The Prevention of Money Laundering Act (PMLA) was enacted by the Indian Government in 2002, with the objective of preventing money laundering and financing of terrorism. It aims to prevent the use of ill-gotten money for any kind of illegal activities, such as terrorist activities, trafficking, and organised crime. The act requires all reporting entities such as banking institutions, financial institutions, intermediaries, etc. to comply with certain obligations. In this post, we will discuss the obligations of reporting entities under PMLA.
Maintaining Records
Under section 12, 12A, and 12AA of PMLA, all reporting entities are obligated to maintain records of documents evidencing the identity of their clients and beneficial owners, as well as account files and business correspondence relating to their clients. The records must be maintained for a period of five years from the date of the transaction between the client and the reporting entity.
It is important to note that all information maintained, furnished, or verified must be kept confidential, except as otherwise provided under any law for the time being in force.
Identifying Beneficial Owners
Reporting entities must identify the beneficial owner, if any, of their clients as prescribed. A beneficial owner is an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted. It includes a person who exercises ultimate effective control over a juridical person.
The reporting entity must maintain a record of documents evidencing the identity of its clients and beneficial owners, as well as account files and business correspondence relating to its clients. As mentioned earlier, all the information maintained, furnished, or verified must be kept confidential under Section 12 of PMLA. The records in clause of Section 12 of sub-section shall be maintained for five years after the business relationship between a client, and the reporting entity has ended or the account has been closed, whichever is later.
Access to Information
Under Section 12A of PMLA, the Director may call for any of the records referred to in section 11A, sub-section of section 12, sub-section of section 12AA, and any additional information as he considers necessary for the purposes of this Act. Every reporting entity shall furnish to the Director such information as may be required by him under sub-section within such time and in such a manner as he may specify.
All information sought by the Director under sub-section shall be kept confidential, except as otherwise provided under any law for the time being in force.
In the Finance Act of 2019, a recent change allows directors to request any records from the reporting entities. According to this Section, banks and various other businesses are required to keep records relating to the kind, size, and currency of transactions as well as the dates on which they were carried out. The following steps must be taken in order to provide such information to the director:
i. Name, designation, and address of the chief officer must be sent.
ii. Every banking company, financial institution, and intermediary may develop an internal mechanism for providing prescribed information in the manner and at the intervals specified by their regulators, according to iii.
iii. Take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties.
Recording Purpose of Transaction
Reporting entities must take additional steps as prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties. If the client fails to fulfil the conditions laid down under sub-section, the reporting entity shall not allow the specified transaction to be carried out.
If any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed by the Director under Section 12A. Additionally, if any reporting entity has reason to believe that a client or a transaction may be involved in money laundering or terrorist financing, they must file a suspicious transaction report (STR) with the Financial Intelligence Unit-India (FIU-IND).
Filing Suspicious Transaction Reports
Under Section 12 of PMLA, all reporting entities are required to file STRs with the FIU-IND if they have reason to believe that a transaction is related to money laundering or terrorist financing. The reporting entity must maintain confidentiality while filing an STR and must not disclose the same to the client or any other person. If the Director determines that a transaction is related to money laundering or terrorist financing, he may order an investigation.
Penalties for Non-Compliance
Reporting entities that fail to comply with the obligations under PMLA are subject to penalties and legal action. The penalties can range from a monetary fine to imprisonment, depending on the nature and severity of the non-compliance. The Act also empowers the authorities to freeze, seize and confiscate properties that are believed to be proceeds of crime.
The Prevention of Money Laundering Act is an important legislation that aims to prevent the use of ill-gotten money for illegal activities such as terrorist financing, trafficking, and organised crime. Reporting entities play a crucial role in ensuring compliance with PMLA by maintaining records, identifying beneficial owners, providing access to information, recording the purpose of transactions, and filing STRs with the FIU-IND. It is important for reporting entities to adhere to the provisions of PMLA to avoid penalties and legal action.
[/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row column_structure=”1_4,3_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”1_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_team_member name=”Vijay Pal Dalmia” position=”Advocate” image_url=”https://jurisnode.com/wp-content/uploads/2023/04/OIP.jpg” _builder_version=”4.20.4″ _module_preset=”default” custom_padding=”||0px|||” border_radii_image=”on|4px|4px|4px|4px” border_color_all_image=”#000000″ box_shadow_style_image=”preset1″ global_colors_info=”{}” theme_builder_area=”post_content”][/et_pb_team_member][/et_pb_column][et_pb_column type=”3_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”]By
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@gmail.com
Mobile No.: +91 9810081079
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