Rules on Money Laundering tweaked

What’s in today’s article?

• Why in news?
• What is the Prevention of Money Laundering Act (PMLA)?
• What are the objectives of the PMLA?
• What is the Financial Action Task Force (FATF)?
• News Summary: Rules on Money Laundering tweaked
• Key highlights of the amendment 
• What was the purpose of bringing these amendments?

 

Why in News?

• The Union government tweaked rules under the Prevention of Money Laundering Act (PMLA), putting non-government organisations (NGOs) and “politically exposed persons” under tighter scrutiny.
• These amendments are in line with the recommendations of the Financial Action Task Force (FATF).

 

What is the Prevention of Money Laundering Act (PMLA)?

• PMLA is a criminal law of the Parliament of India passed in 2002 to prevent money laundering and confiscate property derived from the laundered money. 
  • PMLA became law and came into force on July 1, 2005.
• The act has undergone various critical changes from time to time in order to give itself more strength and meaning. The latest amendment was done in 2019.
  • E.g., the definition of Money Laundering under the act was broadened via amendments done in 2012 and again in 2019.
• The act gives blanket powers to the Enforcement Directorate (ED) for seizing, investing, searching and attaching assets.

 

What are the objectives of the PMLA act?

• Prevention and controlling money laundering
• Confiscation and seizing of property involved in or derived from money laundering
• Providing punishment to offenders
• Appointment of adjudicating authority and appellate tribunal concerning money laundering matters
• Maintaining records and putting obligations on financial institutions, banking companies and institutions
• Dealing with every issue related to money laundering

 

What is the Financial Action Task Force (FATF)?

• The Financial Action Task Force is an intergovernmental institution established in 1989 in the endeavour of the G7 to create policies to battle money laundering. 
  • In 2001, its directive was expanded to include terrorism financing.
• FATF releases grey and black lists, in which few countries are mentioned. 
  • A grey list is created to check its nation's progress on measures against money laundering and terrorism financing activities.
  • A black list includes non-cooperative countries against battling money laundering and terror financing.

 

News Summary: Rules on Money Laundering tweaked

• The Department of Revenue under the Ministry of Finance brought in The Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023.
• This has widened the ambit of reporting entities under money laundering provisions.

 

Key highlights of the amendment 

• Rules related to politically exposed persons (PEP)
  • The rules related to PEP covers individuals working for a foreign country, senior politicians, functionaries of political parties, senior bureaucrats, judges, and military personnel.
    • Earlier, these entities and individuals were not included in the PMLA.
  • For these people as well as NGOs, banks will need to maintain records on the nature and value of transactions.
  • The new rule also lays down the procedure: 
    • for how this information will be shared, 
    • the time for which such data will be retained, and 
    • the manner in which identity records of such clients will be maintained by banking companies, financial institutions and intermediaries.
• For NGOs
  • For NGOs, the new rules add more data retention requirements: 
    • Every banking company or financial institution must shall register the details of such a client on the DARPAN Portal of Niti Aayog.
    • These records should be maintained for a period of five years.
• For identifying beneficial owners by reporting entities
  • The term beneficial owner was defined to mean ownership of or entitlement to more than 25 percent of shares or capital or profit of the company. 
  • The threshold of 25 per cent is now reduced to 10 per cent, thereby bringing more indirect participants within the reporting net.
• Regarding cryptocurrencies
  • The tweaks to the PMLA rules brought transactions involving crypto assets under the ambit of the money laundering watchdog.
    • The ED is the main agency probing allegations under PMLA.
  • The notified activities included transactions between fiat currencies and crypto, between one crypto and another, safekeeping of such assets and participating or offering financial services based on these.
  • In other words, this would cover those who carry out transactions as well as those that offer crypto-based financial services, such as some popular Web3 financial services.

 

 

What was the purpose of bringing these amendments?

• Bringing uniformity in PEPs 
  • The move to define PEPs under PMLA is to bring uniformity with a 2008 circular of the Reserve Bank of India (RBI) for KYC norms/anti-money laundering standards for banks and financial institutions.
    • RBI had already defined PEPs in line with FATF norms.
  • With this amendment, the same definition will be applicable everywhere.
• Proposed FATF assessment of India
  • The amendments assume significance ahead of the proposed FATF assessment of India, which is expected to be undertaken later this year.
    • These amendments remove ambiguities before the FATF assessment.

 

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Q1) What is Enforcement Directorate (ED)?

The Enforcement Directorate (ED) is a law enforcement agency in India that is responsible for enforcing economic laws and fighting economic crime in the country. It was established in 1956 and operates under the jurisdiction of the Ministry of Finance, Department of Revenue.

The primary mandate of the Enforcement Directorate is to investigate and prosecute cases of money laundering, foreign exchange violations, and other financial crimes. The agency is also responsible for enforcing provisions of the Prevention of Money Laundering Act (PMLA), which is aimed at combating money laundering and terrorist financing.

 

Q2) What are cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that use cryptography for security and operate independently of central banks or governments. They are decentralized and operate on a peer-to-peer network, which means transactions are conducted directly between users without the need for intermediaries such as banks.

 

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Source: ‘Politically exposed persons’ brought under new PMLA rules, more disclosures for NGO | RBI | Hindustan Times | Business Standard