PMLA Amendments 23: Strengthened Regulations and Increased Scrutiny

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CA Mayur Joshi
CA Mayur Joshi
CA Mayur Joshi is a Forensic Accounting evangelist in India. He is the co-founder of Indiaforensic and is author of 7 books on forensic accounting, fraud investigations and money laundering.

The Government of India has amended the PMLA Rules to further expand the scope of money laundering. Money Laundering has become a serious problem in recent years. Criminals use money laundering to hide illicit funds. Including those obtained through serious criminal offenses such as terrorism and drug trafficking.

Money Laundering is considered a wrongful act. It not only affects the social and economic stability of the country but also tends to indulge in serious criminal offenses. India is witnessing terrorism and drug trafficking for a long time. The criminals use it to hide the money for illicit laundering.

Prevention of Money Laundering Act 2002

The Prevention of Money Laundering Act 2002 is regarded as an act to prevent money laundering. It also provides confiscation of property that is derived from or involved in money laundering. Money Laundering means the conversion of black money to white money. It is considered to be a criminal offense in India. The Prevention of Money Laundering Act is applicable to all including individuals, companies, partnership firms, etc.

The Recent Amendments under PMLA Rules

On 7th March 2023, the Ministry of Finance, Department of Revenue, Government of India introduced the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023.

The government has taken effective steps to amend the money laundering law by comprehending more disclosures for the banks as well as the financial institutions. The government has defined the Politically Exposed Person under the Prevention of Money Laundering Act (PMLA) as per the recommendation of the Financial Action Task Force (FATF).

Definition of Politically Exposed Persons

The new clause implemented by the Finance Ministry defines PEP as “individuals who have been “entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials.

The main aim to amend the PEP definition under the PMLA Act is to show the conformity related to the 2002 circular that was published by RBI for the AML KYC norms that were applicable for the banks and the financial institutions that had actually defined PEP with the FATF norms. The PEP definition mentioned In the amended PMLA Rules is now applicable everywhere.

The Certified Anti Money Laundering Expert program offered by Indiaforensic is one of the oldest programs. You can also check the information about this program here. Its syllabus covers the Prevention of Money Laundering Act 2002. CAME also includes the new amendments in its syllabus.

Non-Profit Organization

The Non-Profit Organization is defined as a “non-profit organization” has been expanded, which will now include any entity or organization constituted for religious or charitable purposes referred to in Section 2(15) of the Income-tax Act, 1961; or registered as a trust or a society under the Societies Registration Act, 1860 or any similar state legislation; or a company registered under Section 8 of the Companies Act, 2013.

Therefore, in case the clients are non-profit organizations then the financial institutions shall register the client’s information on the Darpan Portal of Niti Aayog. After ending the business relationship between a client and themselves or closing the accounts, the reporting entity must maintain records for 5 years.

According to this recent amendment, the banks and the financial institutions will now not only require to maintain the records of the financial transaction that are taking place by PEP and NGO. They are now required to share the information with the Enforcement Directorate (ED) as and when they require it.

Beneficial Ownership under PMLA Rules

The recent amendments to the PMLA rules also incorporate the definition of beneficial owners under the anti-money laundering law. It has been made mandatory for the banks to gather the information from the clients that are required.

The amendment now considers an individual or group holding 10% ownership of reporting entities as the beneficial owner. The previous threshold was 25% ownership.

Other Changes in the PMLA Rules

The government has amended the Due Diligence Documentation requirement under the PMLA Rules.

Earlier, banks used to collect only PAN and incorporation documents from businesses as part of their KYC process. But now, they require additional documents from the officers who have the power to make decisions for the business. This amendment ensures that banks have a better understanding of the people responsible for managing the company. It helps banks to have a more comprehensive view of the business and ensure that the right individuals are authorized to act on its behalf.

The information required now also includes the names of the person holding senior management positions, partners, beneficiaries, etc. Additionally, clients are required to submit details of their registered address and principal place of business to the banks.

The new rules of PMLA have brought cryptocurrency under the scope of money laundering laws. Crypto exchanges that generally deal with virtual digital assets mandatorily require performing the KYC of their clients.

Further Amendments

On May 3, 2023, the government made further revisions to the PMLA, 2002. The changes broaden the money laundering law’s application. It now requires Practicing CAs, CSs, and also CWAs to report suspicious transactions.

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