Govt tightens ‘beneficial owner’ rules under PMLA

Govt tightens ‘beneficial owner’ rules under PMLA

Subject: Economy

Section: Fiscal Policy

Context: Government has further tightened rules for the ultimate beneficiary and fine-tuned the definition of reporting entity under the Prevention of Money Laundering Act (PMLA)

Key Points:

• The Finance Ministry has notified changes in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
• These amendments aim to give more power to the agency under the PMLA Act and enlarge the type and nature of individuals who can come under the ambit of the Act.
• What are the changes?
  • A person having ownership of more than 10 per cent of the capital or profits of a partnership will be brought within the ambit of sub-rule 3 as a ‘beneficial owner’. Earlier, this limit was 15 per cent.
  • Similarly, a person, who does not have any ownership or entitlement to more than 15 per cent (now 10 per cent) of capital or profits of the partnership but exercises control over the partnership through other means, will be treated as a beneficial owner.
• A person is said to exercise control if he has the right to control management i.e, make appointments to the management etc., and also controls policy decisions of a partnership.
• What will be the impact ?
  • In the short term, compliance related complexities may see an increase.
  • Would lead to greater regulation and transparency vis-à-vis the operations of trusts, family offices which were often used to bypass reporting requirements.
  • Would address the problem of money laundering and market manipulation.