December 15, 2023
The Prevention of Money Laundering Act, 2002 (“PMLA”) read
with the rules made thereunder, the Prevention of Money Laundering Rules, 2005 (“PMLR”),
was not just a piece of legislation in India rather it embarked a step taken by
the Government of India to fight against financial and white-collar crime.
Since the time it has been introduced with each passing year it has only
widened its net to giving a clear message that money laundering, financial
crimes, terrorist financing would not be tolerated.
The year 2023 has been a roller coaster ride and a milestone
in implementing Financial Action Task Force (“FATF”) compliance by India not
only to letter but also to the spirit with an aim to equip, enable, excel and
empower our country to fight against financial crimes meeting global standards.
One of such initiative in the past couple of months was introduction of the
Prevention of Money-laundering (Maintenance of Records) Third Amendment Rules,
2023by Ministry of Finance, Department of Revenue vide notification no. G.S.R.
745(E) dated 17th October 2023 (“the Amendment Rules”).
Every reporting entity, which is a part of a
group, shall implement group-wide programs against money laundering and terror
financing, including group-wide policies for sharing information required for
the purposes of client due diligence and money laundering and terror
finance risk management and such programs shall include adequate safeguards on
the confidentiality and use of information exchanged, including safeguards to
prevent tipping-off. Groups are required to implement group-wide policies for
discharging obligations under PMLA.
Impact of amendment: As per Rule 3A of the
PMLR, groups are required to implement group-wide policies for the purpose
of discharging obligations under the PMLA.
The Amendment Rules require every reporting
entity which is part of a group to implement group-wide programs against
money laundering and terror financing. This includes group-wide policies for
sharing information required for the purposes of client due diligence and money
laundering and terror finance risk management. It is pertinent to note that
this is in addition to the erstwhile requirement by the groups implementing
Every reporting entity which relies on a third
party for identification of the client shall be required to obtain from the
third party or the Central Know Your Client (“KYC”) Records Registry, the
records and information for Client Due Diligence (“CDD”) on an immediate basis.
Impact of amendment: Another significant
change introduced by the Amendment Rules relates to the timeline of processes
to be followed if the reporting entity has outsourced the identification of the
client or obtaining records of a client to a third-party entity. Previously, reporting entities were obligated
to secure these records within a period of two days. However, the recent amendment
mandates the immediate acquisition of such records or information from the third-party,
eliminating the grace period of two days granted previously. This amendment
will necessitate the reporting entity to have robust, swift and efficient
procedures for coordination and communication with the third-party sources.
This amendment ratifies that time is an essence in upholding compliance with CDD
The principal officer of a reporting entity
shall, on being satisfied that the transaction is suspicious, furnish the
information promptly in writing by fax or by electronic mail to
the Director in respect suspicious transaction. Furthermore, the Amendment
Rules states that such information to be kept confidential by the reporting
Impact of amendment: Previously, principal
officer of the reporting entities were obligated to furnish information of
suspicious transactions to the director appointed under PMLA within seven
working days of becoming satisfied that the transaction is suspicious. However, the recent amendment mandates prompt
reporting and has done away with the period of seven days allowed earlier
reiterating that prompt reporting is an integral part of the nation’s fight
against white collar crimes.
The erstwhile rules stipulated the client
identification and verification requirements by the reporting entities at the
time of commencement of an account-based relationship. However the Amendment Rules in addition to the time of
commencement of account based relationship
has also stated that the reporting entities shall carry out such
processes even while there is a
transaction of an amount equal to or
exceeding Indian Rupee Fifty Thousand (INR
50,000/-) whether conducted as a single transaction or several transactions
that appear to be connected, or any international money transfer operations, by
Further the reporting entities have to verify the
identity of their clients and beneficial owners by using reliable and
independent sources of identification. The Amendment Rules also expects
reporting entities to take reasonable steps to determine the nature of the
The Amendment Rules introduced by law makers has brought about substantial changes in the reporting requirements of the reporting entity ranging from the timelines of the reporting, group anti money laundering and terrorist financing policies implementation along with subsequent reporting.
Streamlining and overhauling the responsibilities of reporting entities clearly stipulates the earnestness of the Government of India to fight against white collar crimes, money laundering and terrorist financing. These amendments, which are designed to address the challenges of money laundering and terrorist financing by extending the scope of reporting requirements and strengthening the accountability of reporting entities, reiterating the commitment of our country not just being FATF requirement compliant but also on the fact that the country is not ready to have any shortcomings in its ability to combat money laundering.
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