Under the Prevention of Money Laundering Act (PMLA), a “beneficial owner” is defined as an individual who owns or controls those engaged in financial transactions with a reporting entity.

Further, it has expanded the due diligence requirement for these two entities. These include submitting details such as the names of persons holding senior management positions, partners, beneficiaries, trustees, settlers, and authors, as the case may be, depending on the form of the organisation.

So far, due diligence was limited to obtaining the basic KYCs of these entities such as registration certificates, PAN card copies, and documents of officers holding power of attorney to transact on behalf of the client. The finance ministry, through a notification on March 7, brought in the amendments under the Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023. It prescribes disclosures from clients as part of due diligence to be observed by reporting entities (such as financial institutions, banking companies, or intermediaries).

Non-profit organisations are for religious and charitable purposes.

Clamping down

• Reporting entities such as banks are mandated to identify beneficial owners
• Earlier, such beneficial owners had to be disclosed if they held 25% or above in entities
• Due diligence requirements also widened for them
• New rules came into effect on March 7
• Beneficial owner is a person who ultimately owns or controls a client and/or the person on whose behalf transaction is being conducted

PEPs are individuals entrusted with public functions by a foreign country through heads of state or government, senior politicians, government or judicial or military officers, executives of state-owned corporations, and party functionaries.

These entities are mandated to furnish information on registered office addresses and principal places of business.

The ministry in the notification said reporting entities were required to register clients such as non-profit organisations on the DARPAN portal of the NITI Aayog and mandated to maintain registration records for five years from the closure of the business relationship or closure of accounts, whichever is later.

“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.

The move is in line with the Central government’s efforts to combat money laundering. In another notification, it had brought trading in cryptocurrencies and digital assets within the ambit of the PMLA.

The new rules mandate crypto exchanges and intermediaries dealing in virtual digital assets to maintain KYCs of their clients and report suspicious transactions to financial intelligence units.

Source: Business Standard, dated 10.03.2023