The Institute of Chartered Accountants of India
Committee on
Commercial Laws, Economic Advisory & NPO Cooperative
Frequently
Asked Questions (FAQs)
on
Notification dated 3rd May, 2023 under
the Prevention of Money
Laundering Act, 2002
Glossary
PMLA
|
Prevention of Money Laundering Act 2002
|
POC
|
Proceeds of crime
|
PLI
|
Placement Layering and Integration
|
HUF
|
Hindu Undivided Family
|
U/S
|
Under Section
|
AOP
|
Association of persons
|
BOI
|
Body of Individuals
|
RE
|
Reporting Entities
|
GST
|
Goods and Services Tax
|
FATF
|
Financial Action Task Force
|
AML
|
Anti-Money Laundering
|
CFT
|
Countering the Financing of Terrorism
|
CPF
|
Combating Proliferation Financing
|
KYC
|
Know Your Customer
|
ED
|
Directorate of Enforcement
|
FIU-IND
|
Financial Intelligence Unit of India
|
CTR
|
Cash Transaction Report
|
STR
|
Suspicious Transaction Reports
|
NPO
|
Non-profit organizations
|
DD
|
Designated Director
|
ICSI
|
Institute of Company
Secretaries of India
|
ICMAI
|
Institute of Cost Accountants of India
|
PO
|
Principal Officer
|
COP
|
Certificate of Practice
|
CA
|
Chartered Accountant
|
CS
|
Company
Secretary
|
CWA
|
Cost and Works Accountant
|
WTR
|
Wireless transfer transaction report
|
SRB
|
Statutory Regulatory Body ICAI, ICSI, ICMAI
|
RBA
|
Risk-Based Approach
|
ML/TF/PF
|
Money Laundering, Terrorism
Financing and
Proliferation
Financing
|
CDD
|
Customer Due Diligence
|
EDD
|
Enhanced Due Diligence
|
PMLR
|
Prevention of Money-Laundering Rules
|
1. Which Act governs Money laundering offences?
Prevention of Money Laundering Act (PMLA),
2002 which came
into
force since 1st July 2005.
2. What is money laundering?
Money Laundering is the process of converting
the tainted property (referred to
as Proceeds of Crime - POC) acquired/obtained by carrying out specific offences
(referred to as scheduled offences or predicate offences) as described in the
Schedules under the
Prevention of Money Laundering Act 2002, into the untainted property.
All
or Any acts,
directly or indirectly related to such
proceeds of crime
such as concealment, possession, acquisition, use,
projecting or claiming it as untainted property is treated as an act of Money Laundering Offences.
The crux of Money
Laundering is
scheduled offences (Prescribed under
the PMLA law) and generating property out of these offences i. e. POC.
A large
number of
criminal
acts
is done
to generate some
Property
by the individual or group that carries
out
that
act.
When a criminal activity generates properties (which
is tainted property), the
individual or
group
(criminals) involved in
that offence, may
find some ways
to convert that tainted property
into untainted property without attracting legal attention. Criminals do this by disguising
the
sources,
changing the form, or
moving the
funds to a place where they are less likely
to attract
attention.
All this
involves Placement, Layering & Integration (PLI).
This process (PLI) is of critical
importance, as
it enables
the criminal to enjoy these POC properties without explaining their illegal source.
Money laundering is a serious crime that
facilitates various
illegal activities, such as drug trafficking, corruption, fraud,
and terrorism financing.
3. What is a money laundering offence under the PMLA Act?
Section 3 of PMLA, 2002 defines it as Whosoever directly or indirectly attempts to indulge or
knowingly assists or
knowingly is a party or is involved in any process
or activity
connected with the
proceeds of crime
including its concealment,
possession, acquisition or use or
projecting or claiming it as
untainted property shall be
guilty
of offence of money-laundering.
This
definition also has
two Explanations to it and
has
to
be read
in
its entirety.
The offence
of money
laundering involves knowingly engaging in financial transactions that conceal, possess, acquire, use or disguise the origins of illicitly
obtained funds.
It typically involves three stages:
√ Placement (introducing illicit funds into the financial system),
√ Layering (conducting complex transactions to obscure the
audit trail),
√ Integration (legitimizing the illicit funds
by integrating them back
into
the formal economy).
Hence what
is important to note
is that
the
Proceeds of
crime (POC) arising
from the violations of certain sections of about 30 different laws (referred to as
Scheduled offence) results in tainted property and any activity/process
of the type as stated above (including
its
use,
acquisition, possession etc.)
or projecting it as untainted property is the
offence
of Money Laundering.
4. Who is covered under PMLA?
Every Person - be it an Individual, HUF, firm,
company, AOP/BOI, agency/branch etc. - whosoever directly or indirectly attempts
to
indulge or
knowingly assists or is a party
or is involved in any process or activity connected
with
the proceeds of crime including its concealment, possession, acquisition or
use or projecting or claiming it as untainted property shall be guilty of offence of money-laundering and
can be covered under section 3 of the
PMLA.
5. Who is a reporting entity (RE)?
Reporting entity means an entity defined under section 2(wa) of the PMLA Act 2002
and
includes a banking company,
financial institution,
intermediary
or a person carrying on a designated business or profession
like Inspector
General of Registration, Real estate
agents, persons
carrying
on activities
for playing games
of chance/casinos or as
notified by the
Central Government, are
all
Reporting Entity.
6. Who is a beneficial owner?
Beneficial owner under
section 2(fa) means an
individual who
ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction
is being conducted and
includes a person who
exercises ultimate effective
control over a juridical person.
The beneficial
owner
is applicable only to legal entities
such as companies, partnership firms, trusts
etc. The criteria are based upon
the percentage of shareholding or profit sharing.
7. Who is a person?
Every Person
- be it an Individual, HUF, firm,
company, AOP/BOI,
artificial juridical person, agency/office/branch that
is
owned or controlled by any
of
the entities.
This definition is similar to the definition of 'person' found in various laws, such
as the Income Tax Act of 1961, the
Companies Act of 2013, and
the
GST Act of
2017.
8. What is FATF and Mutual Evaluation? What is its
relevance?
The Financial
Action Task
Force
(FATF) is an intergovernmental organization
formed
by the
G7 in 1989. It is the global
money laundering and
terrorist
financing watchdog. FATF sets international standards to ensure national
authorities can
effectively go after
illicit funds linked
to drug trafficking, the illicit arms trade, cyber fraud
and other
serious crimes.
FATF develops and
promotes global Anti-Money Laundering
and
Combating the Financing of
Terrorism (AML/CFT) standards,
known
as the FATF
Recommendations. These standards provide a framework for countries to adopt
and implement effective
measures to combat financial crimes.
FATF
conducts
mutual
evaluations of member
countries to
assess their
compliance
with the FATF Recommendations
with regard to
their
financial system, their reporting on money laundering, and
counter terrorist perspective.
These
evaluations
help
identify weaknesses in countries' AML/CFT systems and
provide recommendations for improvement. FATF
also
classifies jurisdiction/countries like Black or Grey lists
depending
upon
whether they are high-risk or
they are
actively
working with
the
FATF to address strategic deficiencies in their regimes or they have strong financial risk systems in place.
Overall, the FATF plays a crucial role in promoting and
strengthening the
global AML/CFT regime by setting standards, evaluating countries compliance and
fostering international cooperation to combat financial crimes.
India has been a member of FATF since the year 2010 and shall be assessed in
the
fourth round of mutual evaluations this year
i.e. 2023.
9. What may be the perspective of or intention behind the
issue of the relevant Notification dated 3rd May, 2023? And does this
notification means covering CAs under Money Laundering Offences?
The intention behind this
notification may
be an
effort to assimilate, adopt, conform & effectively
implement
the FATF recommendations. This notification may be
intended
to strengthen and enhance reporting mechanisms to
identify potential offenders.
This notification
makes Chartered Accountants (carrying
out specified activities
as stated in the said notification on behalf of their client) a reporting entity
as defined under section 2(wa) of PMLA.
10. Who is the Enforcement Agency?
The
Directorate
of Enforcement (ED)
acts as an Enforcement
Agency. The
Agency conducts the investigations of Money Laundering Offences.
11. Who shall be the central co-ordinating Agency to whom
the information is submitted?
The Financial Intelligence Unit
of India (FIU-IND) is the central coordinating
agency
with regard to this notification dated
3rd May, 2023. FIU collects
information from various Reporting Entity (RE) in the form of Reports.
12. What are the General obligations of any RE under the
PMLA?
Every RE must
carry out its obligations as stated in Chapter IV (Sec.
11-A to 15)
of the PMLA Act 2002 read
with the PML (Maintenance of records) Rules 2005.
This requires RE:
● To verify the identity of its clients along with the
beneficial owner.
● To maintain such
records and for such
period as prescribed.
● To carry out enhanced due diligence.
● To report to
the concerned authorities (FIU) As
per the prescribed
Procedure and manner.
Further as per the PML Rules,
the
RE must
maintain
records in terms of value and nature
especially Cash Transaction Reports (CTR), Suspicious Transaction Reports (STR), Certain transactions by NPO, Cash Transactions where
forged/counterfeit currency were used,
Cross Border as well as Domestic
wire
Transfer of certain values & Purchase/sale of immovable property above certain values. This is the critical reporting to be done
by the RE as
on date. It is
important to
note
that the word
Transaction and
Suspicious Transaction is
defined under rule 2(h)
and
2(g) of the PML Maintenance of
Records Rules 2005.
The
Rules prescribe
the
procedure
and manner
of maintaining
and
furnishing
such
information
to the FIU; of client due diligence and what
documents are
needed and
other
things.
13. What are the obligations for the verifying identity of
clients under PMLA?
As per
the code of ethics of ICAI clause 320.3.A6,
the members are
required to comply with ICAI KYC Norms that
were issued in 2011. W.e.f 1-1-2017, the
KYC Norms have been made mandatory for verifying
the
identity of assurance
clients. Now, it will be mandatory for all clients engaged in specified activities in
the Notification
dated 3rd May, 2023.
A Chartered
Accountant
will have to carry out the due
diligence and document the
information of their clients.
14. What are the obligations of Reporting Entities?
The obligation of the
reporting entity is primarily contained in Section
12
of the PMLA, which requires every reporting
entity to: -
● Section 11A of the
PMLA places KYC obligations
upon
every
reporting entity while Section 12AA
provides
for enhanced
due
diligence by
every reporting entity prior to the commencement of each specified
transaction.
● maintain a record
of all transactions (five years from
the date of the transaction), including information relating
to transactions covered under
clause (b), in such
manner as to enable it
to reconstruct individual transactions;
● furnish to the
Director within
such time
as may be prescribed, information relating
to such transactions,
whether
attempted
or executed, the
nature and
value of which may be prescribed;
● maintain a record of documents (five years after the business
relationship
between a
client and the reporting entity has ended or the
account has
been closed, whichever is later) evidencing the
identity of its clients and beneficial owners as well as account files and business
correspondence relating to its clients.
15. What are the powers of Director FIU-IND?
Section 12A empowers the Director of the FIU-IND to access information by
calling for records maintained
under Chapter
IV of the PMLA.
This
information needs to
be furnished within the
time and in the manner in
which
it is asked for. It is important
to
note that violations of Chapter
IV of the PMLA (reporting requirements) can result in the
imposition of a fine.
16. What are the Records required to be maintained by the
Reporting Entity?
Rule 3 of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (herein after referred to
as PMLA Rules), deals
with the Maintenance of records with respect to nature and
value of all transactions by every reporting entity.
Be it noted that it does
not
mention specified transactions but all transactions.
These
records, therefore, need to be
scrupulously
maintained by the Reporting Entities with regard to the client
once the definition of designated profession or
business is triggered, and the
professional becomes a reporting entity based on a transaction specified in
the
notification.
These transactions, the records of
which need to be maintained, are as follows:
(1) Every reporting entity shall maintain the record
of all transactions including, the
record
of:
(A) all cash
transactions of the
value
of more than rupees ten
lakhs or its equivalent in foreign
currency;
(B) all series of cash transactions integrally connected to each
other
which
have been individually valued below
rupees ten lakh or its
equivalent in
foreign currency where
such
series of transactions have taken place
within
a month and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency;
(BA) all transactions involving
receipts by non-profit organizations of value
more
than
rupees ten
lakh, or its equivalent in foreign currency;
(C) all cash
transactions where forged or counterfeit currency notes or bank notes
have
been
used as genuine or where any
forgery of
a valuable
security
or
a document has taken place facilitating the
transactions;
(D) all suspicious transactions whether made in cash and by way of-
(i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are
referred to in any currency maintained by
way
of:
(a) cheques
including
third party cheques, pay
orders,
demand drafts, cashiers cheques or any
other
instrument
of payment of money including electronic receipts or credits and
electronic payments or debits, or
(b) travelers cheques, or
(c) transfer from
one account within
the same banking
company, financial institution and
intermediary,
as the
case may be,
including from or to Nostro
and
Vostro accounts, or (d) any other
mode
in whatsoever name it is referred to;
(ii) credits or debits into or from any non-monetary accounts such
as d-mat account, security
account in
any
currency maintained by the
banking company, financial institution and intermediary,
as the case may be;
(iii) money transfer or
remittances
in favor of own clients or non-clients from
India or abroad and
to
third-party beneficiaries in
India or abroad including
transactions on its
own account in
any
currency by any of the following:-
(a) payment orders, or
(b) cashiers cheques, or
(c) demand drafts, or
(d) telegraphic or wire transfers or electronic remittances or transfers, or
(e) internet transfers, or
(f) Automated Clearing House remittances, or
(g) lock box driven transfers or remittances, or
(h) remittances for credit or loading to electronic cards, or
(i) any other
mode of money transfer by whatsoever name it
is called;
(iv) loans and advances including credit or loan substitutes,
investments and
contingent liability by way of:
(a) subscription
to debt instruments
such
as commercial paper, certificate
of
deposits, preferential shares, debentures,
securitized participation, inter-bank
participation
or
any other investments
in securities or
the
like
in whatever
form
and
name it is referred to,
or
(b) purchase and
negotiation of bills, cheques and other instruments,
or
(c) foreign
exchange contracts, currency,
interest rate
and
commodity and
any
other derivative instrument in whatsoever
name it is called,
or
(d) letters
of credit, standby
letters of credit,
guarantees,
comfort
letters, solvency certificates and any other instrument
for settlement and/or credit support;
(v) collection services in any currency
by way of collection of bills, cheques, instruments
or any
other
mode of collection
in whatsoever
name it is referred to.
(E) all cross -border wire
transfers
of the value
of more
than
five lakh rupees or
its equivalent in foreign currency where either the origin or
destination of fund is in India;
(F) all purchases and sale
by
any person of immovable
property valued at
fifty lakh rupees or more
that are
registered
by
the reporting entity, as
the
case may be.
It is interesting
to note
that
though Rule
3 provides
a list
of transaction for
which
records need to
be maintained, the Rule
itself
mentions that records
must be maintained for all transactions. The list provided seems to be largely
indicative and inclusionary.
17. What is Transaction?
The term transaction is defined in Rule
2(1)(h) as 'transaction' means a purchase, sale, loan, pledge, gift,
transfer, delivery or the arrangement thereof and includes
(i) opening of an account;
(ii) deposits, withdrawal, exchange or transfer
of funds in whatever currency, whether in cash or by cheque, payment order or
other instruments or by electronic or other non-physical means;
(iii) the use of a safety deposit box or any
other form of safe deposit;
(iv) entering into any fiduciary relationship;
(v) any payment made or received in whole or in
part of any contractual or other legal obligation;
(vi) any payment made in respect of playing games
of chance for cash or kind including such activities associated with casino;
and
(vii) establishing or creating a legal person or
legal arrangement.
18. What is Suspicious Transaction?
Suspicious Transactions are separately
defined: 'Suspicious transaction' means a transaction referred to in
clause (h) of Rule 2 of PMLA (Maintenance of Records) Rules, 2005, including an
attempted transaction, whether made in cash, which to a person
acting in good faith-
(a) gives rise to a reasonable ground of
suspicion that it may involve proceeds of an offence specified in the Schedule
to the Act, regardless of the value involved; or
(b) appears to be made in circumstances of
unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona
fide purpose; or
(d) gives rise to a reasonable ground of
suspicion that it may involve financing of the activities relating to
terrorism;
Explanation. -
Transaction involving financing of the activities relating to terrorism
includes transaction involving funds suspected to be linked or related to, or
to be used for terrorism, terrorist acts or by a terrorist, terrorist
organization or those who finance or are attempting to finance terrorism.
19. What information needs to be recorded and how is it to
be maintained?
Rule 4 of the PMLA rules state that the
records referred to in Rule 3 should contain all necessary information
specified by the Regulator to permit the reconstruction of the individual
transaction including the following information: -
(a) the nature of the transactions;
(b) the amount of the transaction and the
currency in which it was denominated;
(c) the date on which the transaction was
conducted;
(d) and the parties to the transaction.
20. What is the Procedure and manner of furnishing
information?
Rule 8 of the PMLA rules mandates that
every reporting entity shall communicate to the FIU-IND:
The name, designation and address of the
Designated Director and the Principal Officer of the RE. The furnishing of
information shall be the responsibility of the Principal Officer who is defined
by Rules 2(1)(f) as 'Principal Officer' means an officer designated
by a reporting entity.
The FIU-IND issued AML/CFT Guidelines for
Professionals with Certificate of Practice from ICAI, ICSI and ICMAI on 19th
June, 2023. The Chartered Accountants, who are the REs may refer to these
guidelines.
21. Who is Designated Director (DD)?
Rule 2(1)(ba) of PML (Maintenance of
Records) Rules, 2005, defines Designated Director which means a person
designated by the reporting entity to ensure overall compliance with the
obligations imposed under Chapter IV of the Act and the Rules and includes -
(i) the Managing Director or a whole-time
Director duly authorized by the Board of Directors if the reporting entity is a
company,
(ii) the managing partner if the reporting entry
is a partnership firm,
(iii) the proprietor if the reporting entity is a
proprietorship concern,
(iv) the managing trustee if the reporting entity
is a trust
(v) a person or individual, as the case may be,
who controls and manages the affairs of the reporting entity if the reporting
entity is an unincorporated association or a body of individuals, and
(vi) such other person or class of persons as may
be notified by the Government if the reporting entity does not fall in any of
the categories above.
22. Who is the Principal Officer (PO)?
Principal Officer is an Officer designated
by Reporting Entity for the purpose of section 12 of PMLA 2002. Rule 8 of the
PMLA rules states that the Principal Officer of a reporting entity shall
furnish the information in respect of transactions every month to the Director,
FIU-IND by the 15th day of the succeeding month.
However, the information regarding
suspicious transactions must be communicated promptly in writing or by fax or
by electronic mail to the Director not later than seven working days after
being satisfied that the transaction is suspicious. Similarly, the Principal
Officer of a reporting entity shall furnish, the information in respect of
transactions of purchase and sale by any person of immovable property valued at
fifty lakh rupees or more that is registered by the reporting entity, as the
case may be, every quarter to the Director by the 15th day of the month
succeeding the quarter.
It is to be taken note that for of Rule 8,
the delay of each day in not reporting a transaction or delay of each day in
rectifying a mis-reported transaction beyond the time limit as specified in
this rule shall constitute a separate violation.
23. What are the provisions for furnishing of reports by
defaulting Reporting Entities?
Section 13 of the PMLA empowers the
Director either suo moto or on an application made to make inquiry and
act against those Reporting Entities with regard to their obligations under
Chapter IV of the PMLA. Section 13(2)(c) provides for the Director to seek
reports from the Reporting Entity (through the Designated Director or any
employee) with regard to measures that it is taking to make good the failure in
compliance with provisions of Chapter IV of the Act. Rule 10A provides for the
furnishing of the report on measures taken. The reporting entity or its
Designated Director or any of the employees of the reporting entity must
furnish reports on the measures taken to the Director every month by the 10th
day of the succeeding month. However, the Director may relax the time interval
as mentioned above to every three months on specific requests made by the
reporting entity based on reasonable cause.
24. What action can be taken against defaulting Reporting
Entities?
Section 13 of the PMLA deals with the
powers of the Director to make inquiry or impose fines. The inquiry can be
either suo moto or on an application made by any authority, officer or
person. The Director may make such inquiry as he sees fit or cause such
inquiry to be made as he thinks fit to be necessary with regard to the
obligations of the reporting entity under this Chapter. A specific provision
exists for enabling to direct audit of the records by an empaneled Chartered
Accountant and the expenses for such audit shall be borne by the Central
Government.
The Action to be taken against a defaulting
Reporting Entity is to be recorded in an order and a copy of the order is to be
furnished to every person who is a party to such proceedings. If the Director,
during any inquiry, finds that a reporting entity or its designated director on
the Board or any of its employees has failed to comply with the obligations
under this Chapter, then he may
(a) issue a warning in writing; or
(b) direct such reporting entity or its
designated director on the Board or any of its employees, to comply with
specific instructions; or
(c) direct such reporting entity or its
designated director on the Board or any of its employees, to send reports at
such interval as may be prescribed on the measures it is taking; or
(d) by an order, impose a monetary penalty on
such reporting entity or its designated director on the Board or any of its
employees, which shall not be less than ten thousand rupees but may extend to
one lakh rupees for each failure.]
25. Whether any civil or criminal proceedings may be
initiated against REs, DDs and POs for reporting to FIU -IND?
No prosecution is contemplated by Chapter
IV of the PMLA for defaults in compliance. Section 14 of the PMLA contemplates
that no civil or criminal proceeding shall lie against the Reporting Entities,
its directors and employees for furnishing information.
26. How the Non-compliance shall be dealt with?
i. Identification of non-compliance:
The FIU-IND identifies instances where a reporting entity has failed to submit
required information or documents.
ii. Show cause notice issuance: The
FIU-IND initiates the process by issuing a show cause notice to the reporting
entity. This notice outlines the specific non-compliance issue, provides a
deadline for responding, and states the potential consequences if the
non-compliance is not rectified.
iii. Response submission: The
reporting entity is given a specified time frame to respond to the show cause
notice. The response should address the reasons for non-compliance, provide any
supporting documents or evidence, and present a plan to rectify the situation.
iv. Assessment and decision-making:
The FIU-IND reviews the response submitted by the reporting entity and
evaluates the reasons provided for non-compliance.
The assessment of the validity of the reasons,
the seriousness of the non- compliance, and any mitigating factors shall be
made by the FIU-IND. Based on this assessment, a decision is made regarding the
appropriate action.
v. Consequences: If the FIU-IND
determines that the non-compliance was willful or significant, the FIU-IND may
impose penalties and fines. The specific consequences will depend on the
severity of the non-compliance.
It's important to note that the above process is
a general guideline, and the actual procedures may vary depending on the
specific jurisdiction and local regulations governing financial intelligence
unit regulation.
27. What is the meaning of the words used in the
notification Financial Transactions carried out by a relevant person on behalf
of his client in the course of his profession?
It is important to note that the word
Transaction and Suspicious Transaction is defined under rule 2(h) and 2(g)
of the PML (Maintenance of Records) Rules 2005.
In the context of the reporting required
from Chartered Accountants as RE under the PMLA Act, the stated terminology
refers to any transaction being financial in nature i.e which involves any
activity or movement of funds/money whether in the form of transfer,
conversion, or use of money or other assets and can take various other forms,
such as deposits, withdrawals, transfers, purchases, sales, or exchanges of
goods and services etc. It is important that such financial transactions are
carried out by a CA on behalf of his client during his/her professional work.
Here in the notification Financial
Transactions carried out by a relevant person on behalf of his client during
the course of his/her profession means actually carrying a financial
transaction by a Chartered Accountant in Practice, on behalf of his/her client,
in relation to the notified activities. It means funds resulting from the
notified activities related to financial transactions or required for execution
of those transactions, are routed through or managed by a Chartered Accountant.
However, this does not include payment of the following by CA on behalf of
his/her client:
- Taxes
- Statutory Fee/Levy
- Registration Charges
- and fee for other professionals such as Senior
counsels
28. Whether all the activities of CAs are covered by the
Notification? Whether all Practicing CAs required complying and submitting the
information?
All the activities of a CA are not covered
by this Notification. For example - Auditing and filing of tax (Income-tax/GST
etc. returns) are not covered by this Notification.
Only the five activities carried out by any
CAs as stated in the notification are covered.
Any practicing CA who holds a COP and
carries out any of the five activities as per the Notification is treated as a
RE and once the CA becomes RE, he/she shall have to comply with the Guidelines
(as issued by the FIU-IND).
29. Whether CAs can enter into financial transactions on
behalf of clients? What is the provision in the Code of Ethics issued by ICAI?
Clause 350 of the Code of Ethics mandates
that a professional accountant in public practice should not assume custody of
client monies or other assets unless permitted to do so by law & if so, in
compliance with any other additional legal duties imposed on a professional
accountant in public practice holding such assets. It further stipulates that
the holding of clients assets creates threats to compliance with the
fundamental principles; for example, there is a self-interest threat to
professional behavior & may be a self-interest threat to the objectivity
arising out from holding clients assets. To safeguard against such threats, a
professional accountant in public practice entrusted with the money (or from
other assets) belonging to others should:
(a) Keep such assets separately from personal
& firms assets;
(b) Use such assets only for the purpose for
which they are intended;
(c) At all times, be ready to account for those
assets, & any income, dividends or gains generated, to any person entitled
to such accounting; and
(d) Comply with all relevant laws &
regulations relevant to the holding of & accounting for such assets.
In addition, professional accountants in
public practice should be aware of threats to compliance with the fundamental
principles through association with such assets, for example, if assets are
derived from illegal activities, such as money laundering. As part of client
& engagement acceptance procedures for such services, professional
accountants in public practice should make appropriate enquiries about the
source of such assets & should consider their legal & regulatory obligations.
They may also consider seeking legal advice.
30. For how many years are records to be preserved? After
the submission of reports whether CA would be called for further inquiry?
Under section 12 of the Prevention of Money
Laundering Act (PMLA), records of transactions and related documents are
required to be preserved for a minimum period of five years from the date
of completion of the transaction or the end of the business relationship,
whichever is later.
This includes records of transactions, account
files, identification data, and other documents used for customer due
diligence, monitoring, and reporting of suspicious transactions. The purpose of
preserving these records is to enable regulatory authorities to access and
analyze them for investigations and audits related to money laundering and
related offenses.
The Director FIU can call from any CA-RE
such further information or the CA-RE can face such inquiry under section 13 as
under the RE reporting under Chapter IV of the PMLA Act 2002.
31. Whether provisions of PMLA by virtue of this
Notification would apply to the following types of services provided by
CA/CS/CWA or other professionals:
● Accounts and Books Writing Services
● Auditing, Attestation and Certification Services
● Special Purpose Audit Reports Due Diligence Reports
● Furnishing of Returns or information related to direct tax and
indirect taxes
● Tax Audit and other Review Services
● Services under FEMA, MCA, RERA etc.
● Paying Taxes on behalf of the Clients viz. IT, TDS, GST, MCA Fees,
or any type of Govt. Fees etc.
● Application of PAN, TAN, GST, PF, ESIC, PT, Trademark Number etc.
Incorporation services
● Project Financing
● Incorporation of Companies LLP and Trust
● Incorporation of Companies LLP and Trust
not for buying and selling purposes
It should be noted that by virtue of the
Notification dated 3rd May 23, only those practicing CA holding COP, who carry
out financial transaction on behalf of their client in the course of
their profession in relation to the 5 specific activities as below are covered
as RE:
i. buying and selling of any immovable property
ii. managing of client monies securities or other
assets
iii. management of bank, savings, or securities
accounts
iv. organization of contributions for the
creation, operation, or management of companies
v. creation, operation or management of
companies, limited liability partnerships or trusts, and buying and selling of
business entities.
As such subject to the above, and in the
facts of each case, a possible set of subjective answers can be:
● Accounts and Books Writing Services not covered if not
managing any funds or bank accounts of the clients
● Auditing, Attestation and Certification Services not covered
● Special Purpose Audit Reports Due Diligence Reports - not
covered
● Furnishing of Returns or information related to direct tax and
indirect taxes - not covered
● Tax Audit and other Review Services- not covered
● Services under FEMA, MCA, RERA etc. - not covered if not
managing any funds or bank accounts of the clients
● Paying Taxes on behalf of the Clients viz. IT, TDS, GST, MCA Fees,
or any types of Govt. Fees etc. - not covered unless client bank account or
client money/assets managed by the CA and that also if in relation to the above
5 activities.
● Application of PAN, TAN, GST, PF, ESIC, PT, Trademark Number etc. -
not covered
● Project Financing- covered since it
involves organisation of contributions for creation, operation or management of
the companies.
● Incorporation of Companies LLP and Trust
covered if it involves buying and selling of such entities on its own
● Incorporation of Companies LLP and Trust
not for buying and selling purpose- not covered if not managing any funds or
bank accounts of the clients
32. Whether CAs providing services in corporate form also
expected to report?
No. Chartered Accountants in corporate form
are not covered as per the definition of relevant person in the notification
dated 3rd May, 2023 which includes individual and firms. However, these
corporate firms shall consider the other notification issued for compliance of
provisions of PMLA.
33. Do Professionals need to worry about post coverage as
per notification issued on 03-05-2023?
No. All Chartered Accountants or even any
CA-RE need not be worried. It is just another reporting requirement and that
also only if the CA-RE does any of the 5 activities as stated in the said
notification -
Chartered Accountants are made Reporting
Entity only when:
● There is a financial transaction carried out by;
● A Chartered Accountant in Practice;
● On behalf of his/her client;
● In relation to notified activities.
34. Whether a CA acting as an Official Liquidator
covered under the notification issued on 03-05-2023?
No, since he/she is appointed by the Court
and it is mandated upon him/her by the Court.
35. Whether a CA acting as an Insolvency Professional
covered under the notification issued on 03-05-2023?
No, since he/she is appointed by the Court
and it is mandated upon him/her by the Court.
36. Whether a CA acting as a Trustee covered under the
notification issued on 03-05-2023?
In case of the Public Trust having
objects of a charitable nature, a CA acting as a Trustee is not covered under
the notification issued on 03-05-2023 since such appointment as a Trustee is
basically intended for altruistic purposes & not in the course of
professional assignment and also because no professional fees may be received
from the trust. However, such Trustees shall consider the other notifications
issued for compliance with provisions of PMLA.
In case of Private Discretionary Trust
wherein the settlor has given discretionary powers to the trustee to apply the
funds of the Trust for the benefit of the beneficiary, a CA in practice acting
as a Trustee can be in the course of his professional obligations and as such
can be covered under the notification issued on 03.05.2023. This is applicable
only when a client relationship is established.
37. Whether a CA acting as an Executor of the Will
covered under the notification issued on 03-05-2023?
Yes, this is applicable only when a client
relationship is established.
38. Whether a CA acting as an Independent Director of
the Company is covered under the Notification?
No
39. Whether a CA acting as a Nominee Director of the
Company is covered under the Notification?
No
40. Whether a CA acting as a Recovery Consultant of
Banking Company is covered under the Notification dated 03-05-2023?
Yes
41. Whether a CA acting as an Insurance Broker of
Insurance Company is covered under the Notification dated 03-05-2023?
Since handling of premium amount by the CA
in practice as an Insurance Broker amounts to managing of clients money
(specifically in the case of advance premium for small risk & short tenure
multiple risk policies for a single client), the CA acting in such capacity
shall be covered under the Notification dated 03.05.2023.
42. Whether a CA acting as a Power of Attorney holder on
behalf of his clients for undertaking transactions specified covered under the
Notification dated 03-05-2023?
Yes, since the member in practice executing
the specified financial transactions under the Power of Attorney is acting on
behalf of his client. However, the actions of the member in practice should
always be in the course of his profession for getting covered under the
Notification dated 03.05.2023.
43. Who are considered Relevant Persons?
Relevant Persons, as defined in the
guidelines, include individuals who have obtained a Certificate of Practice
under the Chartered Accountants Act, 1949, the Company Secretaries Act, 1980,
and the Cost and Works Accountants Act, 1959. This includes both individual
practitioners and those practicing through a firm.
44. What are the general obligations of Relevant persons
i.e. CAs as RE?
The general obligations includes
1. Registration with SRB (ICAI)
2. Framing the policies and procedure within a
firm related to client KYC, client acceptance, client risk profiling,
monitoring of transaction, maintenance of records and furnishing information to
FIU- IND through SRB in the form of various report such as
i. Cash transaction report(CTR)
ii. Suspicious transaction report(STR)
iii. Wireless transfer transaction report(WTR)
iv. Not-for-profit organization transaction report(NTR)
To comply with these obligations FIU-IND has
issued guidelines which are available at this link https://fiuindia.gov.in/pdfs/AML_legislation/AMLCFTguidelines04072023.pdf
Sharing of information with the authorities does
not result in any breach
of confidentiality under the ICAI
code of ethics.
However, the CAs as
RE shall not
provide tipping of such
information in any manner to the client.
45. Why is it important for relevant persons to have a
robust AML/CFT/CPF policy in place?
Having a robust AML/CFT/CPF policy is
essential for relevant persons to fulfill their obligations under the PML
Rules. It helps them to monitor and detect suspicious financial transactions
and furnish information about such transactions to FIU-IND through SRB. By
implementing effective policies and procedures, relevant persons can actively
combat money laundering, counter-terrorist financing, and combat proliferation
financing activities. These policies ensure compliance with legal and
regulatory requirements, promote due diligence measures, and contribute to a
safer financial system.
46. What is the role of the Designated Director and
Principal Officer?
In the case of CAs as RE, REs should
appoint a Designated Director and Principal Officer in case of a firm. For
individual practicing professionals, the professionals themselves serve as the
Principal Officers. The Designated Director and Principal Officer are
responsible for various obligations, including reporting transactions to
FIU-IND through SRB, implementing internal mechanisms, communicating firm-wide
policies, and ensuring compliance with statutory requirements.
47. What is the role of SRBs?
Statutory Bodies (SRBs), such as ICAI,
ICSI, and ICMAI, have a role in regulating and supervising the relevant persons
in their respective professions. They are responsible for understanding,
mitigating, and managing ML/TF/PF risks, monitoring and supervising relevant
persons, providing guidance, and facilitating information exchange with
relevant authorities.
48. Can CAs as RE disclose to their client or anyone that
an STR or information has been filed?
No, CAs as RE and their employees are
prohibited from disclosing or 'tipping off' that an STR or any
related information has been furnished to FIU-IND. This prohibition applies
before, during, and after the submission of an STR.
49. How long should CAs as REs retain records?
CAs as RE should retain records as defined
in the Prevention of Money Laundering Act (PMLA), for a period of five years
after the business relationship with a client has ended or the engagement has
been closed, whichever is later. This is to ensure that relevant documents are
not destroyed.
50. Why are risk assessment and a risk-based approach
important?
CAs as RE should conduct risk assessments
to understand their risk exposure. A risk-based approach (RBA) helps prioritize
resources and implement appropriate AML/CFT/CPF safeguards. Regular reviews of
risk assessments are necessary to address identified deficiencies.
51. What are the internal policies, procedures, and
controls that relevant persons should implement?
CAs as RE shall develop internal policies
and procedures related to
1. Customer identification
2. Customer acceptance
3. Customer risk profile
4. Customer transaction monitoring
5. Identification of the red flags indicators in
the financial transactions
6. Reporting mechanism to FIU-IND through SRB
which includes the appointment of designated director, principal officer and
branch-level compliance officer.
7. Maintenance of records, etc.
These policies should comply with legal and
regulatory requirements and guidance issued by competent authorities and
Statutory Regulatory Bodies (SRBs).
52. How often should the policies and procedures be
reviewed?
The policies and procedures on the
prevention of ML, TF, and PF should be periodically reviewed to ensure
alignment with current statutory provisions, rules, guidelines, and guidance
issued by competent authorities and SRBs.
53. What is the process for the registration of reporting
entities and the appointment of a Designated Director and Principal Officer?
CAs as REs shall communicate and register
with ICAI in the prescribed manner including information related to Principal
Officers and/or Designated Directors. The RE should furnish the necessary
information and relevant reports to ICAI. ICAI shall verify the practicing
status of the RE and forward the same information & report to FIU-IND.
54. What is the role of the Nodal Officer and the
Permanent Technical Committee of SRB?
SRBs appoint a Nodal Officer for
interaction and information sharing with FIU- India. They should also establish
a Permanent Technical Committee responsible for verifying the certificate of
practice of relevant persons filing prescribed reports before forwarding them to
FIU-India.
55. What training should be provided to employees of
reporting entities?
Relevant persons should provide appropriate
training to its employees, particularly those involved in compliance. The
training should cover procedures for KYC, Customer Due Diligence (CDD),
sanctions screening, record-keeping, and transaction monitoring as specified in
the risk policy of the RE. Screening procedures should be in place during the
hiring process.
56. How should the extent of ongoing CDD measures be
determined?
The extent of ongoing CDD measures should
be determined on a risk-based approach, taking into consideration the evolving
nature of the business relationship and associated ML/TF/PF risks.
57. What is enhanced due diligence (EDD) and when should
it be conducted?
Enhanced due diligence (EDD) refers to more
rigorous and robust measures undertaken by relevant persons when dealing with
complex, unusually large transactions, or unusual patterns of transactions with
no apparent economic or lawful rationale. EDD should be conducted when the
risks of money laundering, terrorist financing, or proliferation financing are
higher.
58. What are some measures included in enhanced due
diligence?
Please refer to clause 4.10 of AML &
AML/CFT Guidelines for Professionals with Certificates of Practice from ICAI,
ICSI and ICMAI - issued by FIU-IND, which is reproduced as under:
4.10. Enhanced Due Diligence (EDD) Norms
4.10.1
Relevant persons as notified under the notification, should examine, as far
as reasonably possible, the background and purpose of all complex, unusually
large transactions, and all unusual patterns of transactions carried out on
behalf of their clients, which have no apparent economic or lawful purpose.
Where the risks of money laundering, terrorist financing or proliferation
financing are higher, they must conduct enhanced due diligence, consistent with
the risks identified. In particular, they should increase the degree and nature
of monitoring of the business relationship, in order to determine whether those
transactions or activities appear unusual or suspicious.
4.10.2
Conducting enhanced due diligence should not be limited to merely documenting
income proofs. It includes measures and procedures which are more rigorous and
robust than normal KYC. These measures should be commensurate with the risk.
While not intended to be exhaustive, the following are some of the reasonable
measures in carrying out enhanced due diligence:
a. More frequent review of the customers
profile/transactions
b. Application of additional measures like
gathering information from publicly available sources or otherwise
c. Reasonable measures to know the customers
that the source of funds is commensurate with the assessed risk of customer and
product profile which may include:
i. Conducting independent enquiries on the
details collected on /provided by the customer where required,
ii. Consulting a credible database, public or
otherwise, etc.
59. Are there specific requirements for Enhanced Due
Diligence (EDD) in relation to high-risk jurisdictions or persons?
Please refer answer in Question No.59.
60. What is the requirement for sanctions screening?
Relevant persons must conduct sanctions
screening both during the on boarding process and when any of the notified
activities as per the notification are carried out. They should promptly apply
directives issued by competent authorities for implementing UN Security Council
Resolutions, national sanctions, and directives related to combating terrorism,
terrorist financing, proliferation of weapons of mass destruction and other
applicable laws and regulations.
61. Should counterparty screening be conducted?
Yes, relevant persons should conduct
counterparty screening when acting on behalf of their clients. However, they
should prima facie ascertain any emergent risk stemming from any
suspicious transaction history, adverse media, or published information about
regulatory or criminal penalties related to their client's counterparties. For
this they may use the UN List of Criminals.
62. What is the timeframe for reporting suspicious
transactions?
Suspicious transactions should be reported
to FIU-IND within seven working days from the date of forming suspicion on such
transactions, as per the rules provided under the Prevention of Money
Laundering Rules (PMLR).
63. What is the role of Statutory Bodies (SRBs) in
supervision and monitoring?
SRBs, such as ICAI, ICSI, and ICMAI, have a
regulatory role to relevant persons as per 'the notification'. They should
create awareness about AML/CFT/CPF provisions among their members, ensure
compliance, and act against non- compliant members. SRBs should monitor and
supervise relevant persons through on-site and off-site supervision, adjust the
frequency of AML/CFT supervision based on risks, and provide guidance on
compliance expectations. SRBs must check the COP of the relevant persons.
64. What type of information can be shared between SRBs
and public authorities?
SRB shall forward the information and
reports as and when received from REs to FIU-IND as prescribed in the
guidelines, being issued from time to time.