The Ministry of Finance, Department of Revenue, Government of India notified the 2023 Amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
The amendment was done in line with the recommendations of FATF.
There are 40 FATF recommendations that cover seven areas and provide a framework of measures to help countries tackle illicit financial flows through laws, regulations and operational measures to ensure authorities can take action to detect and disrupt financial flows that fuel crime and terrorism.
Disclosure of beneficial owners: The new rules prescribe disclosures of beneficial owners beyond the current requirement of KYC norms through documents such as registration certificates and PAN by reporting entities such as financial institutions, banking companies or intermediaries.
Lowering the threshold for identifying beneficial owners: In line with existing provisions of The Income-Tax Act and The Companies Act, the amended rules have now lowered the threshold for identifying beneficial owners by reporting entities, where the client is acting on behalf of its beneficial owner.
Lowering of the threshold for beneficial ownership has been done to bring PMLA in line with the Companies Act and Income-tax Act.
Reporting entities are also required to register details of the client if it’s a non-profit organisation on the DARPAN portal of NITI Aayog.
Meaning of non-profit organization: The definition of a non-profit organisation has been amended and linked to the definition of charitable purpose provided under Section 2(15) of the Income Tax Act, 1961.
Definition of Politically Exposed Persons (PEP): PEP is referred to individuals who have been entrusted with prominent public functions by a foreign country.
They includethe 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 move to define PEPs under PMLA is to bring uniformity with a 2008 circular of the Reserve Bank of India (RBI) for KYC norms/anti-money laundering standards for banks and financial institutions, which had defined PEPs in line with FATF norms.
The Financial Action Taskforce (FATF):
The FATF is the global money laundering and terrorist financing watchdog.
FATF members include 39 countries, including the United States, India, China, and Saudi Arabia as well as European countries such as Britain, Germany and France and the EU as such.
It was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.
In October 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering.
Since its inception, the FATF has operated under a fixed life span, requiring a specific decision by its Ministers to continue.
Its secretariat is housed administratively at the OECD.
The amendments assume significance ahead of the proposed FATF assessment of India, which is expected to be undertaken later this year.
What is the Prevention of Money Laundering Act (PMLA)?
The prevention of Money Laundering Act is a criminal law of the Parliament of India passed in 2002 to prevent money laundering and confiscate property derived from the laundered money.
PMLA became law and came into force on July 1, 2005.
Prevention and controlling money laundering
Confiscation and seizing of property involved in or derived from money laundering
Providing punishment to offenders
Appointment of adjudicating authority and appellate tribunal concerning money laundering matters
Maintaining records and putting obligations on financial institutions, banking companies and institutions
Dealing with every issue related to money laundering
People do crimes for money, and the money created by crimes gets converted into white money, this whole process or system is called money laundering. In simpler language, money laundering is a process of converting illegally earned money into legitimate money.