The Institute of Chartered Accountants of India (ICAI) has released Frequently Asked Questions (FAQs) on the Prevention of Money Laundering Act, 2002 through its Committee on Commercial Laws, Economic Advisory & NPO Cooperative. This initiative follows the government’s recent announcements designating CA members in practice as reporting entities under PMLA.
A Reporting entity means an entity defined u/s 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. 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.
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. 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 practising 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). 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 analyse them for investigations and audits related to money laundering and related offences.
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. CA acting as follows not a RE: Official Liquidator Insolvency Professional Independent Director of a Company Nominee Director of a Company Insurance Broker of Insurance company CA acting as follows is RE: Executor of the Will Recovery Consultant of Banking Company Power of Attorney holder on behalf of client 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. 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. 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. The suspicious transactions should be reported to FIU-IND within 7 working daysfrom the date of forming suspicion on such transactions, as per the rules provided under the Prevention of Money Laundering Rules (PMLR). Please refer to the ICAI FAQs attached below.