bank transactions: Here is how banks view transactions to be suspicious

Financial year 2016-17 witnessed the impact of demonetisation which made people deposit cash-in-hand into banks, mutual funds, stocks and so on.

Such activities also gave the impression that unaccounted wealth was being deposited into banks. This point is vindicated now because according to the Reserve Bank of India’s (RBI) recent annual report, the suspicious transaction reports filed by banks and other institutions have shown a jump of nearly 6 times over the past year. The data is, however, for the entire year and not specific to the period 9 November to 31 December, 2016.

What are suspicious transactions?
The suspicious transaction reports are filed by reporting entities like banks and other financial intermediaries with the Financial Intelligence Unit of the government.

Generally, all series of cash transactions connected to each other which have been individually valued below Rs 10 lakh where they have taken place within a month and the monthly aggregate exceeds Rs 10 lakh is termed as suspicious.
This is not the only example of a suspicious transaction, reporting entities can raise and report suspicion based on other grounds as well.

The finance minister Arun Jaitley, in a statement to the parliament, said that they have detected 18 lakh cases after demonetisation where the income profiles of people did not match their account profiles. Now, these could also form a part of an investigation, the process for which has already been initiated.

Number of suspicious transaction reports filed
Here is how banks view transactions to be suspicious

Includes RBI-regulated eight All-India Financial Institutions (AIFIs), insurance companies, housing finance institutions, non-banking financial companies, chit funds, etc.

**: Includes intermediaries registered with SEBI, viz., stock brokers, merchant bankers, portfolio managers, foreign institutional investors, venture capital funds, etc.

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Source: Financial Intelligence Unit, Ministry of Finance, Government of India.

According to the Finance Intelligence Unit – India – here’s how a bank views transactions to be of a suspicious nature:

Value of transactions
– Value just under the reporting threshold amount in an apparent attempt to avoid reporting
– Value inconsistent with the client’s apparent financial standing

Activity in accounts
– Unusual activity compared with past transactions
– Sudden activity in dormant accounts
– Activity inconsistent with what would be expected from declared business

Multiple accounts
– Many accounts having a common account holder, introducer or authorized signatory with no rationale
– Unexplained transfers between multiple accounts with no rationale

Nature of transactions
– Unusual or unjustified complexity
– Frequent purchases of drafts or other negotiable instruments with cash
– Nature of transactions inconsistent with what would be expected from declared business

Identity of client
– False identification documents
– Identification documents which could not be verified within reasonable time
– Accounts opened with names similar to other established business entities

Here’s how an intermediary, as per the Finance Intelligence Unit – India, defines suspicious transactions:
Intermediaries include stock brokers, mutual funds, merchant bankers, portfolio managers, foreign institutional investors etc.

Multiple Accounts
– Large number of accounts having a common account holder, introducer or authorized signatory with no rationale
– Unexplained transfers between multiple accounts with no rationale

Activity in Accounts
– Unusual activity compared to past transactions
– Use of different accounts by client alternatively
– Sudden activity in dormant accounts
– Activity inconsistent with what would be expected from declared business
– Account used for circular trading

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Nature of Transactions
– Source of funds are doubtful
– Appears to be case of insider trading
– Investment proceeds transferred to a third party
– Transactions reflect likely market manipulations
– Suspicious off market transactions

Value of Transactions
– Value just under the reporting threshold amount in an apparent attempt to avoid reporting
– Large sums being transferred from overseas for making payments
– Inconsistent with the clients apparent financial standing
– Inconsistency in the payment pattern by client
– Block deal which is not at market price or prices appear to be artificially inflated/deflated

Identity of Client
– Accounts opened with names similar to other established business entities
– Identification documents which could not be verified within reasonable time
– Non-face to face client
– Doubt over the real beneficiary of the account
– False identification documents

Source