India is fortifying its efforts to counter money laundering with legislative modifications. The Prevention of Money-Laundering Act (PMLA), established in 2002, is being altered. These changes are pertinent due to India’s proposed assessment by the Financial Action Task Force (FATF) in 2023.
Amendments to the PMLA
The revisions to the PMLA involve enhanced disclosures from non-governmental organizations and designated reporting entities such as banking institutions and financial intermediaries. The term “Politically Exposed Persons” (PEPs) is now clearly defined in alignment with a 2008 Reserve Bank of India circular concerning Know Your Customer (KYC) norms. Moreover, practicing chartered accountants, company secretaries, and cost accountants managing financial transactions for clients now also fall under the scope of the PMLA.
Financial transactions encompass a wide range of activities including buying and selling immovable property, managing client money or securities, handling bank or savings accounts, and managing or creating companies or trusts, among others. The list of non-banking entities required to adhere to money laundering laws has been extended to include 22 financial entities, permitting them to use Aadhaar to verify customer identities.
Concerns Regarding the PMLA Amendments
Despite the strengthened framework, the PMLA modifications have sparked some concern. The requirement for entities to maintain transaction records and conduct KYC checks could lead to penalties if not adhered to. There has been criticism over the exclusion of lawyers and legal professionals from the updated list. Others argue that the added professionals are already regulated by designated bodies under different parliamentary acts, rendering these measures redundant.
Understanding the PMLA, 2002
Implemented to combat global money laundering, the PMLA is India’s key legal framework for this purpose. It enforces the confiscation of illicitly obtained property and establishes a structure for averting money laundering and terrorist financing. The law applies to all financial institutions, banks, mutual funds, insurance companies, and their intermediaries in India.
About the Financial Action Task Force (FATF)
The FATF is an international body established in 1989 to set global standards for countering money laundering, terrorist financing, and related threats to the international financial system’s integrity. Founded by the G7 countries, FATF initially focused on developing recommendations against money laundering, but its scope has since broadened to include counter-terrorism financing and addressing emerging threats.
FATF maintains two critical lists – the “grey list” and the “black list.” These signify jurisdictions needing improvement or having severe deficiencies in their anti-money laundering frameworks, respectively. The FATF currently consists of 39 members: 37 jurisdictions and two regional organizations—the Gulf Cooperation Council and the European Commission.
India’s Involvement with the FATF
India joined the FATF in 2010, marking a crucial step in its commitment to combat money laundering and terrorist funding. The country continues its fight against these criminal activities through legislation like the PMLA and international cooperation via organizations like the FATF. As India gears up for its assessment under FATF in 2023, tangible amendments to its legislative framework reflect its commitment to curb money laundering activities.