Cash Deposits Just Below the PAN Threshold
A branch of a public sector bank in Sambalpur notices that a hardware trader's current account, dormant for 14 months, has received nine cash deposits of ₹49,000 each over nine working days, totalling ₹4.41 lakh. The trader's KYC profile declares annual turnover of ₹12 lakh and expected monthly cash deposits of about ₹1 lakh. The deposits are made by different individuals, some of whom are not known to the branch. The trader says the money is from a new collection agent and 'family savings'. The branch manager notes that the amounts are just below ₹50,000 and asks whether a cash transaction report should be filed. He also wants to close the account immediately to avoid risk. The bank's principal officer has not been informed. The trader has not been asked for source of funds. No suspicious transaction report has been filed.
1. Identify the red flags and decide what should be reported: a CTR, an STR, both, or neither. Explain the thresholds.
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The pattern is suspicious and reportable; it is not a routine cash deposit case.
The nine deposits of ₹49,000 are structured just below the ₹50,000 threshold at which PAN is required for cash deposits. The account was dormant, the declared turnover is ₹12 lakh a year, and expected monthly cash is about ₹1 lakh. The deposits total ₹4.41 lakh in nine days, brought by different individuals, with an evasive explanation about a 'collection agent' and 'family savings'. These are classic red flags: threshold avoidance, activity inconsistent with profile, third-party cash, reactivation and unclear source of funds.
The correct report is a suspicious transaction report (STR), not only a cash transaction report (CTR). A CTR is triggered by aggregate cash above ₹10 lakh in a month; this case may not meet that threshold. An STR has no monetary threshold. The branch should escalate to the principal officer for FIU-IND after enhanced due diligence. Closing the account immediately is not the first step and could tip off the customer.
2. Set out the branch's next actions in the correct sequence, including what it must not do.
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Sequence matters.
- Do not tell the customer that a report is being considered. Continue normal, non-accusatory service.
- Update KYC and obtain a written explanation of the business, the collection agent, the depositors and the source of funds. Verify the agent's identity and agreement.
- Escalate to the principal officer or compliance with the transaction records, KYC profile and the customer's explanation.
- If suspicion remains, file an STR through the bank's principal officer to FIU-IND. Maintain confidentiality.
- Apply enhanced monitoring and, if approved by compliance, restrict further cash credits. Do not freeze or close the account as a punishment without a documented risk decision.
- Retain records for at least five years and co-operate with any FIU request.
The branch manager can act on risk, but the decision to file or not file must be documented and reviewed. 'The amounts are small' is not a reason to ignore structuring.
3. The manager argues: 'The total is below ₹10 lakh, so no report is needed.' How should compliance respond?
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The 'below ₹10 lakh' argument confuses two different reports.
A CTR is a threshold-based report for large cash transactions, generally aggregate cash above ₹10 lakh in a month. An STR is behaviour-based and has no minimum amount. Structuring - deliberately keeping each deposit below a reporting or PAN threshold - is itself a suspicious indicator. The branch should not wait for the aggregate to cross ₹10 lakh, because the pattern suggests an attempt to avoid exactly that scrutiny.
Also, the threshold is not the only control. The account's dormant status, the mismatch with turnover, the multiple depositors and the evasive explanation independently justify suspicion. The manager should record why the pattern was or was not considered suspicious. If the bank later finds that deposits were split to avoid PAN or reporting, a 'we did not cross the threshold' defence will be weak.