FATF had conducted its last India review in June 2010 and after 13 years it will now start to have its India review in November
India is taking significant steps to implement recommendations made by the
Financial Action Task Force (FATF) ahead of its mutual evaluation by the
international body. The
FATF conducts reviews to assess whether member countries have effectively taken
measures to
combat money laundering and terrorist financing.
To align with FATF's guidelines, India's Finance Ministry issued notifications
designating Chartered
Accountants, Company Secretaries, and Cost and Management Accountants as "reporting
entities"
under the Prevention of Money Laundering Act (PMLA). This designation obliges these
finance
professionals to report certain financial activities that may raise concerns
regarding money
laundering or terrorist financing.
In a notification dated May 3, 2023, these professionals were officially recognized
as "persons
carrying on a designated business or profession" under the PMLA. The law defines a
"reporting
entity" as a banking company, financial institution, intermediary, or individuals
engaged in
designated businesses or professions.
Subsequently, on May 9, 2023, the government expanded the scope of reporting
entities to include
individuals involved in several financial activities, such as acting as formation
agents for companies
and limited liability partnerships, providing registered offices and accommodation
for businesses,
acting as trustees for trusts, and serving as nominee shareholders. To ensure
compliance,
government departments issued associated guidelines for the individuals
involved.
Under the PMLA, reporting entities are required to maintain records of all financial
transactions for
five years. They must also maintain documents that verify the identity of their
clients and beneficial owners, account files, and business correspondence.
Additionally, they must provide information as
requested by designated authorities.
Section 12AA of the Act outlines the additional responsibilities of reporting
entities. Before each
specified transaction, reporting entities must verify their clients' identities,
examine their ownership
and financial positions, and record the transaction's purpose and the nature of the
relationship
between transacting parties. If clients do not meet these conditions, the reporting
entities are
obligated to disallow the specified transaction. In cases where transactions are
suspicious or
involve potential proceeds of crime, reporting entities must increase monitoring of
the business
relationship with the client and scrutinize transactions more closely. The
information collected
during these enhanced due diligence measures must be maintained for five years.
It's worth noting that lawyers would also fall under the definition of "reporting
entities" according to
FATF recommendations. However, Sections 126 and 129 of the Evidence Act grant them
privileged
communication with clients, protecting certain aspects of their interactions.
Non-compliance with these obligations carries penalties, with monetary fines ranging
from ₹10,000
to ₹1 lakh for each failure.
India's proactive measures to implement FATF recommendations reflect its commitment
to combat
money laundering and terrorist financing effectively. These actions are in
preparation for the
upcoming FATF mutual evaluation, where the international body will assess India's
compliance with
anti-money laundering and counter-terrorist financing measures. These steps are
essential to
maintain the integrity and security of the financial system in India and uphold
international
standards in this regard.
Get in touch with us to see how we can help you with maintaining Compliances and get regulatory updates
SPARROW CONSULTING LLP IS DEDICATED TO DELIVERING TOP-TIER SOLUTIONS TAILORED TO YOUR UNIQUE NEEDS. WITH A TEAM OF SEASONED EXPERTS AND YOUNG TALENT WHO HAVE EXTENSIVE EXPERIENCE AND WITH CLIENTS RANGING FROM NGOS TO LARGE MANUFACTURING SETUPS WE ARE PRESENT IN MUMBAI AND BHOPAL BUT SERVES PAN-INDIA CLIENTS.