Understand the roles, responsibilities, and obligations of CA/CS/CMA professionals in compliance with the Prevention of Money Laundering Act (PMLA). Learn about money laundering offenses, reporting entities, verification of client identity, records maintenance, and the powers of the director under PMLA. Stay informed to ensure effective due diligence and compliance in specified transactions.
Q.1 What is a Money Laundering offence?
a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:— (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever;
the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever.
Q.2 What is role of Reporting Entities in PMLA?
All reporting entities must furnish the prescribed reports to the Financial Intelligence Unit of India (FIU-IND)
Q.3 Who are Reporting Entities in Prevention of Money Launderings Act ?
“reporting entity” means
1. a banking company -“Banking Company” includes:
-
- All nationalized banks, private Indian banks and private foreign banks
- All co-operative banks viz. primary co-operative banks, state co-operative banks and central (district level) co-operative banks
- State Bank of India and its associates and subsidiaries
- Regional Rural Banks,
2. financial institution includes
-
- Financial Institutions as defined in Section 45-I of the RBI Act namely EXIM Bank, NABARD, NHB, SIDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd. and TFCI Ltd.
- Insurance companies
- Hire Purchase companies
- Chit fund companies as defined in the Chit Funds Act.
3. Intermediary
-
- Stock brokers
- Sub-brokers
- Share transfer agents
- Bankers to an issue
- Trustees to trust deed
- Registrars to issue
- Merchant bankers
- Underwriters
- Portfolio Managers
- Investment advisers
- Depositories
- Custodian of securities
- Foreign institutional investors
- Credit rating agencies
- Venture capital funds
- Collective investment schemes including mutual funds
4. a person carrying on a designated business or profession;
-
- According to Section 2(1)(sa) of the PMLA, “person carrying on designated business or profession” means,—
- a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
- Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 as may be notified by the Central Government;
- Real estate agent, as may be notified by the Central Government;
- dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
- person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government]]
5. person carrying on such other activities as the Central Government may, by notification, so designate, from time to time
As per the powers conferred under the aforesaid clause (vi), the Central Government has notified financial transactions carried out by a relevant person on behalf of his client, in the course of his or her profession, in relation to the following activities:
- buying and selling of any immovable property;
- managing of client money, securities or other assets;
- management of bank, savings or securities accounts;
- organisation 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
Ministry of Finance has explained who all are considered as Relevant Person by defining it to include:
- an individual who obtained a certificate of practice under section 6 of the Chartered Accountants Act, 1949 (38 of 1949) and practicing individually or through a firm, in whatever manner it has been constituted;
- an individual who obtained a certificate of practice under section 6 of the Company Secretaries Act, 1980 (56 of 1980) and practicing individually or through a firm, in whatever manner it has been constituted;
- an individual who has obtained a certificate of practice under section 6 of the Cost and Works Accountants Act, 1959 (23 of 1959) and practicing individually or through a firm, in whatever manner it has been constituted.
Q.4: What are the duties and responsibilities of reporting authorities?
Ans: These have been defined under section 11A of Act. Accordingly:
1. Every reporting entity shall verify the identity of its client and the beneficial owner.
2. Every reporting entity shall maintain such prescribed records for five years from the date of transaction between a client and the reporting entity.
3. It shall have to furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed.
4. Every such information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential.
5. The Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under this Chapter
Q.5: What are the permitted documents for verification of identity of the client and beneficial owner?
Ans: Every reporting entity shall verify the identity of its client and the beneficial owner by way of:
1. Authentication under the Aadhaar (if the reporting entity is a banking company);
2. Off line verification under the Aadhaar;
3. Passport issued under section 4of the Passports Act,1967;
4. Use of any other officially valid document or modes of identification as may be notified by the Central Government in this behalf
5. Provided that the Central Government may, if satisfied that a reporting entity other than banking company, complies with such the standards of privacy and security under the Aadhaar and it is necessary and expedient to do so, by notification, permit such entity to perform authentication under clause(a);
6. If any reporting entity performs authentication under clause (a) of sub-section(1), to verify the identity of its client or the beneficial owner it shall make the other modes of identification under clauses (b), (c) and (d) of sub-section(1) also available to such client or the beneficial owner;
7. The use of modes of identification under sub-section (1) shall be a voluntary choice of every client or beneficial owner who is sought to be identified and no client or beneficial owner shall be denied services for not having an Aadhaar number.
8. If, for identification of a client or beneficial owner, authentication or offline verification under clause (a) or clause (b) of sub-section (1) is used, neither his core biometric information nor his Aadhaar number shall be stored;
9. Nothing in this section shall prevent the Central Government from notifying additional safeguards on any reporting entity in respect of verification of the identity of its client or beneficial owner.
Q.6: What are the records to be maintained for five years from the date of transactions?
Ans: Every reporting entity shall maintain following records for five years from the date of transaction between a client and the reporting entity:
1. Maintain a record of all transactions, including information relating to transactions covered under clause (b) in such manner as to enable it to reconstruct individual transactions;
2. Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients;
3. It is also pertinent to note that the records referred to in clause (e) of sub-section (1) shall be maintained for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.
Q.7: What are the powers given to director u/s. 12A of the Act?
Ans: Section 12A of the Act, gives power to director to call for from any reporting entity any of the records referred to in section 11A, sub-section (1) of section 12, sub-section (1) of section 12AA and any additional information as he considers necessary for the purposes of this Act.
Q.8: What are the steps prescribed under section 12AA of the Act for due diligence of specified transactions?
Ans: Every reporting entity shall, prior to the commencement of each specified transaction,—
1. verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act,2016(18 of 2016) in such manner and subject to such conditions, as may be prescribed:
Provided that where verification requires authentication of a person who is not entitled to obtain an Aadhaar number under the provisions of the said Act, verification to authenticate the identity of the client undertaking such specified transaction shall be carried out by such other process or mode, as may be prescribed;
2. take additional steps to examine the ownership and financial position, including sources of funds of the client, in such manner as maybe prescribed;
3. take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties.
4. Where the client fails to fulfill the conditions laid down under sub-section (1), the reporting entity shall not allow the specified transaction to be carried out.
5. Where any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed.
6. The information obtained while applying the enhanced due diligence measures under sub-section shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
Author Bio
