General Studies Paper 3
Context: Chartered accountants, Company secretaries, and cost and works accountants who carry out financial transactions on behalf of their clients are now under the ambit of the Prevention of Money Laundering Act (PMLA).
- Amendments under the PMLA in line with the recommendations of the FATF.
- An activity will be recognized under the PMLA if these professionals carry out financial transactions on behalf of their client such as buying and selling of any immovable property; managing of client money, securities or other assets; management of bank, savings or securities accounts; organization of contributions for the creation, operation or management of companies; creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities.
- The financial professionals who have obtained certificates of practice as chartered accountants, company secretaries, cost and work accountants would be defined as relevant persons for reporting transactions on behalf of their individual clients.
- The reporting entities shall be expected to maintain the record of all transactions and would be required to furnish these to the Director (Financial Intelligence Unit).
- The reporting entities would also be expected to conduct KYC before commencement of each specified transaction and will have to examine the ownership and financial position including sources of funds of the client and to record the purpose behind conducting the specified transaction.
Criticism of the Amendment
- Tax experts said given the onerous compliance, and low conviction rate under the law, the inclusion of CAs, CS, and CWAs, was uncalled for.
- Concerns amongst financial professionals that they could possibly not just face penalty for non-compliance but could also have potential run-ins with investigative agencies like ED.
Other recent changes
- Over a month ago, in March, the government had widened the ambit of reporting entities under money laundering provisions to incorporate more disclosures for non-governmental organizations and defined politically exposed persons (PEPs).
About Prevention of Money Laundering Act,2002 (PMLA)
- The Parliament enacted the PMLA as a result of international commitment to sternly deal with the menace of money laundering of proceeds of a crime having transnational consequences and on the financial systems of the countries.
- The PML Act seeks to combat money laundering in India and has three main objectives:
- To prevent and control money laundering
- To confiscate and seize the property obtained from the laundered money;
- To deal with any other issue connected with money laundering in India.