Reporting Entity
Section 2(1)(wa) of the Prevention of Money Laundering Act, 2002 (‘Act’ for short), defines the expression ‘reporting entity’ as a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
Person carrying on designated business of profession
Section 2(1)(sa) of the Act defines the expression ‘person carrying on designated business or profession’ as-
- a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
- Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 as may be notified by the Central Government;
- real estate agent, as may be notified by the Central Government;
- dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
- person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
- person carrying on such other activities as the Central Government may, by notification, so designate, from time to time.
Activities
The Central Government, vide Notification No. S.O. 1072(E), dated 07.03.2023 notified the following activities when carried out for or on behalf of another natural or legal person in the course of business as an activity for the purposes of the above said sub sub-clause,
- exchange between virtual digital assets and fiat currencies;
- exchange between one or more forms of virtual digital assets;
- transfer of virtual digital assets;
- safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and
- participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.
The Central Government, vide Notification No. S.O. 2036 (E), dated 03.05.2023, notified the financial transactions carried out by a relevant person on behalf of his client, in the course of his or her profession, in relation to the following activities-
- buying and selling of any immovable property;
- managing of client money, securities or other assets;
- management of bank, savings or securities accounts;
- organization of contributions for the creation, operation or management of companies;
- creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,
as activities for the purposes of section 2(1)(sa)(vi) of the Act.
The ‘relevant person’ includes a practicing Chartered Accountant, a practicing Company Secretary and a practicing Cost Accountant.
Vide Notification No. S.O. 2135(E), dated 09.05.2023, the Central Government notified the following activities when carried out in the course of business on behalf of or for another person, as the case may be, as an activity for the purposes of section 2(1)(sa)(vi)-
- acting as a formation agent of companies and limited liability partnerships;
- acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
- providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
- acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
- acting as (or arranging for another person to act as) a nominee shareholder for another person.
The said notification also clarified that the following activities will not be regarded as activity under section 2(1)(sa)(vi ) of the Act-
- any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 ; or
- any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
- any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under section 7(1)(b) of Companies Act, 2013; or
- any activity of a person which falls within the meaning of an intermediary as defined in clause section 2 (1)(n) of the Act.
Obligations of Reporting Entity
Chapter IV of the Act provides the obligations that are to be followed by the Reporting Entity. The following are the obligations-
Verification of identity
Section 11A of the Act provides that every reporting entity shall verify the identity of its clients and the beneficial owner, by-
- authentication under the Aadhaar if the reporting entity is a banking company; or
- offline verification under the Aadhaar; or
- use of passport ; or
- use of any other officially valid document or modes of identification as may be notified by the Central Government in this behalf.
The use of modes of identification shall be a voluntary choice of every client or beneficial owner who is sought to be identified and no client or beneficial owner shall be denied services for not having an Aadhaar number.
To maintain records
Section 12 of the Act makes the reporting entity to maintain records. According to this section every reporting entity shall-
- maintain a record of all transactions, 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 record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
Furnishing information
Section 12A of the Act provides that the Director may call for from any reporting entity any of the records referred to in Section 11A, section 12(1), sub-section (1) of section 12AA(1)and any additional information as he considers necessary for the purposes of this Act. Every reporting entity shall furnish to the Director such information as may be required by him within such time and in such manner as he may specify.
Enhanced due diligence
Section 12AA of the Act provides that every reporting entity shall, prior to the commencement of each specified transaction-
- verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 in such manner and subject to such conditions, as may be prescribed;
- take additional steps to examine the ownership and financial position, including sources of funds of the client, in such manner as may be prescribed;
- take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties.
The Reporting Entity shall not allow the specified transaction if the client fails to fulfill the above said conditions.
If any specified transaction of the client is suspicious or likely to involve proceeds of crime the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed. The information obtained while applying the enhanced due diligence measures shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.
Specified transactions
The ‘specified transaction’ means-
- any withdrawal or deposit in cash, exceeding such amount;
- any transaction in foreign exchange, exceeding such amount;
- any transaction in any high value imports or remittances;
- such other transaction or class of transactions, in the interest of revenue or where there is a high risk or money-laundering or terrorist financing, as may be prescribed.
