The Prevention of Money Laundering Act, 2002 (PMLA) is an important legislation in India aimed at preventing money laundering and financing of terrorism. It mandates that all reporting entities, including banking institutions, financial institutions, intermediaries, etc., maintain records of their clients and beneficial owners, and business correspondence relating to their clients. However, one of the most crucial aspects of the Act is Section 12(2), which requires that all information maintained, furnished, or verified by reporting entities shall be kept confidential, except as otherwise provided under any law for the time being in force. In this blog post, we will take a closer look at Section 12(2) of PMLA and its implications for reporting entities in India.
The Obligations of Reporting Entities
Before diving into the details of Section 12(2), it is essential to understand the obligations of reporting entities under the PMLA. Section 12, 12A, and 12AA of the Act outline the obligations of all reporting entities, which include banking institutions, financial institutions, intermediaries, etc.
According to the Act, every reporting entity must maintain records of documents evidencing the identity of its clients and beneficial owners, as well as account files and business correspondence relating to its clients. Additionally, reporting entities must identify the beneficial owner of their clients and maintain a record 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 referred to in Section 12(1) shall be maintained for a period of five years from the date of the transaction between a client and the reporting entity. The Act also requires that reporting entities 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.
Section 12A of the Act empowers the Director to call for any records referred to in Section 11A, Sub-Section 1 of Section 12, Sub-Section 1 of Section 12AA, and any additional information as he considers necessary for the purposes of the Act. Every reporting entity must furnish to the Director such information as may be required by him under Sub-Section 2 within such time and in such a manner as he may specify. The Act mandates that every information sought by the Director under Sub-Section 2 shall be kept confidential, except as otherwise provided under any law for the time being in force.
The Importance of Confidentiality
Confidentiality is an essential aspect of any financial transaction, especially when it comes to preventing money laundering and financing of terrorism. The confidentiality of information is critical to protecting the privacy and rights of individuals and to maintaining trust in the financial system.
Section 12(2) of PMLA recognizes the importance of confidentiality by mandating that all information maintained, furnished, or verified by reporting entities shall be kept confidential. The Act ensures that this information is protected from unauthorised access or disclosure, except as otherwise provided under any law for the time being in force.
Reporting entities must take every precaution to ensure that the information they collect is not misused or disclosed to unauthorised persons. This includes maintaining robust security measures to protect against data breaches and cyber-attacks, as well as implementing strict access controls to limit who can access sensitive information.
Implications for Reporting Entities
The confidentiality requirement under Section 12(2) has significant implications for reporting entities. It mandates that reporting entities must take every precaution to protect the confidentiality of the information they collect, including implementing appropriate security measures and access controls.
Reporting entities must also be aware of the exceptions to the confidentiality requirement. The Act allows for the disclosure of information in certain circumstances, such as when required by a court or competent authority, or when necessary for the purposes of preventing money laundering or financing of terrorism. In such cases, reporting entities must comply with the procedures prescribed by the law for sharing information, ensuring that the information is disclosed only to authorised persons and for a lawful purpose.
Moreover, reporting entities must also be aware of their obligations to report suspicious transactions under the PMLA. Section 13 of the Act requires reporting entities to maintain records of all transactions, the nature and value of which has been prescribed by the government, and to furnish this information to the Director within the prescribed time limit. If a reporting entity has reason to believe that a transaction is suspicious, it must file a suspicious transaction report (STR) with the Director within the prescribed time limit.
While reporting entities are required to maintain confidentiality of information, they must balance this obligation with their duty to prevent money laundering and financing of terrorism. If a reporting entity fails to comply with the confidentiality requirement, it may face penalties under the Act, including fines and imprisonment. On the other hand, if a reporting entity fails to report suspicious transactions or comply with other obligations under the Act, it may face penalties for non-compliance.
Conclusion
In conclusion, Section 12(2) of the PMLA mandates that reporting entities maintain confidentiality of all information maintained, furnished, or verified by them, except as otherwise provided under any law for the time being in force. This requirement recognizes the importance of confidentiality in preventing money laundering and financing of terrorism and emphasises the need for reporting entities to implement appropriate security measures and access controls. Reporting entities must also be aware of their obligations to report suspicious transactions and comply with other requirements under the Act. By balancing these obligations, reporting entities can contribute to the fight against money laundering and financing of terrorism while protecting the privacy and rights of individuals.
[/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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