India Amends Anti-Money Laundering Law

Widening the ambit of the Prevention of Money Laundering Act, the Finance Ministry has tightened the reporting norms for non-profit organisations and beneficial ownership rules.

Basics of India’s Anti-money laundering (AML) regulations

• The Prevention of Money Laundering Act (PMLA), 2002 and its accompanying rules (PML Rules) serve as the primary legal framework for the prosecution of money laundering in India.
• Applicability: Anti-money laundering (AML) regulations in India apply to a range of entities, such as companies, banks, crypto exchanges, foreign portfolio investors, trusts, and NGOs.
• Financial transactions are included under the PMLA
  • Buying and selling any immovable property.
  • Managing 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.

PML (Maintenance of Records) Amendment Rules, 2023

• Earlier in March, 2023, the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023 were introduced by the Department of Revenue under the Ministry of Finance.
• These rules widened the ambit of reporting entities under money laundering provisions to incorporate more disclosures for non-governmental organisations and defined politically exposed persons (PEPs) under the PMLA in line with the recommendations of the
• The new rules require reporting entities like financial institutions, banking companies, or intermediaries to disclose beneficial owners in addition to the current KYC requirements through documents like registration certificates and PAN (Permanent Account Number).

What are the recent amendments to PMLA, 2002?

• Politically exposed person: The amendment rules have introduced a new clause, which defines “Politically Exposed Persons” (PEPs).
• Beneficial ownership: In line with existing provisions of The Income-Tax Act, 1961 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.
  • Bringing into reporting net: Earlier, definition of “beneficial owner” included, among other things, the ownership of or right to more than 25 percent of the company’s shares, capital, or profits. This threshold of 25 percent has been lowered to 10 percent, bringing more indirect players into the reporting net.
  • Data: The amendments require “reporting entities”- banks, other financial institutions, and businesses operating in the real estate and jewelry industries – to gather data on each person or organization that has a 10 percent ownership in their clients.

• Non-profit organisations: The new rules have also tightened the reporting norms for non-profit organisations.
  • If the client is a non-profit organization, reporting entities must also register the client’s information on the NITI Aayog’s DARPAN portal.
• Due diligence and documentation: The necessary due diligence documentation has now expanded beyond just getting the fundamental KYCs of clients, it now also involves the submission of information, such as the names of those in top management positions, partners, beneficiaries, trustees, settlors, and writers.
  • Moreover, clients must now provide information about their registered office and primary place of business to financial institutions, banks, or intermediaries.
• Cryptocurrency and virtual digital assets (VDAs): The new rules have brought crypto currency and VDAsunder the ambit of anti-money laundering law (AML).
• Transactions: The transactions covered by the PMLA now include:
  • Converting virtual digital assets into fiat currencies and vice versa
  • Exchanging one or more forms of virtual digital assets
  • Transferring virtual digital assets
  • Securely storing or managing virtual digital assets
  • Providing financial services related to the sale of virtual digital assets by an issuer

Who needs to follow anti-money laundering regulations?

As of May, 2023, the following entities are subject to AML Compliance in India:

Which authorities investigate and prosecute anti-money laundering offences in India?

• Directorate of Enforcement (ED): At the federal level, the Directorate of Enforcement (ED) is the principal legal entity in charge of looking into and prosecuting money laundering offences under the PMLA.
  • The ED comes under the Department of Revenuewithin the Ministry of Finance. It has the authority to initiate proceedings for the seizure of property as well as proceedings in the designated Special Court for money laundering crimes.
• Financial Intelligence Unit – India (FIU-IND): The Financial Intelligence Unit – India (FIU-IND), which is a part of the Department of Revenue and Ministry of Finance, is the primary national body in charge of collecting, processing, assessing, and disseminating data about suspicious financial transactions to law enforcement authorities and foreign FIUs.
• Economic Offences Wing, Central Bureau of Investigation (CBI): The CBI is a specialized police organization that’s been established to investigate certain kinds of crimes, such as crimes involving public officials who have engaged in corruption, significant economic offences, fraud, and crimes that have implications for the country or multiple states.
• Income Tax Department:This department has the authority to impose taxes on undisclosed foreign income and assets held by Indian residents to prevent the crime of money laundering.
• Registrar of Companies (RoC):As per the new requirement under the Companies Act 2013, every Indian company, whether private and public, is mandated to file with the RoC a record of the company’s significant beneficial owners.
• Regulators like the Reserve Bank of India (RBI), Securities & Exchange Board of India (SEBI), and Insurance Regulatory & Development Authority of India (IRDAI) are empowered to handle matters relating to money laundering activities and establish AML standards.