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Ministry of Finance Amended PMLA: Tightens NPO Reporting norms, Beneficial Ownership Rules

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Finance Ministry tightens definition of 'beneficial owners' under PMLAOn 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.

Key Amendments:

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