Open Access Research Article
AMBIT EXTENSION OF PREVENTION OF MONEY LAUNDERING ACT
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Article Details
AMBIT
EXTENSION OF PREVENTION OF MONEY LAUNDERING ACT
AUTHORED BY - HRISHABH DAGA &
AASTHA SHARMA
Introduction:
The Prevention of Money Laundering
Act[1]
was enacted in 2002 to combat the crime of legalizing the unlawful activity
of obtaining income and profits from sources designated illegal by the
country's laws. This statute authorizes the government and other designated
authorities to seize any property or funds obtained through illicit means.
Money laundering is the criminal
activity mentioned in Section 3 of the PMLA[2] and
it is the process of converting funds obtained illegally and unlawfully into
legal and lawful funds. The money is transferred through various channels and
conversions until it finally reaches a legal institution like a bank or
corporation, to make it appear as though everything is in accordance with the
law of the land. Common ways through which money laundering is practiced
include bulk cash smuggling, round-tripping, gambling, and fake invoicing.
From its
enactment until the recent notification, the PMLA mainly imposed duties on
financial institutions like banks and corporations. These duties include, but
are not limited to:
·
Maintaining records of every transaction and
amount, regardless of any aspect with an internal connection, within thirty
days.
·
Reporting any transaction that was suspicious
directly to the director appointed in accordance with the PMLA within the
stipulated time.
·
Confirming the identity of their client with the
authorities.
·
Storing the records of the client for five years
from the date of the transaction
Besides
the statute, several anti-money laundering policies have been implemented to
combat this crime. The government and the financial institutions keep searching
for new and novel ways to combat this crime. Financial institutions play a
critical role in fighting any kind of financial crime. The employees of the
banks receive training on how to recognize them and what actions should be
taken once they are recognized. The law also states that once any suspicion is
even hinted at, the bank must inform the required authorities to act. However,
despite the training and an existing statute, the issue of money laundering has
not been curbed, and banks fail to recognize various such instances; hence,
another step is taken by the government to curb this issue.[3]
The Latest Amendment:
The Prevention of Money Laundering
Act (PMLA) [4]is
perhaps the most crucial piece of Indian legislation to combat the financial
crime of money laundering. This section of the blog examines the recent
modifications to the PMLA, whereby the Finance Ministry of our country has
amended Section 2(1) (sa) of the Act[5],
and it now includes Chartered Accountants (CA) and Company Secretaries (CS) to
follow the same set of financial duties as banks and financial institutions and
will be subjected to the provisions of the Act. This has been one of the most
significant changes in the process of combating financial crimes, as it has
expanded the scope of reporting any transaction that is suspicious in any way.[6]
Quick Background:
The Chinese Apps Scams are the
impetus behind the recent amendment to the PMLA of 2002[7].
Accounting experts assisted a Chinese program in establishing shell companies
in India. They used their current office address to establish the new companies
and were appointed as directors. The Chinese apps, on the other hand, offered
instant loans, which enticed individuals to fall for the trap and led to the
compromise of a great deal of personal information.
Application after the Amendment:
The retention period for records has
been increased from five to ten years because of the amendment. Consequently,
the amendment requires financial professionals to maintain records of all
transactions for a period of ten years. This is done to ensure that there is
transparency and that the records are available whenever needed. Professional
infractions may result in a fine of up to 10 lakh Rupees.
To add on, the government has
introduced a new system of Know Your Customer (KYC), which includes
verification of the threshold for transactions at 2.5 Lakh Rupees instead of
the previous 5 Lakh rupee limit. Again, the ulterior motive is to enhance the
accuracy of information and prevent any possibility of money laundering at the
grass-roots level since the transaction amount limit has been lowered.
So, with the new PMLA regulations[8],
the stage is set—the financial professionals must start with ensuring robust
systems for identifying any suspicious transactions. Following which, the
professionals must maintain accurate and comprehensive records of their
clients, which include their identities and transactions, for 10 whole years.
After the fulfilment of this step, the new KYC policy must be followed, and
this will be done by PAN card verification.
Excluding the inclusion of financial
professionals within the scope of the PMLA, the government's most recent
amendment also includes express trust trustees, or those who perform functions
analogous to those of a trustee. Since trustees have been included in the
ambit, they will be required to monitor their transactions and disclose any
suspicious activity to the authorities; otherwise, they risk suffering severe
reputational harm and fines.[9]
Major Contention:
Despite the great idea behind the
amendment, various scholars have pointed out that the major contention of this
new amendment is that why would an employee (financial professional) of a
company or organization snitch on any suspicious actions of his employer or the
company (Section 70 of the PMLA[10]) that
he is working for and jeopardize his position or job?
The response to this lies in the fact
that if the professional or trustee does not comply with the regulations and is
found guilty, they will be subjected to a penalty of up to 10 lakh rupees,
which is far more than the person who has committed the crime as the person who
has committed the actual crime of money laundering in accordance with Section
4 of the PMLA[11]
and drawing inference from the case of Sanjay Kumar Choudhary v.
Government of India[12] with
a punishment of rigorous imprisonment that can lead up to 7 years with a fine
of up to only 5 lakh rupees, which is less than what the professionals would
have to pay if they fail to comply with the recent notification.
Conclusion:
In conclusion, the central
government's notification regarding the incorporation of professionals within
the scope of the PMLA 2002[13] has
expanded the scope by imposing obligations on individuals, who are the
foundation of any organization. The government took this action to combat
financial offenses such as money laundering by emphasizing the need to place
the spotlight on the individual accountability of employees who interact
directly with the company's finances. Consequently, this modification makes it
imperative for financial professionals to comply with the existing law and
increase the transparency of ongoing financial transactions.
In the author's opinion, the
inclusion of professionals such as CAs and CSs has merely widened the scope of
reporting even the tiniest of suspicions, as the most effective way to combat
crime is to identify and thwart it at the earliest or most formative stage of
the process; otherwise, it will become extremely complicated in the future. Money
laundering is a pervasive and complex issue in the Indian economy that needs to
be addressed. A straightforward amendment will not eliminate such a pernicious
problem, but it will help us take the first step toward combating money
laundering.
[1] Prevention of Money Laundering Act,
2002
[2] Prevention of Money Laundering Act
2002, S 3
[3] Corpseed
Team, ‘PMLA Amendment 2023 for Ca, CS, and CWA under the Prevention of Money
Laundering Act’ (CORPSEED ITES PRIVATE LIMITED, 2023) https://www.corpseed.com/knowledge-centre/pmla-amendment-for-ca-cs-and-cwa-under-the-prevention-of-money-laundering-act
[4] Prevention of Money Laundering Act,
2002
[5] Prevention of Money Laundering Act
2002, S 2(1) (sa)
[6] Sharad
Sharma C, ‘PMLA Covers Transactions by Ca, CS & CMA on Behalf of Their
Client’ (TaxGuru, 24 May 2023) https://taxguru.in/chartered-accountant/pmla-covers-transactions-ca-cs-cma-client.html
[7] Prevention of Money Laundering Act,
2002
[8] Prevention of Money Laundering Act,
2002
[9] Taxmann Publications, ‘Analyzing Recent PMLA
Amendment for Stronger Anti-Money Laundering Measures’ (Taxmann Blog, 22 May
2023) https://www.taxmann.com/post/blog/analyzing-recent-pmla-amendment-for-stronger-anti-money-laundering-measures
[10] Prevention of Money Laundering Act
2002, S 70
[11] Prevention of Money Laundering Act
2002, S 4
[12] Sanjay Kumar Choudhary v. Government of India
W.P.(Cr.) No.419 of 2009
[13] Prevention of Money Laundering Act,
2002
Article Information
AMBIT EXTENSION OF PREVENTION OF MONEY LAUNDERING ACT
Authors: HRISHABH DAGA, AASTHA SHARMA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/01/15
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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