Practicing Professionals Under Money Laundering Law
The Prevention of Money Laundering Act 2002 (“PMLA”) has been in the news lately. In March, several transactions involving cryptocurrencies were brought under the purview of the PMLA.
In the latest amendment, the Central government issued a notification bringing practicing professionals – CA, CS and CWA/CMA under the ambit of PMLA.
The Notification from the Ministry of Finance dated 3rd May 2023 states that:
Qualified Chartered Accountants, Company Secretaries and Cost and Works Accountants carrying on certain transactions on behalf of their client(s) shall be brought under the purview of the PMLA.
The transactions carried out by professionals on behalf of the client(s) that will be governed by PMLA are:
- buying and selling of any immovable property;
- managing of client money, securities or other assets;
- management of bank, savings or securities accounts;
- organisation of contributions for the creation, operation or management of companies;
- creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities.
On 9th May 2023, less than a week later, the Central government issued another notification relating to PMLA wherein the scope of activities was widened.
- Acting as a formation agent of companies and LLPs;
- Acting as (or arranging for another person to act as) a director / secretary of a company or partner of a firm or similar position relating to other companies and LLPs;
- Providing a registered office, business address or accommodation, correspondence or administrative address for a company or LLP or Trust;
- Acting as (or arranging for another person to act as ) a trustee of an express trust or performing the equivalent function for another type of Trust;
- Acting as (or arranging for another person to acts as) a nominee shareholder for another person.
The 9th May 2023 Notification further expressly stated that the following activities will NOT come under the purview of the PMLA:
- Any activity that is carried out as part of any agreement of lease / sub-lease/ tenancy or any other agreement or arrangement for the use of land building or any space and the consideration is subject to deduction under section 194-I the IT Act 1962; or
- Any activity carried out by an employee on behalf of his employer in the course of or relating to his employment; or
- Any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice who is engaged in the formation of a company to the extent of declaration required to be filed by such professional u/s 7(1)(b) of the Companies Act 2013, or
- Any activity of a person which falls within the meaning of an intermediary as defined in section 2(1)(n) of the PMLA 2002.
From the Notifications, it can be inferred that (a) practicing professionals undertaking the (b) specified financial activities (as contained in the Notifications) (c) on behalf of their clients will be governed by the PMLA.
Such professionals will come under the category of “reporting entity” and will have undertake additional due diligence, KYC, maintenance of records and related compliance of such clients.
These notifications seem to have been put in place to keep a check on the increasing involvement or participation of the practicing professional community in certain financial transactions which may have the effect of money laundering – converting illegal money to legal money through such financial transactions.