Introduction: The Financial Intelligence Unit-India (FIU-IND), operating under the Ministry of Finance, has issued a significant notification reshaping the regulatory landscape for Trust and Company Service Providers (TCSPs). This article delves into the detailed analysis of the notification, emphasizing the implications of the newly introduced reporting obligations under the Prevention of Money-laundering Act, 2002 (PMLA).
Notification Overview: Dated 17.07.2023, the FIU-IND notification addresses the registration mandate for TCSPs with FIU-IND in the FINNET 2.0 portal. The genesis of this directive stems from the Central Government’s pivotal notification dated May 9, 2023, wherein specific activities performed by TCSPs were brought within the ambit of the PMLA framework.
Encompassed Activities under PMLA: The activities now covered under the PMLA framework include a wide spectrum of TCSP operations, such as:
- Formation Agent Role: Acting as formation agents of companies and limited liability partnerships.
- Representative Position: Acting as representatives, including directors, secretaries, or partners, for other entities.
- Office and Accommodation Services: Offering registered office, business address, accommodation, correspondence, or administrative address for companies, limited liability partnerships, or trusts.
- Trustee and Nominee Shareholder Roles: Serving as trustees or performing equivalent functions for various types of trusts, including acting as nominee shareholders for others.
Obligations Imposed on TCSPs: The notification has the significant implication of designating TCSPs as ‘Reporting Entities.’ This categorization entails a range of obligations under the PMLA and PML Rules, including:
- Mandatory Registration: TCSPs must diligently register on the FINNET 2.0 portal hosted by FIU-INDIA.
- Key Appointments: Ensuring the appointment of a Principal Officer and a Designated Director.
- Risk Management Framework: Developing and implementing robust risk management practices.
- Customer Due Diligence: Thoroughly conducting customer due diligence procedures.
- Comprehensive Record-Keeping: Maintaining meticulous records of transactions and interactions.
- Employee Training: Providing training to employees to enhance awareness of anti-money laundering measures.
- Safeguard Mechanisms: Establishing internal mechanisms to detect and promptly report suspicious transactions to FIU-INDIA.
Time-Sensitive Registration Requirement: The FIU-IND notification underscores the urgency of compliance. All Designated Directors and Principal Officers of relevant entities are earnestly urged to promptly register themselves on the FINNET 2.0 portal hosted by FIU-INDIA. This step is pivotal to aligning with the newly introduced PMLA reporting obligations.
Conclusion: The FIU-IND’s notification marks a substantial stride toward bolstering financial integrity and transparency within the TCSP sector. By outlining comprehensive reporting obligations and emphasizing the significance of registration, the notification aims to curb illicit financial activities and reinforce compliance with anti-money laundering measures. It stands as a proactive measure aligning with global regulatory trends and underlines the government’s commitment to financial probity and security. TCSPs must embrace these new norms to ensure a robust and accountable financial ecosystem.
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F. NO. 9-41/2022-23/ Intermediaries/TCSP/FIU-IND
Government of India
Ministry of Finance
Department of Revenue
Financial Intelligence Unit-India
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6th floor, Tower 2, Jeevan Bharti Building,
Connaught Place, New Delhi — 110001
Dated 17.07.2023
To,
The Designated Directors/ Principal Officers of
Trust and Company Service Provider (TCSP)
Subject: Registration of Trust and Company Service Provider (TCSP) with FIU-IND in FINNET 2.0 portal as Reporting Entity — reg.
The Central Government vide notification, S.O. 2135(E) dated May 9, 2023, has brought following activities under the purview of PMLA framework when carried out in the course of business on behalf of or for another person, as the case may be, as an activity u/s 2(1)(sa)(vi) of the Prevention of Money-laundering Act, 2002 (15 of 2003), (hereinafter referred as “PMLA”):
(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 ( I ) 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 194-1 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).
2. The entities carrying out the activities mentioned in above para are referred as ‘Trust and Company Service Providers (TCSPs)’. TCSPs are therefore covered within the definition of ‘Reporting Entity’ by virtue of the aforesaid Government of India’s notification dated May 09 2023. As a result, TCSPs are required to strictly comply with the obligations under the PMLA and PML Rules that includes inter-alia registration on FINNET 2.0 portal with FIU-INDIA, appointment of Principal Officer and Designated Director, formulating risk management practices, performing customer due diligence, record keeping, training of employees and implementation of internal mechanisms to detect and report suspicious transactions to FIU- Registration with FIU-INDIA is a pre-requisite for a reporting entity to become compliant with the reporting obligations under PMLA.
3. All the Designated Directors and Principal Officers of the REs concerned are requested to immediately register themselves with FIU-IND in FINNET 2.0 portal in order to comply with the reporting obligations under PMLA.
Yours faithfully,
(Nikhil Varma)
Additional Director, FIU-IND
