The Ministry of Finance, Department of Revenue has issued a notification on 3rd May, 2023, amending Section 2 of the Prevention of Money-laundering Act, 2002 (“PMLA”). As per the amendment, financial transactions executed by practicing Chartered Accountants (CAs), Company Secretaries (CSs), and Cost and Works Accountants (CMAs) on behalf of their clients will now be covered under the ambit of the PMLA Act.

The PMLA mandates specific persons carrying on a designated business or profession to follow anti-money laundering procedures when conducting financial transactions on behalf of their clients. This notification now includes the financial transactions carried out by a “relevant person” on behalf of his or her client, in the course of his or her profession, in relation to the following activities:

1. buying and selling of any immovable property;
2. managing of client money, securities or other assets;
3. management of bank, savings or securities accounts;
4. organisation of contributions for the creation, operation or management of companies;
5. creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,

The notification further defines relevant persons to include individuals who have obtained a certificate of practice under:

1. the Chartered Accountants Act, 1949,
2. the Company Secretaries Act, 1980, or
3. the Cost and Works Accountants Act, 1959,

and are practicing individually or through a firm. A ‘firm’ shall share the same definition under Section 2 (23) (i) of the Income-tax Act, 1961.

The PMLA defines a “reporting entity” as a person carrying on a designated business or profession. With CAs, CSs and CWAs now coming under the definition of a person carrying on a designated business or profession, they will be termed as a reporting entity. CAs, CSs, and CWAs are required to maintain records of all transactions executed by them on behalf of their clients for a period of at least five years from the date of cessation of the transaction.

This notification now casts a responsibility on them in financial transactions holding them accountable for their work under the PMLA, by ensuring that they maintain records of their clients’ identity and transactions, verifying the identity of their clients, conducting a through due diligence of transactions and reporting any suspicious transactions to the authorities, thereby enhancing the compliance and reporting standards of these professionals. The reporting requirements are mandatory, and failure to comply with them can result in penalties or even criminal prosecution.

By - Lakshmi Raman