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ENHANCED MEASURES FOR THE PREVENTION OF MONEY LAUNDERING ACT, 2002 NOTIFICATION

INTRODUCTION

The Indian government has taken a significant step to strengthen its fight against money laundering by expanding the coverage of the Prevention of Money Laundering Act (PMLA), 2002. In this recent development, transactions facilitated by professionals in the financial sector, namely chartered accountants, company secretaries, and cost and works accountants, have been brought under the purview of the PMLA.

By including these professionals within the framework of the PMLA, the government aims to address the potential misuse of their services for illegal activities and reinforce regulatory oversight in the financial sector. This move recognizes the crucial role these professionals play in various financial transactions and their ability to influence and facilitate money laundering activities if not regulated effectively. With this expansion, chartered accountants, company secretaries, and cost and works accountants are now obligated to adhere to the anti-money laundering provisions outlined in the PMLA. They are required to exercise due diligence, conduct proper customer identification and verification, maintain records of transactions, and report any suspicious activities to the appropriate authorities.

This widening of the PMLA’s scope reflects the government’s commitment to combat money laundering and improve the overall integrity of the financial system. By including these professionals, the authorities can better monitor and regulate financial transactions, ensure transparency, and strengthen the enforcement of anti-money laundering measures. This development also underscores the importance of collaboration between the government, regulatory bodies, and professionals in the financial sector to effectively deter and detect money laundering activities. It is expected that this enhanced framework will act as a deterrent and contribute to a more robust and resilient financial system in India.

It is essential for professionals in the financial sector, as well as individuals and organizations engaging in financial transactions, to familiarize themselves with the updated provisions of the PMLA and comply with the new requirements. Staying informed about the latest regulations and actively participating in efforts to combat money laundering will play a crucial role in maintaining the integrity of the financial sector and safeguarding against illicit activities.

PREVENTION OF THE MONEY LAUNDERING ACT

The Prevention of Money Laundering Act (PMLA) is an Indian law enacted in 2002 to prevent money laundering and combat the financing of illegal activities. Money laundering refers to the process of converting illegally obtained funds into legitimate assets or disguising the true origin of the funds.

The PMLA provides a legal framework to investigate, prosecute, and confiscate proceeds derived from criminal activities, thereby disrupting the cycle of money laundering. The act establishes various provisions and mechanisms to identify, track, and seize illicit funds.

Key features of the Prevention of Money Laundering Act include:

  • Money Laundering Offense: The act criminalises the offence of money laundering and provides a broad definition of what constitutes money laundering activities. It covers the concealment, acquisition, possession, or use of proceeds of crime, directly or indirectly, with the intent to project them as untainted or legitimate.
  • Obligations on Reporting Entities: The PMLA places obligations on various entities referred to as “Reporting Entities.” These entities include banks, financial institutions, intermediaries, and professionals such as chartered accountants, company secretaries, and cost and work Reporting Entities are required to maintain records of transactions, conduct customer due diligence (KYC), and report suspicious transactions to the appropriate authorities.
  • Investigation and Enforcement: The act empowers several agencies, including the Enforcement Directorate (ED), to investigate money laundering cases and take necessary enforcement actions. These agencies have the authority to seize and confiscate proceeds of crime, attach properties acquired through illicit funds, and initiate legal proceedings against individuals involved in money laundering offences.
  • International Cooperation: The PMLA enables cooperation and coordination with foreign countries in matters related to money laundering and asset recovery. It allows for the exchange of information, freezing and seizure of assets, and mutual legal assistance with other jurisdictions.
  • Provision for Special Courts: The act establishes Special Courts to exclusively deal with offences under the PMLA. These courts have the authority to hear and decide cases related to money laundering, impose penalties, and order the confiscation of assets.

NOTIFICATION TO REVAMP PMLA

The recent notification about the Prevention of Money Laundering Act reinforces the importance of record-keeping and reporting obligations for reporting entities. Under this notification, reporting entities are mandated to maintain comprehensive records of all transactions and furnish them to the Director of the Financial Intelligence Unit (FIU). This measure aims to enhance transparency and facilitate effective monitoring of financial transactions for potential money laundering activities.

In addition to record-keeping requirements, the Act emphasizes the significance of confidentiality in handling sensitive information obtained from reporting entities. It emphasizes that any information sought from these entities must be treated with the utmost confidentiality and requires strict adherence to professional standards. This provision ensures that the information shared by reporting entities is safeguarded and used exclusively to combat money laundering and related financial crimes

By reinforcing the importance of record-keeping, reporting, and confidentiality, the government aims to bolster its efforts in combating money laundering and other illicit financial activities. Maintaining comprehensive transaction records allows authorities to trace the flow of funds, identify suspicious patterns, and investigate potential instances of money laundering. It enhances the ability of regulatory and law enforcement agencies to analyse financial data and take appropriate action to disrupt illegal activities.

Moreover, the emphasis on confidentiality serves to build trust between reporting entities and the government. It assures reporting entities that the information they provide will be handled with the highest level of professionalism and confidentiality, protecting sensitive business and customer data. This, in turn, encourages reporting entities to collaborate more actively with authorities, facilitating the exchange of information necessary for effective anti-money laundering measures.

This recent notification demonstrates the government’s commitment to strengthening the framework for combating money laundering and related financial crimes. By imposing stricter record-keeping requirements and ensuring confidentiality, the Act aims to create a more robust and effective system for detecting, investigating, and prosecuting money laundering offences. It aligns with global best practices and reflects the government’s proactive stance in safeguarding the integrity of the financial system and protecting against illicit financial activities.

The recent notification places the responsibility on reporting entities, including chartered accountants, company secretaries, and cost and works accountants, to fulfil+- certain obligations. These obligations include verifying the identity of clients, assessing their financial position, and maintaining records of transactions, along with recording the purpose of each transaction. Failure to comply with these obligations may result in the reporting entity being held accountable under the Prevention of Money Laundering Act (PMLA).

PENALTIES FOR NON-COMPLIANCE

Non-compliance with the law can lead to penalties imposed by the director of the Financial Intelligence Unit (FIU) under Section 13 of the Act. The FIU has the authority to impose these penalties as a consequence of not meeting the prescribed requirements and obligations outlined in the PMLA.

The recent notification, in effect, ensures that reporting entities are now required to maintain comprehensive transaction records and submit them to the director of the FIU. Additionally, the notification emphasizes the need for strict confidentiality regarding any information sought from reporting entities, highlighting the adherence to the highest professional standards. This development is expected to strengthen the government’s initiatives in combatting money laundering and other financial crimes by promoting transparency, facilitating effective monitoring of transactions, and safeguarding sensitive information.

Overall, the notification reinforces the responsibilities of reporting entities, enhances the regulatory framework, and aims to bolster the government’s efforts to prevent money laundering and related illicit activities.

CONCLUSION

In conclusion, the recent notification places significant responsibilities on reporting entities, such as chartered accountants, company secretaries, and cost and works accountants, to comply with obligations related to client verification, financial assessment, and transaction record-keeping. Failure to adhere to these obligations can result in penalties imposed by the director of the Financial Intelligence Unit (FIU) under the Prevention of Money Laundering Act (PMLA).

The notification also underscores the importance of strict confidentiality when handling information requested from reporting entities, emphasizing the need to maintain the highest professional standards. By requiring comprehensive transaction records and promoting transparency, the notification aims to strengthen the government’s efforts to combat money laundering and other financial crimes.

Through this regulatory framework, the government seeks to enhance transparency, enable effective monitoring of transactions, and safeguard sensitive information. By reinforcing the responsibilities of reporting entities and ensuring compliance, the notification contributes to a more robust system for detecting, reporting, and prosecuting financial crimes.

Overall, the notification represents a significant step in the government’s commitment to preventing money laundering and related illicit activities. It establishes a stronger regulatory framework, promotes transparency and accountability, and aligns with international best practices in combating financial crimes.

Author(s) Name: Ayushi Singh (Dr. B.R. Ambedkar National Law University, Sonipat)