Structuring Cash Across Three Branches
M/s Sharma Vegetables is a proprietorship with declared annual turnover of ₹18 lakh. It operates current accounts at three branches of the same bank in Delhi NCR. In April, it makes cash deposits of ₹9,40,000 at Branch A on 3, 11 and 24 April; ₹9,20,000 at Branch B on 6, 15 and 28 April; and ₹9,60,000 at Branch C on 8, 19 and 29 April - a total of ₹46.2 lakh. Each deposit is below ₹10 lakh. The cash is mostly in ₹2,000 notes and is deposited by different individuals, some of whom are not account holders. The customer says it is 'seasonal wholesale vegetable sale' but refuses to provide invoices or mandi receipts. The core system does not generate a CTR because no single transaction crosses ₹10 lakh. A branch officer suggests closing the account to avoid regulatory attention.
1. Identify the AML red flags and explain why the CTR system did not capture the activity.
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Red flags include structuring cash deposits just below ₹10 lakh, use of multiple branches in the same month, an aggregate of ₹46.2 lakh against declared turnover of ₹18 lakh, third-party depositors, high-denomination notes, refusal to provide invoices or mandi receipts, and a cash-intensive business that does not explain the volume. The CTR system looked only at individual transactions, but the PMLA rules require aggregation of cash transactions in a month and reporting of suspicious activity regardless of amount. Cross-branch aggregation and customer-level monitoring would have shown the pattern. The officer's suggestion to close the account is wrong because closure to avoid regulatory attention is a form of concealment and can create a tipping-off risk. The bank should preserve records, escalate to the MLRO and assess both CTR and STR obligations.
2. What reports and actions should the bank take, and what is the right exit approach?
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The MLRO should review the customer's full relationship, including all three branches and prior months. If the monthly cash aggregate exceeds the prescribed threshold, file a CTR; separately, file an STR because the structuring, third-party deposits and refusal to document are suspicious. Do not tell the customer that a report is being filed. The bank should obtain KYC and beneficial-ownership information for the proprietorship and the depositors, verify the business, and consider enhanced monitoring. If the customer cannot explain the funds, the bank may exit the relationship, but only after the STR is filed and with senior management approval; exit must not be used as a substitute for reporting. Keep a record of the decision, the transaction trail and the MLRO's rationale. If there is a credible fear of tipping off, coordinate with compliance or legal before any customer communication.