Government notifies PMLA Amendment Rules, 2023

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.

Key points:

• The amendment was done in line with the recommendations of FATF.

• 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 include 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 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.

Significance

• 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.
• Core objectives:
• 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