May 2023

Central Govt. brings practicing CA, CS, CWA in the ambit of PMLA

The Ministry of Finance vide Notification no. S.O. 2036(E) dated May 03, 2023, has brought practicing CA, CS, CWA within the purview of Prevention of Money Laundering Act, 2002 (PMLA).

PMLA casts several compliance obligations on a ‘reporting entity’. Some of these obligations are – verification and maintenance of documents evidencing identity of its clients, maintaining records of all transactions, conducting due diligence on ownership, financial position, sources of funds, etc. of the client in certain cases, reporting suspicious transaction to the financial intelligence unit, etc.

A ‘reporting entity’ as per S. 2(1)(wa) of PMLA inter alia means “a person carrying on a designated business or profession”.

The expression ‘a person carrying on a designated business or profession’ is defined u/s 2(1)(sa) of PMLA to inter alia mean “(vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time to time;

The term ‘client’ is defined u/s 2(1)(ha) of PMLA as “a person who is engaged in a financial transaction or activity with a reporting entity and includes a person on whose behalf the person who engaged in the transaction or activity, is acting.

In exercises of the power conferred u/s 2(1)(sa)(vi), the Central Government vide the above Notification notifies that the financial transactions carried out by a practicing Chartered Accountant, Company Secretaries or Cost and Works Accountant, on behalf of his client, in the course of his or her profession, in relation to the following activities:

(i) buying and selling of any immovable property;

(ii) managing of client money, securities or other assets;

(iii) management of bank, savings or securities accounts;

(iv) organisation of contributions for the creation, operation or management of companies;

(v) creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,

shall be an activity for the purposes of S. 2(1)(sa)(vi).

The Notification increases the compliance burden on the aforesaid professionals, as they will now have to undertake KYC of clients; conduct due diligence of the financial transactions and financial position of the clients in certain cases; comply with the reporting requirements; maintain records of clients for the specified period under the PMLA, etc.

The above document is contributed by – Jinal Jain, Partner

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