“Explore the implications of the inclusion of practicing professionals like CAs, CSs, and CWAs under the Prevention of Money-Laundering Act, 2002 (PMLA). Understand the increased responsibilities, verification requirements, and reporting obligations for these professionals.”
Implication of inclusion of practicing professional like CA, CS and C&WA as ‘person carrying on designated business or profession’ under PML Act, 2002
Vide notification no. S.O. 2036(E). DTD. 3RD May 2023, the Ministry of Finance (Department of revenue) has power confirmed under 2(1)(sa)(vi) of Prevention of Money- Laundering Act, 2002 (in short the Act), included the three practicing professionals (in short PPs) Chartered Accountants, Company Secretaries and Cost and Works Accountants as “person carrying on designated business or profession” along with other reporting entities as mentioned under section 2(1)(sa) (i) to (v). Further vide Notification No. S.O. 2135(E) Dated 9th May, 2023, the scope of activities falling under PMLA for three PPs is increased from five to ten with few exceptions.
Please note that the below article is only a discussion and not an advice or opinion. One need to refer the PML Act, 2002 and take professional advice before implementing the same for himself or for the client. Further, all sections, sub sections, clauses, provisions etc. mentioned in the below discussions are from PML Act, 2002. This article is restricted to the discussion on implication of the notification on three practicing professionals and not on other reporting entities. Feedback is welcome.
The said first notification dtd. 03/05/2023 reads as,
“S.O. 2036(E).—In exercise of the powers conferred by sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003), the Central Government hereby notifies that the 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-
(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.
Explanation 1.- For the purposes of this notification ‘relevant person’ includes –
(i) 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;
(ii) 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;
(iii) 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.
Explanation 2.- For the purposes of this notification ‘firm’ shall have the same meaning assigned to it in sub-clause (i) of clause (23) of section 2 of the Income-tax Act, 1961 (43 of 1961). [F. No. P-12011/12/2022-ES Cell-DOR] SHASHANK MISRA, Director (Headquarter)”
Further, the Ministry of Finance (Department of revenue has vide its Notification No. S.O. 2135(E) Dated 9th May, 2023, has increased the scope of activities on three PPs. The notification reads as under,
“In exercise of the powers conferred by sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003) (hereinafter referred to the as the Act), the Central Government hereby notifies that the following 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, namely:-
(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 sub-clause (vi) of clause (sa) of sub-section (1) of section 2 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).
[F. No. P-12011/10/2023-ES Cell-DOR]
SHASHANK MISRA, Director (Headquarter)”
Hence the combine scope of activities carried out by the three PPs covered under Act, are as under,
(a) buying and selling of any immovable property;
(b) managing of client money, securities or other assets;
(c) management of bank, savings or securities accounts;
(d) organisation of contributions for the creation, operation or management of companies;
(e) 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.
(f) acting as a formation agent of companies and limited liability partnerships;
(g) 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;
(h) providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
(i) 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
(j) acting as (or arranging for another person to act as) a nominee shareholder for another person.
The said three PPs are called “relevant persons” in the notification and various provisions of the Act are made applicable to these PPs to the limited activities carried out by the them on behalf of their clients under their professional capacity. These activities are listed as serial no. (i) to (v) as mentioned above in the notification.
Though PPs are brought under the Act to the extent of limited activities carried out them but it has various serious implications as discussed under,
Under Section 2(wa) under the definition of “reporting entity”, these three PPs are now included along with other reporting entities.
Under Chapter IV – Section 11A heading “Verification of identity by reporting entity”. Henceforth the three PPs are required to stringently, verify the KYC (know your customer) of their clients and the beneficial owners, by offline verification of their Aadhar or Passport. Further the three PPs are not entitled to store the Aadhar number or core biometric information verified by them.
Section 12 reporting entity to maintain records. Since by virtue of Section 2(wa) the three PPs have became reporting entities, they have to maintain the records of each and every transaction carried out by them on behalf of their client or beneficial owners and these records are required to be maintained in such a manner that the same can be reconstructed and be produced before the PMLA authority (director), whenever required.
These records also include maintaining of records of documents which can identify the clients and beneficial owners, account files and business correspondence with them.
Further the records and documents need to be preserved for five years from the date of transaction and in some cases , till completion of five years from end of relationship with the client.
As per Section 12A the PPs are required to provide to the PMLA authority (director) the information and records as and when called for.
As per Section 12AA, If the PPs who are involved in any of the specified transactions as mentioned below, then he is supposed to enhanced due diligence of his clients to the extent to examine the ownership and financial position, including sources of funds of clients and to record the purpose behind conducting specified transaction and intended nature of the relationship of the parties to the transactions. If the client does not provide these information, then the PPs should not execute the specified transaction. If the PPs have any suspicion about client suspiciously involving in proceeds of crime, then the PPs should dig further in to the transaction. Further the PPs should maintain the record of the due diligence executed by him for a period of five years from the date of transaction.
The said specified four transactions and services are,
(a) any withdrawal or deposit in cash, exceeding such amount;
(b) any transaction in foreign exchange, exceeding such amount;
(c) any transaction in any high value imports or remittances;
(d) such other transaction or class of transactions, in the interest of revenue or where there is a high risk or money-laundering or terrorist financing, as may be prescribed.
In case the PPs fails in his responsibility, then the PMLA authority (director) may impose fine ranging between Rs.10,000/- to Rs.1,00,000/- for each such failure
If the PPs fail to provide information and details of transactions executed or yet to be executed, then he may be liable to fine as mentioned above but as per Section 14 he is not liable for any civil or criminal proceedings. To that extent stringent provisions which are applicable in case of other reporting authorities are not made applicable to PPs.
All these action of the government, indicates that the government is becoming very strict to curb the money laundering transactions, formation of shell companies or trusts , firms, LLPs etc. to execute suspicious or money laundering transactions. PPs should be now very careful in their dealing with clients and keeping detailed records of transactions executed for their clients, allowing their own office address for registration of client company, becoming a nominee share holder of behalf of other person etc. The role of PPs have increased from executing transactions or keeping records to investigate thoroughly all aspect before execute transaction.
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