Mandatory Compliance by Real Estate Agents under Prevention of Money Laundering Act

Guneet Mayall

December 13, 2023

Mandatory Compliance by Real Estate Agents under Prevention of Money Laundering Act

The Prevention of Money Laundering Act, 2002 (“PMLA”) and the rules made thereunder, viz., the Prevention of Money Laundering Rules, 2005 (“PMLR”), form the core of India’s legal framework to counter money laundering, terrorist financing, serious crime, and other threats to the economic integrity, financial stability, and internal security of the nation.

Under Chapter IV of the PMLA, the ‘Reporting Entities’, are required to implement robust mechanisms and safeguards to mitigate the risk of misuse of the financial system in relation to the above threats. This includes requirements relating to Customer Due Diligence (“CDD”) (initial and ongoing), which includes Enhanced Due Diligence (“EDD”) in respect of high-risk customers, reporting of specified transactions, and maintenance of records relating to transactions and CDD/ Know Your Client (“KYC”).

Real Estate Agents: Whether Reporting Entity?

The Government of India, Ministry of Finance, Department of Revenue, vide Notification G.S.R. 855(E), dated 29 November 2022, issued under F.No.P 12011/7/2022-ES Cell- DOR (“the Notification”) has notified the ‘real estate agents’ as defined under clause (zm) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016) and as a person engaged in providing services in relation to sale or purchase of real estate and having annual turnover of Rupees twenty lakhs and above as a “person carrying out designated business or profession” under Section 2(1)(sa)(iii) of the PMLA, whereas further by virtue of 2(1)(wa) of the PMLA, a person carrying on designated business or profession is a ‘reporting entity’ for the purposes of the PMLA and the PMLR.

Regulators with an intent to bring complete clarity to the real estate agents in their role as a reporting entity issued the Anti-Money Laundering, Countering the Financing of Terrorism and Combating Proliferation Financing Guidelines for Real Estate Agents, 2023 under PMLA, 2002, UAPA, 1967, and WMDA, 2005 dated 04.05.2023 (“the Guidelines”).

Compliances required by Real Estate Agent as a Reporting Entity

Following are the compliances required to be undertaken by the real estate agents as a reporting entity to aid government combat money laundering:

  • Communicate the name, designation and address of the designated director and principal officer to the regulator and to the director of Financial Intelligence Unit – India (“FIU-Ind”) for the purpose of their registration with FIU-Ind ;
  • Formulate and implement a robust and effective ongoing CDD programme to determine true identity of clients, verify their identities, and obtain information on the purpose and intended nature of the relationship. This extends to the determination of beneficial ownership, and to identification / verification of such owners;
  • Evolve robust and effective internal mechanisms for maintaining and furnishing information to FIU-Ind including, but not limited to, Cash Transaction Reports, Counterfeit Currency Reports, Non-Profit-Organisation Transaction Reports, Cross Border Wire Transfer Reports, and Suspicious Transaction Reports, and to furnish such information in the manner and time frames prescribed;
  • Maintain complete records of all client information and due diligence measures and to furnish them as and when called for;
  • Maintain complete records of all transactions and client identity information so as to permit reconstruction of individual transactions including the nature of transaction, the amount and currency of transaction, the date of the transaction and the parties of the transaction, and to furnish them as and when called for.

Conclusion: 

Whereas strict and meaningful compliance with the obligations under the PMLA and the PMLR, including those extracted above, is critical to safeguard the Indian financial system from illicit financial flows, to detect and deter criminal and terrorist use of financial channels, to prosecute criminal and terrorist activities, to prevent the laundering of ‘proceeds of crime’, and to protect the integrity of system constituents as a whole.

Compliance with the obligations contained in the PMLA and PMLR by ‘Reporting Entities’, with reference to CDD and the timely reporting of prescribed transactions, serves as a robust safeguard against the misuse or abuse of the nation’s financial ecosystem. Conversely, the failure to implement safeguards by even a single entity can create a weak link leading to systemic risk and exposure, in addition to making the non- compliant entities subjected to vigorous fines and punishments.

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