Introduction to Recent PMLA Notification

The Government of India recently released a notification regarding the Prevention of Money Laundering Act. It notified some additions to the definition of ‘person carrying on designated business or profession’. The act uses this specific term in the act and it holds importance when it comes to the provisions of the act. This notification and the addition made thereunder affect the Chartered Accountants, Company Secretaries, and Cost and Works Accountants. All those people who are practising these professions need to understand the changes this notification makes and how it will affect them.

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What Is PMLA?

PMLA stands for Prevention of Money Laundering Act. The government enacted this law in 2002 to prevent money laundering in the country. It also provides rules and procedures for the confiscation of property derived from or involved in money laundering. This act aims to deal with all matters relating to money laundering in any manner. It defined the offence of money laundering and prescribes the punishment for the same. The definition of the offence of money laundering states-

“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of the offence of money-laundering.”

This act prescribes various rules and regulations for the prevention of money laundering. The reporting entities are identified and defined in the act to prescribe compliance for them which enables the government to continuously monitor their work. It discourages them to commit any such offence. The present notice is directly connected with these reporting entities.

Applicability of PMLA

The Prevention of Money Laundering Act uses the term ‘person’ in the definition of the offence and what exactly this term means is also defined in section 2 of the act. This definition clarifies the entities that are prosecutable in this act for the offence of money laundering. A ‘person’ includes the following entities-

• An Individual
• A Hindu Undivided Family
• A Firm
• A Company
• An association of persons or a body of individuals
• Any other artificial juridical person
• Any agency, office or branch owned or controlled by above mentions persons

The act used another important term ‘reporting entity’. It prescribed compliance in maintaining records and verifying the identity of persons involved in a financial transaction for them. Hence the definition of reporting entity is also important to look upon which is also given in section 2 of the act. A reporting entity includes-

• Banking Company
• Financial Institutions
• Intermediary or persons carrying on a designated business

1. Playing games for a chance of winning cash
2. Inspector General of Registration
3. Real Estate Agent
4. Dealer in high-value goods
5. Safekeeping and administration of cash and liquid securities on behalf
6. Any other entity as the central government notifies

The government of India used this exact power given under section 2(1)(sa)(iv) and issued a PMLA notification to notify new entities to fall under this definition.

What is the PMLA Amendment for CA, CS, and CWA

Through this PMLA notification, the government expanded the purview of persons carrying on a designated business and included the relevant persons who, in the course of his or her profession, carry out a financial transaction on behalf of his client relating to the following activities-

• Buying and selling of immovable property
• Managing client’s money, securities or other assets
• Management of bank, savings or securities accounts
• Organization of contributions for the creation, operation or management of companies
• Creation, operation or Management of companies, limited liability partnerships or trusts, and buying and selling of business entities

The relevant persons for this PMLA notification include the following-

• Chartered Accountants
• Company Secretaries
• Cost and Works Accountants

The recent PMLA Amendment covers these professionals, who have obtained the licence to practice in their respecting acts and practice independently or through a firm.

Of this notification, Now Chartered Accountants, Company Secretaries, and Cost and Works Accountants have become the reporting entities. This is because the persons carrying out a designated business are covered under the definition of reporting entity. Now they also require to fulfil the obligations that other reporting entities are required to do. The appropriate authorities monitor these obligations and as a result, prevent the possible cases of money laundering.

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Regulating Authorities for Money Laundering

The following authorities regulate financial matters and aid in the prevention of money laundering and other financial offences. These authorities are as follows-

• Securities and Exchange Board of India (SEBI)
• Reserve Bank of India (RBI)
• Insurance Regulatory and Development Authority of India (IRDAI)
• Economic Offences Wing, Central Bureau of Investigation (CBI)
• Income Tax Department
• Registrar of Companies (RoC)

What Is The Need For This PMLA Amendment?

The PMLA amendment affects the CA, CS and CWA. The primary reason for this amendment can be that the government suspected these personnel of any potential involvement in money laundering and the legal framework was not sufficient enough to take action against these parties. Hence the government had to include these parties under the ambit of reporting entity so that the parties oblige to the compliances as prescribed in the Prevention of Money Laundering Act. With the implementation of this notification, the government will be able to monitor their activities and prevent potential cases of money laundering.

Another reason for this can be that the government is in progress to make more rigid laws to regulate financial transactions. The object is to boost the revenue and catch those who are circumventing the laws and avoiding the liabilities towards the revenue department. The government is trying to comply with international standards set up by FATF, with respect to money laundering laws. FATF stands for Financial Action Task Force. It is an intergovernmental organization to develop policies to combat money laundering.

PMLA Compliance For Reporting Entity

The Prevention of Money Laundering Act prescribes various tasks for the reporting entities as part of their PMLA compliance. These are now also applicable to Chartered Accountants, Company Secretaries and CW Accountants. As per the provisions of this act, these reporting entities oblige to perform the following responsibilities-

• To verify the identity of their clients, and beneficial owners through the aadhaar act, if the reporting entity is a banking company.
• To perform offline verification through aadhaar, passport or any other valid documents, if the reporting entity is not a banking company.
• The verification through aadhaar shall be voluntary on behalf of the client or beneficial owner.
• To not deny service to any client or beneficial owner if he does not have an aadhaar number.
• To not store the aadhaar number as well as the core biometric information of the client and the beneficial owner.
• To maintain the records of all transactions in such a manner that the individual transaction is reconstructible.
• To furnish the details of all these attempted or executed transactions to the director within the prescribed time.
• To maintain a record of documents, account files, and correspondence with the client or beneficial owner.
• To maintain the said information for five years and keep it confidential.
• To furnish appropriate information to the director on demand.
• To perform due diligence in every transaction by verifying the identity and examining ownership and financial position related to that transaction.

Conclusion

So far, the Chartered Accountants, Company Secretaries and the CWAs were not covered under the purview of PMLA. The government considered the huge involvement of these professionals in the financial transactions of big financial companies and other institutions. After due consideration, it notified the new category of persons carrying out a designated business or profession in the recent PMLA notification. Further, they fall under the definition of reporting entity. This action has enabled the government and other regulatory authorities to keep a check on these professionals just like any other reporting entity. It fills the loopholes that existed and further tightens the security net to prevent the offenders from committing money laundering.