Chartered accountants, company secretaries now under ambit of money laundering law

Chartered accountants, company secretaries now under ambit of money laundering law

Subject: Economy

Section: Fiscal Policy

Context:

Notifying changes to the Prevention of Money Laundering Act, the Finance Ministry has brought in practicing chartered accountants, company secretaries, and cost and works accountants carrying out financial transactions on behalf of their clients into the ambit of the money laundering law.

Lawyers and legal professionals, however, seem to have been kept out in the new definition of entities covered under the PMLA.

Prevention of Money Laundering Act

• The PMLA was enacted in 2002 and it came into force in 2005. The chief objective of this legislation is to fight money laundering, that is, the process of converting black money into white.
• The Act enables government authorities to confiscate property and/or assets earned from illegal sources and through money laundering.
• Under the PMLA, the burden of proof lies with the accused, who has to prove that the suspect property/assets have not been obtained through proceeds of crime.
• The provisions of this act are applicable to all financial institutions, banks(Including RBI), mutual funds, insurance companies, and their financial intermediaries.

PMLA Amendment 2019

• The amendment seeks to treat money laundering as a stand-alone crime.
• Till now Money Laundering was not an independent crime; rather depended on another crime, known as the ‘predicate offence’ or ‘scheduled offence’, the proceeds of which are made the subject matter of crime of money laundering.
• It also expands the ambit of “proceeds of crime” to those properties which “may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.
• The most crucial amendments are the deletion of provisions in sub-sections (1) of Section 17 (Search and Seizure) and Section 18 (Search of Persons).
• These provisions required the pre-requisite of an FIR or charge sheet by other agencies that are authorised to probe the offences listed in the PMLA schedule.
• An explanation is added to Section 45 that clarifies that all PMLA offences will be cognisable and non-bailable.
• Therefore, ED will be empowered to arrest an accused without a warrant, subject to certain conditions.
• Another vital amendment makes concealment of proceeds of crime, possession, acquisition, use, projecting as untainted money, or claiming as untainted property as independent and complete offences under the Act.
• Section 72 will now give power to the Centre to set up an Inter-Ministerial Coordination Committee for inter-departmental and inter-agency coordination for operational and policy level cooperation, for consultation on anti-money laundering and counter-terror funding initiatives.

Recent Changes in notification:

An activity will be recognised under the PMLA if these professionals carry out financial transactions on behalf of their client such as

• buying and selling of any immovable property;
• managing of client money, securities or other assets;
• management of bank, savings or securities accounts;
• organisation 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

Earlierthe government had 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 FATF

The new changes have been made in the sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the PMLA, which defines different categories of persons covered under the law.

The financial professionals who have obtained certificates of practice as chartered accountants, company secretaries, cost and work accountants would be defined as relevant persons for reporting transactions on behalf of their individual clients.

The amendments are expected to aid investigative agencies further in their probe against dubious transactions involving shell companies and money laundering,

As per the FATF recommendations relating to designated non-financial businesses and professions to be followed by member countries, professionals such as lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction linked to buying and selling of real estate;

Managing of 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 legal persons or arrangements, and buying and selling of business entities

Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing,” the FATF recommendations stated

Financial Action Task Force

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 during the G7 Summit in Paris.
• The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
• Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
• Member Countries: it consists of thirty-seven member jurisdictions. India is one of the members.