India’s money laundering rules widened to cover firm’s representatives
The Indian government has expanded the scope of its money laundering laws to include individuals representing a company or acting as a director, including their accountants.
The amendments to the Prevention of Money Laundering Act, which apply to chartered accountants, company secretaries and cost and work accountants, requires them to keep records of all financial transactions they undertake for clients.
The new rules covers all individuals helping in the formation of a company, including those acting as a director, secretary or proxy nominee director. And it also includes individuals who provide the company with an office or correspondence address or act as a trustee.
“The scope [of the money laundering regulations] has been widened to include every person representing another person for certain activities,” said Rajat Mohan, a partner at tax consultancy firm AMRG & Associates. This will make the law stricter, he said.
The move is part of India’s attempt to crackdown on the proceeds of crime and comes ahead of a regular assessment of India’s anti money laundering (AML) governance by the Financial Action Task Force (FATF) later this year.
The FATF is a global money laundering and terrorism financing watchdog that will assess India’s compliance with FATF’s standards and identify areas of improvement.
Accounts voice concern
However, some accountants have voiced concerns about the new anti-money laundering regulations, according to a report in the Economic Times.
Amit Maheshwari, tax partner at AKM Global, said that “a few unfortunate incidents have brought services like company formation by these professionals under the Prevention of Money Laundering Act (PMLA)”.
He said: “The Act is a highly stringent piece of legislation, and complying with its regulations necessitates a significant amount of effort and diligence. Such measures are unnecessary as these professionals are already regulated by professional bodies established under various Acts of Parliament.”
Accountants have been added to a list that also includes people involved in gaming activities, registration authorities, real estate agents and dealers in precious metals and stones.
These professionals are now the reporting entity for the transactions they carry out on behalf of their clients. This means they must conduct know your customer (KYC) verification of all their clients engaging in such transactions and keep records accordingly. Lawyers, however, have been exempted from the new regulations.
Aniket Sunil Talati, president of the Institute of Chartered Accountants of India (ICAI), said that the ICAI Council had already prescribed a KYC requirement and quality standards for engagements with clients, and that it would work with the stakeholders to implement the new regulation.
“Our rules require auditors of a specific type of company to report on non-compliance with laws and regulations. The institute will also continue to work with the authorities and other regulators to ensure that these changes are implemented correctly and professionals’ roles are understood,” Talati said.
Paras Savla, partner at chartered accountancts KPB & Associates, said the move by the government to toughen up the rules was prompted by the FAFT’s assessment of India’s AML regime later this year. “At the time when such an assessment of India is due, the PMLA’s scope has been expanded to include select professionals as well. A few days ago, the Indian crypto sector was also brought under the PMLA, and banks were also mandated to keep detailed records of certain officials,” he said.
“With the expansion, any financial wrongdoing can now be investigated by the Enforcement Directorate,” he added.
The government enacted these rules after discovering that some finance professionals were acting as a front for Chinese companies involved in loan scams and were actively involved in creating structures that aided the moving of money outside India.
