• Sat. Apr 20th, 2024

Chartered accountants now under ambit of money laundering law

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.

In a May 3 notification, the Union Finance Ministry said 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.

Tax experts said given the onerous compliance, and low conviction rate under the law, the inclusion of CAs, CS, and CWAs, was uncalled for. Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm said, “Due to a few unfortunate incidents, services such as setting up companies by CA, CS and CWA have come under PMLA. The PMLA Act is very stringent and compliance is very onerous. The conviction rate in PMLA is very low but the entire process is extremely difficult to go through. These professionals are already regulated by professional bodies set up under various Acts of Parliament and such measures are uncalled for.”

Over a month ago, in March, the 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.


Casting the net wide

Widening of the definition of entities under the ambit of PMLA has given rise to concerns amongst financial professionals that they could possibly not just face penalty for non-compliance but could also have potential run-ins with investigative agencies like Enforcement Directorate.

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, experts said. Many CAs took to social media to comment against the changes stating that auditors and legal professionals have been left out.

The change in PMLA law also assumes significance ahead of the proposed assessment of India under the Financial Action Task Force (FATF) expected to be undertaken later this year. The FATF is the global money laundering and terrorist financing watchdog. India’s possible onsite assessment is slated for November, while assessment is likely to come up for discussion in the plenary discussion in June next year.

The reporting entities shall be expected to maintain the record of all transactions and would be required to furnish these to the Director (Financial Intelligence Unit). The reporting entities would also be expected to conduct KYC before commencement of each specified transaction and will have to examine the ownership and financial position including sources of funds of the client and to record the purpose behind conducting the specified transaction, an expert, who did not wish to be named, said. Failure to meet these requirements could invite imposition of penalty by the Director, FIU and even more action by other investigative agencies such as the Enforcement Directorate, the expert said.

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; organisation 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.


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