The total number of suspicious transaction reports filed by banking companies in financial year 2016-17 was 473003, a whopping 706% more than what was filed in 2014-15, according to the RBI annual report 2016-17. In 2015-16, the total number of suspicious transaction report filed was 106273.
According to Prevention of Money laundering Act, 2002 and Rules, every banking company needs to furnish details of suspicious transactions whether or not made in cash.
The RBI report doesn’t literally say that the massive jump in suspicious transaction reports filed in the last financial year was due to demonetisation. However, it is easy to infer as the last financial year included around five post-demonetisation months. Prime Minister Narendra Modi had announced the decision to scrap old Rs 500 and Rs 1000 notes on November 8, 2016 in a bid to fight black money within the country.
As per RBI annual report, 3,61,214 suspicious reports were filed by banks in 2016-17, while the corresponding numbers for financial institutions and intermediaries were 94,836 and 16,953 respectively (Total: 4,73003; see chart)
These financial institutions include eight All-India Financial Institutions (AIFIs), insurance companies, housing finance institutions, non-banking financial companies, chit funds, etc. Similarly, the intermediaries include institutions registered with SEBI viz stock brokers, merchant bankers, portfolio managers, foreign institutional investors, venture capital funds, etc.
In contrast, the suspicious reports filed by banks in 2015-16 was 61,361 and those by financial institutions and intermediaries were 40,333 and 4579 respectively (Total 1,06273). The suspicious reports filed by these institutions was even lower in financial year 2014-15. The RBI report says suspicious reports filed by banks in 2014-15 were 45,858, while those by financial institutions and intermediaries were 10,649 and 2139 respectively (Total 58,646).
Prevention of Money laundering Act, 2002 defines suspicious transaction as a transaction, whether or not made in cash which, to a person acting in good faith- (a) Gives rise to a reasonable ground of suspicion that it may involve the proceeds or crime; or (b) Appears to be made in circumstances of unusual or unjustified complexity; or (c) Appears to have no economic rationale or bonafide purpose.