Notification to Tweak PMLA

May 5, 2023

The Indian government recently widened the scope of the Prevention of Money Laundering Act (PMLA), 2002, to include transactions facilitated by chartered accountants, company secretaries, and cost and works accountants. This move is part of the government’s efforts to tackle the issue of money laundering and prevent the misuse of professionals in the financial sector for illegal activities.

What is the PMLA?

The Prevention of Money Laundering Act (PMLA) is a law that was passed in 2002 to combat money laundering and other financial crimes. It was designed to prevent the use of illegal funds to finance terrorist activities and other unlawful acts. The PMLA has been amended several times since its introduction to expand its coverage and strengthen its provisions.

What transactions are covered under the new law?

The recent changes in the law have broadened its scope to encompass actions carried out by chartered accountants, company secretaries, and cost and works accountants on behalf of their clients, including setting up a company, buying property, and conducting financial transactions, which will now be included under the anti-money laundering law.

What is the responsibility of reporting entities?

Chartered accountants, company secretaries, and cost and works accountants have now become “reporting entities” and are responsible for verifying the identity of clients, examining their financial position, and recording the purpose of the transaction. If they assist in a transaction that breaches the law, they will be held responsible under the Prevention of Money Laundering Act (PMLA).

What are the penalties for non-compliance?

The director of the Financial Intelligence Unit (FIU) has the power to impose penalties under Section 13 of the Act for non-compliance with the law.

What is the effect of the recent notification on reporting entities?

The recent notification ensures that reporting entities maintain records of all transactions and furnish them to the director of the FIU. The Act also stipulates confidentiality on information sought from the reporting entity, requiring adherence to the strictest of professional standards. This move is expected to strengthen the government’s efforts to combat money laundering and other financial crimes.

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