Amendments In PMLA Act In Context To CA, CS And CWA

The landscape of anti-money laundering (AML) regulations in India has undergone recent amendments, broadening the spectrum of reporting entities to include various professionals such as Chartered Accountants (CAs), Company Secretaries (CS), and Cost and Works Accountants (CWA). These pivotal changes extend the regulatory scope beyond traditional entities like companies, banks, crypto exchanges, foreign portfolio investors, trusts, and NGOs. This article delves into the updated Anti-Money Laundering (AML) law in India, specifically exploring how the recent amendments impact individuals like company representatives (directors, etc.), banking intermediaries, financial companies, and accounting professionals. Given the dynamic nature of these regulations, foreign entities and professional service providers are advised to remain vigilant for any further changes in the application of these reporting obligations.

Effective from May 3, 2023, the government has introduced further changes to the Prevention of Money Laundering Act (PMLA), 2002. These amendments expand the scope of the money laundering law to include practicing Chartered Accountants (CAs), Company Secretaries (CS), and Cost and Work Accountants (CWAs) who engage in financial transactions for their clients. Notably, lawyers and legal professionals must be more encompassed within the revised definition of covered entities under the PMLA.

As of May 9, 2023, the Indian government has expanded the Prevention of Money Laundering Act (PMLA) to cover individuals involved in creating a company, such as directors, secretaries, or proxy nominee directors. The updated law also encompasses those offering services like registered offices, business addresses, accommodations, correspondence, or administrative addresses for companies, limited liability partnerships, or trusts.

Under the updated regulations, CAs, CSs, and CWAs must now undergo the Know Your Company (KYC) process before commencing any financial work on behalf of their clients. This signifies that these accounting professionals will be classified as reporting entities if they are involved in managing their clients' finances. According to the notification, accountants must conduct due diligence on their clients' ownership and financial standing, scrutinize the sources of funds, and document the purpose of the transactions.

The recent amendments to the Prevention of Money Laundering Act (PMLA), 2002, were prompted by the Chinese app scam. In this fraudulent activity, certain accounting professionals played a role in establishing shell companies for these apps. These professionals utilized their office addresses to register such entities and even assumed directorial roles, with some gaining access to the associated bank accounts.Many of these Chinese apps involved in the scam provided instant loans, attracting numerous individuals. Unfortunately, the personal data of loan recipients was compromised and shared with other apps, including gaming platforms.

In response to these scams, accountants are now mandated to conduct due diligence on their clients' ownership, financial standing, and the source of funds. Additionally, they must document the purpose of transactions to enhance transparency and prevent illicit activities. To address the involvement of professionals in these activities, the Indian government has taken legal action against some individuals and referred them to the Institute of Chartered Accountants of India for disciplinary measures.

The Prevention of Money Laundering Act (PMLA) in India encompasses the following financial activities conducted by accounting professionals:

• Acquisition and disposal of any real estate.
• Handling client funds, securities, or other assets.
• Oversight of bank, savings, or securities accounts.
• Facilitation of contributions for the establishment, operation, or administration of companies.
• Establishment, operation, or administration of companies, limited liability partnerships, or trusts, and the buying and selling of business entities.
  
  

In March 2023, under the Ministry of Finance, the Department of Revenue introduced the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023. These amendments have expanded the scope of reporting entities within money laundering provisions, explicitly focusing on non-governmental organizations. Additionally, the rules have defined politically exposed persons (PEPs) under the Prevention of Money Laundering Act (PMLA) in alignment with recommendations from the Financial Action Task Force (FATF).

Under the new rules, reporting entities must disclose beneficial owners, including financial institutions, banking companies, and intermediaries. This requirement supplements existing Know Your Customer (KYC) procedures and involves presenting documents such as registration certificates and PAN (Permanent Account Number) for thorough verification.

The Directorate of Enforcement (ED) is the primary legal entity responsible for investigating and prosecuting money laundering offenses at the federal level under the Prevention of Money Laundering Act (PMLA).

Operating within the Ministry of Finance, under the Department of Revenue, the ED is empowered to commence actions for confiscating assets and initiate proceedings within the designated Special Court dedicated to adjudicating money laundering crimes.

In summary, recent amendments to the Prevention of Money Laundering Act (PMLA) in India, particularly introducing the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023, have expanded the scope of reporting entities. These changes involve enhanced disclosures for non-governmental organizations, the definition of politically exposed persons (PEPs) in alignment with FATF recommendations, and the requirement for reporting entities to disclose beneficial owners. Additionally, at the federal level, the Directorate of Enforcement (ED), operating under the Department of Revenue within the Ministry of Finance, plays anessential role in investigating and prosecuting money laundering offenses, including the authority to initiate proceedings for asset seizure in designated Special Courts.