Extending liability – New PMLA rules will help curb black money

Source: The post is based on the article “Extending liability – New PMLA rules will help curb black money” published in the Indian Express on 9th May 2023

Syllabus: GS 3 – money-laundering and its prevention.

Relevance: About the changes to PMLA Act.

News: The recent government notification has brought in the practising chartered accountants (CAs), company secretaries (CSes), and cost and works accountants (CWAs) within the purview of the Prevention of Money Laundering Act (PMLA), 2002. This is done for select activities done on behalf of clients.

What are the changes brought by the government in the PMLA Act?

What is the rationale behind the changes to PMLA Act?

-To fulfil the Financial Action Task Force (FATF) assessment, which is due in November.

Note: India last came under the FATF’s assessment in 2010 and the next one was postponed owing to the pandemic.

-To make CAs, CSes, and CWAs equally responsibile for specified transactions made under the PMLA.

What are some previous amendments to the PMLA Act which aim for FATF compliance?

As part of this compliance exercise, the government in had a) amended the money-laundering rules, making it mandatory for banks and other financial institutions to record transactions of non-profit organisations and non-governmental organisations (NGOs) as well as “Politically Exposed Persons” (PEPs).

Note: PEPs are defined as those “entrusted with prominent public functions by a foreign country, including the heads of State or Government, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials.”

What are the concerns raised by CAs, CSes, and CWAs against the changes under the PMLA Act?

a) CAs, CSes, and CWAs are already regulated by professional bodies set up under various Acts of Parliament, b) The burdensome reporting requirements that have been imposed on them might hurt their functioning, c) Lawyers and legal professionals have been kept outside the new provision.

What should be done?

According to the government’s explanation, lawyers do conduct such financial transactions for their clients. But, they are prohibited from accepting money for these services because the Advocates Act debars them from acting as agents. On the other hand, practising accountants render these services because there is no explicit bar on them in the relevant laws.

But, receiving a fee for a transaction or not should not determine the nature of the transaction. So the rules should not be diluted by excluding other entities that can perform the same functions.