‘Politically exposed persons’ brought under new PMLA rules, more disclosures for NGOs

Source: The post is based on the article “‘Politically exposed persons’ brought under new PMLA rules, more disclosures for NGOs” published in Indian Express on 10th March 2023.

What is the News?

The Finance Ministry has amended money laundering rules to incorporate more disclosures for non-governmental organizations by reporting entities like financial institutions, banking companies or intermediaries. 

In addition, it has defined politically exposed persons(PEPs) under the Prevention of Money Laundering Act(PMLA) in line with the recommendations of the Financial Action Task Force(FATF).

What are the key changes brought in by the Finance Ministry?

Defined PEPs under PMLA: The rules define “Politically Exposed Persons(PEPs)” as individuals who have been “entrusted with prominent public functions by a foreign country, including the heads of States or Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”. 

– For these PEPs, banks will need to maintain records on the nature and value of transactions.

– This move to define PEPs under PMLA is to bring uniformity with a 2008 circular of the Reserve Bank of India (RBI) for KYC norms/anti-money laundering standards for banks and financial institutions which had defined PEPs in line with FATF norms.

Beneficial owners: The rules have lowered the threshold for identifying beneficial owners by reporting entities, where the client is acting on behalf of its beneficial owner, in line with the Companies Act and Income-tax Act.

– The term ‘beneficial owner’ was defined to mean ownership of or entitlement to more than 25 % of shares or capital or profit of the company, which has now been reduced to 10% thereby bringing more indirect participants within the reporting net.

NGOs: The reporting entities are now required to register details of the client if it’s a non-profit organisation on the DARPAN portal of NITI Aayog. 

– The due diligence documentation requirements which were until now limited to obtaining the basic KYCs of clients such as registration certificates, PAN copies and documents of officers holding an attorney to transact on behalf of the client have now been extended.

– It now includes submission of details such as names of persons holding senior management positions, names of partners, names of beneficiaries, trustees, settlers and authors, details of the registered office address and principal place of business among others.