On March 7, 2023, the Ministry of Finance amended the Prevention of Money Laundering Act (PMLA) rules to increase the scope of the PMLA by tightening reporting norms of ‘non-profit organisations’ (NPO) and the rules relating to beneficial ownership.
- Ministry of Finance (Department of Revenue) amended the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 and the rules are called Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023.
Change over Definitions of PEP and NPO:
i.As per the amendment ‘Politically Exposed Persons’ (PEPs) are defined as –
- Individuals who have been entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials.
ii.The definition of a NPO has been amended and linked to the definition of charitable purpose provided under Section 2 (15) of the Income Tax Act, 1961.
The NPO’s are defined as follows
- An entity or organisation that is constituted for religious or charitable purposes referred to in clause (15) of section 2 of the Income-tax Act, 1961 (43 of 1961)
- Organization that is registered as a trust or a society under the Societies Registration Act, 1860 (21 of 1860)
- Any similar State legislation or a Company registered under the section 8 of the Companies Act, 2013 (18 of 2013).
b.Regulation for Reporting entities:
i.Reporting on DARPAN Portal:
The reporting entities are required to register the details of unregistered NPO clients on the DARPAN Portal of NITI Aayog and maintain such registration records for a period of five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later.
ii.Additional info collection:
The reporting entities are required to collect the details of the registered office address and principal place of business of their clients.
- So far, these entities were maintaining KYC (Know your customer) details, account files and business correspondence relating to clients and they are also maintaining a record of all cash transactions of more than Rs 10 lakh.
Note – Under the PMLA, ‘reporting entities’ are banks and financial institutions, firms engaged in real estate, jewellery sectors, and intermediaries in casinos and crypto/ virtual digital assets.
c.Change in ownership threshold:
As per the amendments any individual or group holding 10% ownership in the client of a ‘reporting entity’ will now be considered a ‘beneficial owner’ as against the ownership threshold of 25% applicable earlier.
- Now due to the amendment, the banking/financial companies are mandated to record transactions of several entities and individuals, who were not earlier included in the PMLA.
- Thus it will virtually include everyone important in politics, senior government officials and even heads of the state, for financial reporting purposes under PMLA.
Note – The amendments were made in the exercise of the powers conferred by section 73 of the PMLA, 2002 (15 of 2003).
About Ministry of Finance:
Union Minister – Nirmala Sitharaman (RajyaSabha Karnataka)
Minister of State – Pankaj Chaudhary ; Dr. Bhagwat Kishanrao Karad