The finance ministry notified changes to rules related to maintenance of records under the Prevention of Money Laundering Act this week.
As per the changes, “reporting entities” – such as banks, other financial institutions and companies engaged in real estate and jewellery sectors – must collect information about any individual or group that has a 10% ownership in their clients.
Earlier, the threshold to be considered as a beneficial owner was 25%. Under the anti-money laundering law, the reporting entities also include intermediaries in casinos and crypto or virtual digital assets.
“The newly extended record-keeping requirements would go a long way in discovering money-laundering activities, which taint the social and economic fabric of the country,” said Sandeep Jhunjhunwala, M&A tax partner, Nangia Andersen LLP.
He said the reduction in the ownership threshold to 10% will bring more indirect participants within the reporting net.
The latest amendment has also expanded the due diligence requirement that was earlier limited to obtaining the basic KYC details of clients, such as registration certificates, PAN card copies and documents of officers holding an attorney to transact on behalf of the client.Under the amended rule on beneficial ownership, intermediaries will have to submit details such as the names of people holding senior management positions, names of partners, names of beneficiaries, trustees, settlors and authors, depending upon the legal form of organisations. The reporting entities will also have to give details of the registered office address and the principal place of business submitted by clients. They must maintain a record of all transactions, including the record of cash transactions of more than Rs 10 lakh.
The amendment widened the definition of “non-profit organisation”, which will now include any entity or organisation constituted for religious or charitable purposes referred to in Section 2(15) of the Income-tax Act, 1961; or registered as a trust or a society under the Societies Registration Act, 1860 or any similar state legislation; or a company registered under Section 8 of the Companies Act, 2013.
A bank, financial institution or intermediary that has business relations with an NGO must register details of the NGO on the Darpan portal of Niti Aayog. They must also maintain the registration records for five years from closure of the business relationship or closure of account, whichever is later.
Cryptos Under PMLA
Crypto exchanges and intermediaries dealing with virtual digital assets will now be required to perform KYC of their clients and users of the platform.
As per the latest change, an entity dealing in virtual digital assets will now be considered a ‘reporting entity’ under the Prevention of money laundering Act (PMLA).