Expanding the Scope of Reporting Entities: Recent Implications on Money Laundering Act Compliance

The Ministry of Finance has recently come out with the notification dated May 03, 2023, which widened the ambit of the term “Reporting Entity” as defined in section 2(1)(wa) read with sec. 2 (1)(sa) of the Prevention of Money Laundering Act, 2002 (‘PMLA’).

Who is a Reporting Entity?

As per Section 2(1)(wa) of the Prevention of Money Laundering Act means a banking company, financial institution, intermediary or a person carrying on a designated business or profession.

Further, Section 2(1)(sa) of the PMLA, defines “person carrying on designated business or profession” means:

1. A person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
2. Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 as may be notified by the Central Government;
3. real estate agent, as may be notified by the Central Government;
4. dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
5. person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government;
6. person carrying on such other activities as the Central Government may, by notification, so designate, from time to time.

As per the powers conferred under the aforesaid clause (vi), the Central Government has notified financial transactions carried out by a relevant person on behalf of his client, in the course of his or her profession, in relation to the following activities:

1. buying and selling of any immovable property;
2. managing of client money, securities or other assets;
3. management of bank, savings or securities accounts;
4. organization of contributions for the creation, operation or management of companies;
5. creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities.

As the language of the aforesaid notification stipulates “financial transactions carried out by a relevant person. the Ministry of Finance has explained who all are considered as Relevant Person by defining it to include:

1. an individual who obtained a certificate of practice under section 6 of the Chartered Accountants Act, 1949 (38 of 1949) and practicing individually or through a firm, in whatever manner it has been constituted;
2. an individual who obtained a certificate of practice under section 6 of the Company Secretaries Act, 1980 (56 of 1980) and practicing individually or through a firm, in whatever manner it has been constituted;
3. an individual who has obtained a certificate of practice under section 6 of the Cost and Works Accountants Act, 1959 (23 of 1959) and practicing individually or through a firm, in whatever manner it has been constituted.

Placing the Notification into the language of sec. 2 (1) (sa) of PMLA, the conjoint reading could be read as follows: “person carrying on designated business or profession” means: (vi) person carrying on the following activities, that is, financial transactions carried out by a practising CA, practising CS or a practising CMA, on behalf of his/her client, in the course of his or her profession, in relation to the following activities: buying and selling of any immovable property; managing of client money, securities or other assets; management of bank, savings or securities accounts; organization 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 Hence, such professionals, carrying such financial transactions, will be considered to be reporting entities and shall be required to ensure the necessary compliances accordingly.

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