All financial intermediaries, including banks and stocks brokers, will have to maintain specific information about their clients’ political links, if any. This is due to the amendment to the Prevention of Money Laundering Act (PMLA) 2002, notified by the Reserve Bank of India (RBI) on June 9 and the Securities and Exchange Board of India (Sebi) on June 14.
Now, politically-exposed persons (PEPs) have been brought under PMLA. RBI has defined PEPs as individuals who are, or have been, entrusted with prominent public functions in a foreign country such as heads of states or of governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations or important political party officials.
However, legal experts say the change has been too late and loosely worded and there is scope to make the law more stringent. “The government’s move to bring PEPs under PMLA is laudatory. The law is loosely-worded and so big fish may escape. India is making attempts to get membership of the Financial Action Task Force, which is why the amendment was required. Otherwise, there does not seem to be any seriousness,” said Bushan Bahal, a senior Mumbai-based lawyer.
The clause 5.5(a) of the master circular of PMLA says, “All registered intermediaries shall proactively put in place appropriate risk management systems to determine whether their client, potential client, or the beneficial owner of a client is a politically-exposed person. Such procedures should include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPs.”
FATF is a important inter-government body set up to combat money-laundering and terror-financing. For India to become a member, FATF had suggested 49 action points. For this, the government brought money changers, money transfer service providers, trusts and non-government organisations under PMLA and imposed mandatory disclosures on them.
RBI and Sebi have told financial intermediaries to get information on PEPs desiring to do business with them and check all the information available on them in the public domain.
Also, they will have to verify the identity of PEPs and get information about their sources of funds before accepting them as customers. Banks have also been told to closely monitor the accounts of PEPs and their family members and close relatives, say sources.
RBI has also said that banks should not open accounts if they are unable to apply proper customer due diligence measures. RBI has, in fact, even advised banks to close the accounts of such customers. The central bank has added that if the bank is not satisfied with the true identity of the account holder, it should notify the financial intelligence unit about this.
The regulators have also asked the intermediaries to enhance due diligance of those who are close relatives of PEPs as well as accounts of which the ultimate beneficial owner is a PEP.
