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Centre tightens anti-money laundering law, brings crypto under PMLA

India has tightened the definition of beneficial ownership under its anti-money laundering law while making mandatory maintenance of records of all financial transactions carried out by non-profit organisations.

The finance ministry notified changes to rules related to maintenance of records under the Prevention of Money Laundering Act late Tuesday.

As per the changes, the ownership threshold has been reduced to 10% from 25% earlier.

This means that any individual or group having 10% ownership in the client of a ‘reporting entity’ will now be considered a beneficial owner.

Under the anti-money laundering law, ‘reporting entities’ are banks and financial institutions, firms engaged in real estate and jewellery sectors. They also include intermediaries in casinos and crypto or virtual digital assets.

“The newly extended record-keeping requirements would go a long way in discovering money laundering activities, which taints the social and economic fabric of the country,” Sandeep Jhunjhunwala, M&A Tax Partner, Nangia Andersen LLP.

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He added that reduction in threshold to 10% thereby will bring more indirect participants within the reporting net.The latest amendment has also expanded the due diligence requirement that was earlier limited to obtaining the basic KYCs of clients such as registration certificates, Permanent Account Number card copies and documents of officers holding an attorney to transact on behalf of the client.

Under the amended rule, intermediaries will have to submit details such as names of persons holding senior management positions, names of partners, names of beneficiaries, trustees, settlors and authors, depending upon the legal form of organisation. They will also have to give details of registered office address and principal place of business, submitted by clients to financial institutions, banking companies or intermediaries.

Reporting entities are required to maintain a record of all transactions, including the record of all cash transactions of more than Rs 10 lakh.

The amendment also widened definition of “Non-profit organization” which will include any entity or organisation, constituted for religious or charitable purposes referred to in section 2(15) of the Income-tax Act, 1961, that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a Company registered under the section 8 of the Companies Act, 2013;”

The amendment also requires a bank or financial institution (FI) or intermediary to register details of an NGO on the Darpan portal of NITI Aayog. It also mandated them to maintain the registration records for a period of 5 years from closure of the business relationship or closure of account, whichever is later.

Amendments to the Prevention of Money-laundering (Maintenance of Records) Rules have also been made for ‘Politically Exposed Persons’.

The amendment defines PEPs 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.

Dinesh Pednekar, Partner, Economic Laws Practice, says that the newly included definition of PEP under PMLA’s Amendment of 2023 is in line with the definition provided by Reserve Bank of India (RBI) on 29 May 2019.

“However, a notable difference in the definition of PEP under the PMLA’s Amendment of 2023 is that this definition does not include domestic PEPs. A similar definition in the Act should necessarily be included in the principal Act of 2002,” Pednekar added.

Crypto under PMLA

Crypto exchanges and intermediaries dealing with virtual digital assets will now be required to perform KYC of their clients and users of the platform.

As per the latest change, entities dealing in virtual digital assets will now be considered ‘reporting entity’ under the Prevention of money laundering Act (PMLA).

Entities involved in the exchange between VDAs and Fiat currencies or transfer of VDAs or safekeeping and administration of VDAs, and participation in financial services related to an issuer’s offer and sale of a VDA would be ‘reporting entity’ for the purpose of the PMLA.

These entities will have to keep mandatory records of clients for five years even after closing of business.

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