44 India Banks Found Guilty Of Suspicious Transactions

At least 44 Indian banks have been flagged in connection with transactions by Indian entities and individuals in a set of Suspicious Activity Reports filed by US banks with the watchdog agency, the Financial Crimes Enforcement Network (FinCEN), reported The Indian Express.

"As per one set of records where addresses linked to parties are in India, Indian banks figure in SARs linked to over 2,000 transactions valued at over $1billion between 2011 and 2017. Significantly, there are thousands of transactions linked to Indian entities and businessmen where the Indian senders or beneficiaries have addresses in foreign jurisdictions," claimed the newspaper in its investigative report.

The Indian banks involved in suspicious transactions are state-owned Punjab National Bank (290 transactions); State Bank of India (102); Bank of Baroda (93); Union Bank of India (99) and Canara Bank (190). "Among private banks who figure in the SARs are HDFC Bank (253 transactions); ICICI Bank (57); Kotak Mahindra Bank (268); Axis Bank (41) and IndusInd Bank (117) among others."

The report says that the foreign banks that have filed these SARs include Deutsche Bank Trust Company Americas (DBTCA), BNY Mellon, Citibank, Standard Chartered and JP Morgan Chase among others. "Indian banks figure in the SARs primarily because they are “correspondent banks” to the foreign banks that have filed these SARs and figure in the network through which these transactions have been effected," it added.

There are cases, records show, where “suspicious transactions” have been carried out through the international payment gateway of foreign banks, the newspaper reported. "In others, foreign branches of Indian banks such as a State Bank of India account in Canada and an account of Union Bank of India in UK have been used by clients for carrying out part of the transactions in question."

Key to this is the correspondent banking relationship — an arrangement over which there has been growing concern as regulators crack down on the secrecy of offshore transactions, according to the Indian Express.

"Under this, one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks. Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers."

In these SARs, the foreign banks have cited a slew of reasons to red-flag these transactions: “high-risk jurisdiction for money laundering or other financial crimes,” adverse media/public information on the client, “unidentified” parties, and the fact that “source of funds and purpose of transaction could not be ascertained.”

Meanwhile, there has been growing concern among banks over the idea of correspondent banking." According to a report by Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements, on correspondent Banking, prepared in 2016, banks providing these services are reducing their relationships."

The report states that rising costs and uncertainty about how far customer due diligence should be done in order to ensure regulatory compliance have been some of the key reasons for banks to cut back their correspondent relationships.

The report made several recommendations including standardisation of KYC norms and using legal entity identifiers in correspondent banking, It also recommended that global watchdogs like the Financial Action task Force and Anti Money laundering task force should explore ways to tackle obstacles to information-sharing, with the aim of identifying potential best practices.

While mails sent to 10 banks for their comments on the SARs did not elicit any response, an SBI spokesperson in his response, said: “The information sought herewith is not available with the Bank due to the SAR confidentiality regulations.