8.1 FIU-IND Enforcement Precedents: Way2Wealth Brokers, Paytm Payments Bank, and Bybit (VDA Exchanges)

Landmark Regulatory Enforcement by FIU-IND

Financial Intelligence Unit - India (FIU-IND) exercises statutory powers under Section 13 of PMLA to penalize reporting entities that fail to maintain adequate AML transaction monitoring, neglect CDD norms, or fail to file Suspicious Transaction Reports (STRs). Three landmark enforcement precedents demonstrate the sweeping reach of these powers:

+---------------------------------------------------------------------------------------------------+
|                                 LANDMARK FIU-IND ENFORCEMENT PRECEDENTS                           |
+-------------------+-----------------------+-------------------------------------------------------+
| Entity Penalized  | Sector                | Nature of PMLA Violations & Enforcement Outcome       |
+-------------------+-----------------------+-------------------------------------------------------+
| Way2Wealth Brokers| Stockbroking / Capital| Failure to file STRs on suspicious, synchronized,     |
| Private Limited   | Markets               | circular equity trades; failure to identify UBOs      |
+-------------------+-----------------------+-------------------------------------------------------+
| Paytm Payments    | Banking / Digital     | ₹5.49 Crore penalty; systemic failure to monitor      |
| Bank Limited      | Payments              | mule accounts channeling illegal online betting cash  |
+-------------------+-----------------------+-------------------------------------------------------+
| Bybit Fintech Ltd | Virtual Digital Asset | Show-cause notices & IP ban; operating offshore crypto|
|                   | (VDA / Crypto)        | platform without FIU-IND registration & AML compliance|
+-------------------+-----------------------+-------------------------------------------------------+

1. FIU-IND v. Way2Wealth Brokers Private Limited

• Background: Way2Wealth Brokers, a prominent registered stockbroker, executed massive trading volumes in micro-cap and illiquid stocks for a group of interconnected corporate clients.
• Violations Identified:
  • The clients executed synchronized, non-genuine trades with identical counterparty brokers, engineering artificial market turnover without economic substance.
  • Way2Wealth's internal surveillance system failed to trigger alerts, and the Principal Officer failed to file an STR with FIU-IND.
  • The broker failed to identify the natural person Ultimate Beneficial Owners (UBOs) behind layered corporate shell accounts.
• Enforcement Ruling: FIU-IND imposed heavy monetary penalties under Section 13(2)(d), establishing that stockbrokers cannot act as passive order-routers; they bear an affirmative legal duty to detect and report manipulative trading patterns.

2. FIU-IND v. Paytm Payments Bank Limited (2024)

• Background: Law enforcement agencies investigating transnational illegal online betting, gaming syndicates, and cyber extortion rackets discovered proceeds of crime being routed through thousands of accounts in Paytm Payments Bank.
• Violations Identified:
  • Mass onboarding of accounts without rigorous CDD/IPV, enabling syndicates to create "mule" bank accounts.
  • Transactions far exceeding declared income profiles were processed without generating automated AML alerts.
  • Systemic failure to report connected transactions and file timely STRs.
• Enforcement Ruling: The Director, FIU-IND imposed a monetary penalty of ₹5.49 Crore under Section 13 of PMLA, highlighting that digital banks and payment intermediaries cannot prioritize business growth over national AML safeguards.

3. FIU-IND v. Offshore Virtual Digital Asset (VDA) Service Providers (Bybit, Binance, etc.)

• In March 2023, the Ministry of Finance brought Virtual Digital Asset (VDA) Service Providers (cryptocurrency exchanges, wallet providers) under the statutory definition of Reporting Entities under PMLA.
• In December 2023, FIU-IND issued compliance show-cause notices to nine offshore crypto platforms (including Bybit, Binance, KuCoin, and Gate.io) operating in India without registering with FIU-IND, reporting STRs, or complying with Indian AML/CFT laws.
• FIU-IND directed the Ministry of Electronics and Information Technology (MeitY) to block the URLs and mobile applications of non-compliant platforms, establishing that offshore entities serving Indian residents are fully subject to PMLA jurisdiction.

8.2 SEBI Judicial Orders on AML Compliance Failures: SKSE Securities, Raima Equities, and Marfatia

SEBI Enforcement of Anti-Money Laundering Regulations

SEBI works in close coordination with FIU-IND to audit capital market intermediaries. Where brokers fail to adhere to the SEBI Master Circular on AML/CFT, SEBI Adjudicating Officers levy penalties under Section 15HB of the SEBI Act, 1992:

+---------------------------------------------------------------------------------------------------+
|                                 SEBI AML ADJUDICATION PRECEDENTS                                  |
+-------------------+-------------------------------------------------------------------------------+
| Intermediary Case | Core Compliance Failures Uncovered                                            |
+-------------------+-------------------------------------------------------------------------------+
| SKSE Securities   | - Failure to categorize clients into Low, Medium, and High Risk tiers         |
| Limited           | - Non-appointment of Designated Director; prolonged absence of Principal Off. |
|                   | - Failure to conduct bi-annual internal AML audits                            |
+-------------------+-------------------------------------------------------------------------------+
| Raima Equities    | - Complete absence of automated transaction monitoring alert system           |
| Private Limited   | - Inadequate financial documentation to support massive derivatives turnover   |
|                   | - Failure to identify PEP status among high-value trading accounts            |
+-------------------+-------------------------------------------------------------------------------+
| Marfatia Stock    | - Accepting funds from third-party bank accounts not belonging to the client  |
| Broking Pvt Ltd   | - Splitting client orders to circumvent surveillance margin thresholds        |
|                   | - Failure to preserve KYC records and client account opening files for 5 years|
+-------------------+-------------------------------------------------------------------------------+

1. SEBI v. SKSE Securities Limited

• Key Findings: During a comprehensive thematic AML inspection, SEBI discovered that SKSE Securities failed to implement a formal Risk-Based Approach (RBA). Clients were onboarded without any risk categorization, making enhanced monitoring of high-risk clients impossible.
• Governance Vacuum: The firm had not designated a Whole-time Director as "Designated Director" under PMLA, and the Principal Officer position had remained vacant for extended periods without informing FIU-IND.
• Sanction: Monetary penalty levied under Section 15HB for institutional failure to maintain statutory AML governance architecture.

2. SEBI v. Raima Equities Private Limited

• Key Findings: Raima Equities permitted clients with annual declared incomes under ₹1 Lakh to execute futures and options trades running into tens of crores without demanding income proofs (ITRs, bank statements, net worth certificates).
• Surveillance Breakdown: The broker had no automated software to flag unusual transactions, relying entirely on manual inspections that failed to generate a single STR over three years.
• Sanction: Penalized by SEBI, establishing that intermediaries must actively verify whether a client's trading volumes are economically commensurate with their legitimate financial capacity.

3. SEBI v. Marfatia Stock Broking Private Limited

• Key Findings: The broker repeatedly accepted pay-in funds from third-party bank accounts, obscuring the true origin of capital deployed in market trading.
• Recordkeeping Violations: Account opening forms, proof of identity documents, and margin agreement files could not be produced during regulatory inspection.
• Sanction: Substantial financial penalties and directions to overhaul internal depository and banking reconciliation workflows.

8.3 Landmark Corporate & Custodial Rulings: Shreepati Holdings and BOI Shareholding (BOISL) v. SEBI

Landmark Precedents on Custodial Oversight and Corporate Structuring

+---------------------------------------------------------------------------------------------------+
|                             LANDMARK CORPORATE & CUSTODIAL AML RULINGS                            |
+-------------------+-------------------------------------------------------------------------------+
| Precedent         | Core Legal Principle Established                                              |
+-------------------+-------------------------------------------------------------------------------+
| SEBI v. Shreepati | Layered corporate shell companies used to transfer listed shares off-market   |
| Holdings & Finance| without genuine economic consideration constitute fraudulent and manipulative |
| Pvt Ltd           | conduct under SEBI PFUTP and predicate money laundering.                      |
+-------------------+-------------------------------------------------------------------------------+
| BOI Shareholding  | Custodians and clearing corporations bear an affirmative, independent duty to |
| Limited (BOISL)   | report suspicious off-market demat transfers; cannot pass sole liability to   |
| v. SEBI           | introducing trading brokers.                                                  |
+-------------------+-------------------------------------------------------------------------------+

1. SEBI v. Shreepati Holdings & Finance Private Limited

• Case Background: A complex network of corporate entities, including Shreepati Holdings, engaged in circular off-market demat transfers of illiquid equity shares among group shell companies.
• The Fraudulent Modality:
  • Shares were acquired at negligible penny valuations off-market.
  • The cartel subsequently manipulated the listed stock's price on the stock exchange through synchronized trading, driving its price up by over 500%.
  • The inflated shares were dumped onto unsuspecting retail investors and institutional funds, generating untaxed capital gains that were routed through overseas shell vehicles.
• Judicial Holding: SEBI held that deploying shell companies, circular transfers, and off-market arrangements with no underlying commercial rationale constitutes market manipulation under Section 12A of the SEBI Act and SEBI PFUTP Regulations. The findings formed the basis for an ED money laundering prosecution under Part A of the PMLA Schedule.

2. BOI Shareholding Limited (BOISL) v. SEBI

• Case Background: BOI Shareholding Limited (BOISL), a major institutional clearing member and custodial service provider, cleared and settled large volumes of off-market transfers involving suspect corporate accounts.
• The Custodial Defense: BOISL contended before the Securities Appellate Tribunal (SAT) that as a clearing and custodial intermediary, it merely executed instructions provided by trading brokers and clients, and that responsibility for conducting CDD and identifying suspicious transactions rested solely with the introducing stockbrokers.
• Judicial Holding: The Tribunal and SEBI firmly rejected this defense:
  • Every Reporting Entity under PMLA—whether a retail broker, depository participant, or clearing custodian—maintains an independent, non-delegable statutory obligation to monitor transactions and report suspicions to FIU-IND.
  • Intermediaries higher in the clearing chain cannot abdicate compliance duties by assuming lower-tier brokers performed adequate due diligence.
  • This landmark ruling established that institutional custodians and clearing houses must maintain robust, independent AML surveillance mechanisms.