Prevention Of Money Laundering – Inclusion Of CAs, CS And CWA

The laws governing the prevention of money laundering finally came into existence globally pursuant to the political declaration adopted by the Special Session of the United Nations General Assembly held in June 1998. In the said session, member states were called on to adopt national money laundering legislation and program. It was noticed globally that money laundering posed not merely a serious threat to the financial systems of countries but also affected the integrity and sovereignty of those countries.

In order to obviate the threat of money laundering, some of the steps taken by the international community included the following:

 Declaring that the laundering of monies carried out through serious crimes is a criminal offence;

 Working out the modalities of disclosure by financial institutions regarding reportable transactions;

 Declaring money laundering to be an extraditable offence;

 Confiscation of the proceeds of a crime; and

 Promoting international cooperation in the investigation of offences relating to money laundering

From an Indian perspective, the

Prevention of Money Laundering Act, 2002 (hereinafter referred to as "the Act" or "the PMLA Act") was introduced to prevent money laundering. The Act was introduced with the noble objective of preventing money laundering and providing for the confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto. Judicially, courts have recognised "economic offences" as a separate class unto themselves. In a landmark judgement, the Hon’ble Supreme Court in Mohanlal Jitmalji Porwal (1987) 2 SCC 364 compared an "economic offence" with "murder" and thereafter held as follows:

"Ends of justice are not satisfied only when the accused in a criminal case is acquitted. The Community, acting through the State and the Public Prosecutor, is also entitled to justice. The cause of the community deserves equal treatment at the hands of the Court in the discharge of its judicial functions. The Community or the state is not a persona non-grata whose cause may be treated with disdain. The entire community is aggrieved if the economic offenders who ruin the economy of the state are not brought to book. A murder may be committed in the heat of the moment when passions are aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the

Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an evenhanded manner without fear of criticism from the quarters that view white-collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest."

Like most laws, the PMLA Act too has been a subject matter of constant changes and challenges qua its constitutionality. In this article, I wish to delve into one such recent notification issued by the Department of Revenue, Ministry of Finance, on May 3, 2023, which, in my view, has serious implications.

 Meaning of the term "money laundering"

The offence relating to "money laundering" has been defined in Section 2(p) read with Section 3 of the Act. Broadly speaking, any person directly or indirectly involved in the "proceeds of crime" is said to have committed the offence of money laundering. The term "proceeds of crime" has been defined in a broad fashion in Section 2(u) of the Act. In essence, the term "proceeds of crime" essentially pertains to any property derived, obtained directly or indirectly, as a result of criminal activity by any person relating to a scheduled offence or "the value of such property".

 The recent notifications

The Department of Revenue, vide Notification No. SO 2036(E) dated May 3, 2023, has expanded the ambit of a "reporting entity" within the meaning of Section 2(wa) of the Act. The said definition now seeks to expand the coverage to include a practising Chartered Accountant, Company Secretary, and Cost and Works Accountant within the meaning of Section 6 of the Chartered Accountants Act, 1949, Section 6 of the Company Secretaries Act, 1980, and Section 6 of the Cost and Works Accountants Act, 1959, respectively, undertaking the following transactions on behalf of their clients:

 Buying and selling of immoveable property;

 Managing client money, securities, or other assets;

 Management of bank, savings, and securities accounts;

 Organisation 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

Subsequently, the government issued another notification on May

9, 2023, notifying the following activities as designated activities (subject to certain exceptions) if carried on in the course of business on behalf of or for another person:

 Acting as a formation agent for 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, accommodation, correspondence, or administrative address for a company, 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.

In view of the above, CAs and other similar professionals would now be required to comply with certain stringent procedural requirements, which are contained in Section 12 of the Act read with the PMLA (Maintenance of Records) Rules, 2005. The requirements as provided in Section 12 of the Act include the maintenance of records of all transactions in such a manner as to enable it to reconstruct individual transactions and furnish reports within certain prescribed timelines. Thus, CAs and other similar professionals will have to set up the necessary internal mechanisms to ensure strict compliance with the Act. Needless to say, such professionals would now be required to undertake detailed due diligence before accepting an engagement. This is indeed likely to cause hardship and difficulties for professionals, both in terms of cost, efficiency, and time

Rajiv Ambat Lifestyle Disorders Coach & Founder - NuvoVivo

About NuvoVivo (www.nuvovivo.com) Rajiv Ambat is the CEO of NuvoVivo, an online health & fitness company that is into medical fitness. He is a well-known speaker and author of the best-selling book - ‘The Midriff Crisis’ and lifestyle expert. Under the guidance of Mr Rajiv, his team at NuvoVivo help their clients manage/reverse lifestyle diseases like diabetes, cholesterol, fatty liver, uric acid, hypertension, PCOS, thyroid disorders, etc.