India extends AML law to cover many more professionals

Thursday, 22 June 2023
India's finance ministry has issued notifications SO2036(E) and SO2135(E), widening the scope of the Prevention of Money Laundering Act 2002 to cover a much wider range of professional service providers.

Notification SO2036(E), published on 3 May 2023, brings practicing chartered accountants, company secretaries, and cost and works accountants carrying out financial transactions under the Act. This includes those who manage clients' financial accounts, business entities and trusts. They are now considered reporting entities with duties to maintain records, conduct due-diligence on their clients and report to the central registry. However, the position of auditors and legal professionals was not affected.

Notification SO2135(E), issued on 9 May 2023, further extends the Act’s coverage to persons carrying out trust and company services on behalf of another person. These include acting as a formation agent or director of a company or partnership; providing registered offices or correspondence addresses for companies or other entities; acting as a trustee or equivalent role of any trust or acting as nominee shareholder. However, it excludes advocates, accountants or company secretaries who merely file the relevant declarations for the formation of a company. It also excludes any person defined under the Act as an intermediary.

The changes appear to be enacted ahead of the upcoming Financial Action Task Force's evaluation of India’s anti-money laundering (AML) regime, says law firm JSA.

'Both these notifications serve to bring a range of consultants under the purview of the PMLA, both explicitly and implicitly', comments law firm Majmudar & Partners. 'They will have to maintain a record of all client transactions which will have to be disclosed on a monthly basis to the Financial Intelligence Unit. In addition, they will have to conduct [Know Your Customer reviews] of their clients and submit the KYC reports to the Central KYC Registry'.

Majmudar points to certain ambiguities in the wording of the notifications, for example the failure to define 'formation agent' and 'arranging for another person to act'. Further clarifications should be issued, says the firm.


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