Money laundering and terrorism financing have been a cause for concern for governments worldwide. In India, the Prevention of Money Laundering Act, 2002 (PMLA) was enacted to prevent and combat money laundering and terrorism financing. The Act also established reporting entities, such as banking institutions, financial institutions, intermediaries, etc., and placed certain obligations on them. This post will explore the provisions of Section 12A of the PMLA, which deals with access to information by the Director.
Obligations of Reporting Entities
The PMLA places several obligations on reporting entities, such as maintaining records, identifying the beneficial owner, and conducting due diligence. Section 12 of the PMLA mandates that all information maintained, furnished, or verified by the reporting entity shall be kept confidential, except as otherwise provided under any law for the time being in force. The records referred to in this clause shall be maintained for a period of five years from the date of the transaction between a client and the reporting entity.
Section 12A of the PMLA
Section 12A of the PMLA deals with access to information by the Director. 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 the 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. The information sought by the Director under this subsection shall be kept confidential, except as otherwise provided under any law for the time being in force.
Finance Act of 2019
The most recent change made by the Finance Act of 2019 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:
- Name, designation, and address of the chief officer must be sent.
- 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.
- 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.
Due Diligence
Every reporting entity is also under a duty to perform a certain level of due diligence before indulging in any client transaction. They will have to verify the identity of the clients indulging and undertaking the transaction by following the procedure and the conditions given under the Aadhaar Act, 2016. The verification requires the entities to take additional steps to examine the ownership and financial position, including sources of the client’s funds, record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties. If the client does not meet the conditions, the reporting entity must not proceed with the transaction.
Risk-Based Categorization
Banks, financial institutions, and financial intermediaries must put documentation requirements for clients trying to open or operate an account or conduct a transaction. This documentation will also help in categorising the customers according to their perceived risk levels, and these categories will further decide the level of due diligence that each body must then conduct. PEPs of foreign origin, customers who are close relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner, and non-face-to-face customers and those with dubious reputations as per public information available are considered high risk customers and require a higher level of due diligence. The categorization must be done based on the nature of the business relationship with the customer and the level of risk involved in the transaction.
Penalties for Non-Compliance
Non-compliance with the provisions of the PMLA and the obligations placed on reporting entities can lead to severe penalties. The Act provides for both civil and criminal penalties, including fines and imprisonment. In addition, the government can also confiscate the property or assets involved in the money laundering or terrorism financing activity.
Conclusion
Money laundering and terrorism financing have serious implications on the stability and security of a country’s economy. The Prevention of Money Laundering Act, 2002, and its provisions, such as Section 12A, are critical tools in combating these activities. Reporting entities, such as banks, financial institutions, and intermediaries, have a significant role to play in preventing these activities and must comply with the obligations placed on them under the Act. Failure to comply can lead to severe penalties, and it is in the best interest of both the reporting entities and the country as a whole to take these obligations seriously.
[/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_post_nav _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][/et_pb_post_nav][/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=”{}”][et_pb_column type=”1_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][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=”{}”][/et_pb_team_member][/et_pb_column][et_pb_column type=”3_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”]
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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