Five deposits just under the threshold, and a trust that never disclosed its beneficiary
A semi-urban branch in Ludhiana runs the current account of a sole proprietorship dealing in hosiery. Between 3 and 15 March the firm deposited cash of ₹9,40,000, ₹9,15,000, ₹9,60,000, ₹9,25,000 and ₹9,10,000 - ₹46.5 lakh in twelve days - each ticket deliberately below the ₹10 lakh reporting line, in an account that previously averaged ₹2.5 lakh a month. The proprietor calls the cash 'seasonal wholesale collections' but has produced no invoices and cannot name the buyers. Separately, the branch holds a charitable trust account whose trustee has just revealed that the settlor's brother, resident in a jurisdiction under increased monitoring, holds a 30% beneficial interest. The trust's high-risk KYC fell due in November 2023 and has not been refreshed, yet debits have continued without interruption. The newly appointed branch compliance officer must decide what gets filed, with whom and by when, and what happens to both accounts before month-end, while the business head keeps pressing for 'relationship continuity'.
1. Set out the reporting obligations arising from the proprietorship's five cash deposits: what must be filed, with whom, and by when. Explain precisely how the ₹10 lakh threshold operates here.
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Two separate obligations arise, and they are not alternatives.
1. Cash Transaction Report. A CTR is due where cash deposits and withdrawals aggregate ₹10 lakh or more in a month in a single account. The threshold is not applied per deposit. Five tickets of ₹9.1–9.6 lakh aggregate ₹46.5 lakh in March, so a CTR is due for the month irrespective of individual ticket size. Route it through the Principal Officer to FIU-IND by the prescribed date for the reporting month.
2. Suspicious Transaction Report. The pattern - five deposits engineered just below ₹10 lakh, within twelve days, into an account with a ₹2.5 lakh monthly run-rate, with no invoices and buyers the proprietor cannot name - is structuring to evade reporting. Suspicion carries no value threshold. The STR is due within seven days of the branch concluding that the activity is suspicious, with a factual narrative: dates, amounts, mode, the explanation offered, documents sought and not produced, and the verification attempted.
Filing a CTR does not discharge the STR duty: the CTR is a threshold return, the STR is an exercise of judgement. Nor should the branch wait for proof - the STR records suspicion, not guilt. The proprietor must never be told of the filing; tipping off is an offence under the PMLA. Log the alert, the analysis and the decision in the AML register, retain them for at least five years, and place the account under enhanced monitoring. Closing the account instead of reporting merely relocates the risk to another branch.
2. The trust: assess the 30% beneficial interest and the overdue high-risk KYC, and state what the branch may lawfully do to the account in the next few weeks.
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The law is clear; the file is weak.
Beneficial ownership. The PMLA Rules treat a beneficiary holding 10% or more of a trust's beneficial interest as a beneficial owner. At 30%, the settlor's brother is squarely in scope. The branch must identify him by name, obtain and verify identity documents (or rely on a valid CKYC record), screen him against UNSC and domestic sanctions lists, and record the trust's ownership and control structure on file. Residence in a jurisdiction under increased monitoring upgrades this to enhanced due diligence, which means source of funds and source of wealth, not just identity.
Periodic updation. A trust with such a beneficial owner is a high-risk customer, so KYC is re-verified every two years. It fell due in November 2023. The correct instrument on default is partial freezing under the KYC framework - credits permitted, debits stopped after dated notice - not indefinite forbearance. Allowing debits after the due date has no defensible explanation.
Sequence. Issue a dated written notice, attempt enhanced due diligence, and if the information is not produced, freeze debits and report to the Principal Officer. Keep closure as a last resort with due process. If the trustee's evasiveness or the debits themselves raise source-of-funds concerns, file an STR - but document the KYC lapse and the suspicion as two distinct failures, since they attract different obligations and different supervisory consequences.