“Under the amended PMLA, Chartered Accountants, Company Secretaries & Cost Accountants are covered within the definition of the Reporting Entity. Understand the obligations, verification processes, and confidentiality requirements. Stay compliant with the latest regulations.”
Chartered Accountants, Company Secretaries & Cost Accountants – How far covered by the amendment to the Prevention of Money Laundering Act (PLMA) – (S.O. 2036(E).— the 3rd May, 2023)
The main crux of the PLMA centres around the process of Verification of Identity & Activities of the client by reporting entities and submission of timely information to the controlling authorities. For this purpose, the government has designated certain entities as the Reporting Entities and obligated them to carrying out the verification process as provided in this Act.
As per Section 2(1)(wa) “Reporting Entity” means a
a) Banking company,
b) Financial institution,
c) Intermediary or
d) Person carrying on a designated business or profession.
(c) Intermediary means: Sec 2(1)(n)
i. a stock-broker, share transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser or any other intermediary associated with securities market and registered under section 12 of the Securities and Exchange Board of India Act, 1992; or
ii. an association recognised or registered under the Forward Contracts (Regulation) Act, 1952 or any member of such association; or
iii. intermediary registered by the Pension Fund Regulatory and Development Authority; or
iv. a recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956
These entities are Reporting Entities by virtue of their organization recognised by the statutory provisions.
(d) Person carrying on a designated business or profession. Section 2(1)(sa)
1. Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908.) as may be notified by the Central Government.
2. Any person, licensed by the Insurance Regulatory and Development Authority to perform the functions as specified in regulation 3 or regulation 4 or regulation 5 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002, (Notification No. 2/2015 15-4-15)
3. A Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908. (Notification No. 3/2015 17-04-15)
4. Dealers in precious metals, precious stones as persons carrying on designated businesses or professions – if they engage in any cash transactions with a customer equal to or above Rupees ten lakhs, carried out in a single operation or in several operations that appear to be linked (S.R. 799(E).28-12-20)
5. Real estate agents as defined under clause (zm) of section 2 of the Real Estate (Regulation and Development) Act, 2016 and as a person engaged in providing services in relation to sale or purchase of real estate and having annual turnover of Rupees twenty lakhs and above. (S.R. 855 (E). 29-11-22)
6. A person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
7. Person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
8. Person carrying on such other activities as the Central Government may, by notification, so designate, from time to time. (Section 2(1)(vi)(sa)
These entities are Reporting Entities by virtue of their organization and activities engaged in.
(e) Other Activities covered under section 2(1)(vi)(sa)
a) The activities when carried out for or on behalf of another natural or legal person in the course of business to be deemed as an activity for the purposes of said section 2(1)(vi)(sa) O. 1072(E).—7th March, 2023
i. exchange between virtual digital assets and fiat currencies;
ii. exchange between one or more forms of virtual digital assets;
iii. transfer of virtual digital assets;
iv. safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and
v. participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.
Explanation:- For the purposes of this notification “virtual digital asset” shall have the same meaning assigned to it in clause (47A) of section 2 of the Income-tax Act, 1961 (43 of 1961).
b) Activities of CAs, CSs and CWAs (interalia)
| 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- (S.O. 2036(E).— the 3rd May, 2023) namely
i. Buying and selling of any immovable property; ii. Managing of client money, securities or other assets; iii. Management of bank, savings or securities accounts; iv. Organisation of contributions for the creation, operation or management of companies; v. Creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities, shall be an activity for the purposes of said sub-section. section 2(1)(vi)(sa) Relevant Person includes a) Chartered Accountant holding a certificate of practice b) Company Secretaries holding a certificate of practice c) Cost and Works Accountant holding a certificate of practice |
c) Activities when carried out in the course of business on behalf of or for another person, as the case may be, as an activity for the purposes of said sub-clause 2(1)(vi)(sa) S.O. 2135(E).—the 9th May, 2023
i. acting as a formation agent of companies and limited liability partnerships;
ii. acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
iii. providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
iv. acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
v. acting as (or arranging for another person to act as) a nominee shareholder for another person.
Explanation.–For removal of doubts, it is clarified that the following activities shall not be regarded as activity for the purposes of 2(1)(vi)(sa) of the Act, namely:-
a) any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 (43 of 1961); or
b) any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
c) any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under clause (b) of sub-section (1) of section 7 of Companies Act, 2013 (18 of 2013); or
d) any activity of a person which falls within the meaning of an intermediary as defined in clause (n) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003).
The declaration required as per the Companies Act 2013 is as under
“Sec. 7(1)(b): a declaration in the prescribed form by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company, that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.”
Thus, reading the article from top to down, we come to the following conclusion:
Chartered Accountants, Company Secretaries & Cost Accountants are covered within the definition of the Reporting Entity only in so far as
a) they are deemed to be Persons carrying on a designated business or profession; and
b) their engaging themselves in other activities as notified by the Government u/s 2(1)(sa)(vi) and
c) they are the holder of the Certificate of Practice and
d) these other activities are Financial transactions carried out by them on behalf of their client, in the course of his or her profession, in relation to the following activities- (S.O. 2036(E).— the 3rd May, 2023)
i. buying and selling of any immovable property;
ii. managing of client money, securities or other assets;
iii. management of bank, savings or securities accounts;
iv. organisation of contributions for the creation, operation or management of companies;
v. creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,
Thus once a person become part of the Reporting Entity, he is obligated to verify the identity of its clients and the beneficial owner, by Aadhaar etc. or – other officially valid documents. Further the person has to
(a) 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;
(b) 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;
(c) maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
(2) Every information maintained, furnished or verified, shall be kept confidential.
(3) The records referred to in clause (a) of sub-section (1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
(4) 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.
(5) The Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under this Chapter.
(6) Every reporting entity shall furnish to the Director such information as may be required by him under sub-section (1) within such time and in such manner as he may specify.
The professionals may be covered directly by the definition of the Reporting Entity, like any other person, by virtue of what they are, as individuals and not in their capacity of a practising professional, or for the non-professional activities they are engaged in.
Views expressed are strictly personal and meant for only academic purposes and not for any professional purpose for which expert opinion may be obtained by the readers.
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