:
1. Possible lapses on the part of the customer
2. Possible lapse on the part of the bank
3. The liability, if any, of the bank in this regard
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 9:
 
SOLUTION:
1. The customer did not avail the SMS alert facility from the bank at the time of opening of the account
2. The bank did not provide the facility to the customer as it is a violation of RBI instructions
3. Liability of the bank will be decided as below:

As per RBI circular dated 6th July 2017 on “Customer Protection – Limiting Liability of Customers in Unauthorised
Electronic Banking Transactions” -
A customer’s entitlement to zero liability shall arise where the unauthorised transaction occurs in the following
events:
(i) Contributory fraud/ negligence/ deficiency on the part of the bank (irrespective of whether or not the
transaction is reported by the customer).
(ii) Third party breach where the deficiency lies neither with the bank nor with the customer but lies elsewhere in
the system, and the customer notifies the bank within three working days of receiving the communication from the
bank regarding the unauthorised transaction.
(III) When there is a delay (of four to seven working days after receiving the communication from the bank) on the
part of the customer in notifying the bank of such a transaction, the per transaction liability of the customer shall be
limited to the transaction value or the amount mentioned in Table 1, whichever is lower.
(iv) For delay beyond 7 days, as per the banks’s laid down policy.
(v) Compensation within 10 working days of receipt of the complaint from the customer
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 10:
  
One of your customers has reported that there was unauthorised ATM withdrawals in his SB account over
a period of last ten days and the entire balance of Rs.3 lacs has been wiped off from his account.

He further submitted that he came to know of this only when he accessed the bank’s ATM near his
residence one hour back for a cash withdrawal.

On verification, it was noticed by the branch that the customer has changed his mobile number few
months back and did not inform the bank of the changed mobile number.
However, he claims reversal of the entries in his account as it is no fault of his and only a system failure in
the bank. Subsequently, the investigation showed ‘skimming’ of the customer ATM card as well as many
others.
 
Please discuss the merits of the case as to the:
1. Possible lapse on the part of the customer
2. Possible lapse on the part of the bank
3. The liability, if any, of the bank in this regard
 VLC SESSION: IDBI T2-BL
TOPIC: I.T ACT 2005: CASE 10:
  
SOLUTION:
The customer did not inform the bank of change in mobile number ans such the SMS alert facility from
the bank became defunct
The bank did not provide the facility to the customer as part of customer service. However, SMS alert is
not mandatory for ATM cards.
Fraud due to third party and not because of the customer or the bank.
Compensation as per the guidelines cited under case let no. 9
 VLC SESSION: IDBI T2-BL
END OF THE DISCUSSIONS ON THE CASE LETS
SUMMARY OF THE SESSION:
1. Effectively applied the knowledge and insight gained in bulding up operational skills

2. To carry forward the skills gained in the day to day banking operations

JUST A GENTLE REMINDER-

2. To complete the feedback as required without fail
3. To look forward to the next webex session on ‘GST and INCOME TAX ACT 1961

Looking forward eagerly to the next session!

Till then, take care be safe and healthy!