The Finance Ministry has brought in a fresh wave of changes to provisions that are dealings with beneficial ownership under the Prevention of Money Laundering Act.
Such changes include the following:
Threshold: Holding 10 per cent ownership in the client of a ‘reporting entity’ will make an individual or entity a beneficial owner under the revised threshold – Earlier the threshold was 25%, such a rapid reduction in threshold is aimed to make rules more stringent and to bring in more participants under the reporting system to ensure mismanagement and misuse of rules to their advantage by clients and reporting entities is prevented.
Reporting:
A new compliance arrow aimed at reporting entities is that they have to maintain records of all transactions including any cash transaction worth more than 10 lakhs INR and maintain documents that can establish and authenticate place of business of clients. Further new reporting norms require reporting of details of senior management members, partners, beneficiaries and certain other class of persons as per the structure of the organization of the client.
This is an additional requirement to existing requirement of maintaining KYC (know your customer) details to establish client’s identity and account files and business correspondence. This enhanced reporting requirement is aimed at enhanced scrutiny to improve compliance mechanism and to make transactions and reporting more transparent.
Reporting entities: Reporting entities’ include banks and financial institutions, firms engaged in real estate and jewellery sectors, and intermediaries in casinos and crypto or virtual digital assets.
Registration or DARPAN Portal: Clients (non-profit organizations) need to be registered on the DARPAN portal of Niti Aayog by reporting entities. Another mandatory requirement for reporting entities is that registration records of clients need to be maintained by reporting entities. Such requirement will span for a period of 5 years from the closure of the business relationship or closure of the account, whichever is later.
These amended rules are expected to bring in more transactions under the reporting requirements to ensure money laundering activities are detected and prevented at the earliest and make reporting entities more accountable in discharging their duties in complying with reporting and other compliance requirements.
