There has been a heated debate among accounting and legal professionals over two notifications issued by the Indian Ministry of Finance in May 2023. These notifications for the first time bring these professionals within the reporting framework of the Prevention of Money – Laundering Act, 2002 (The Act/the PMLA).
With these notifications, professionals like Company Secretaries, Chartered Accountants, Cost Accounts, and Advocates come under the definition of “Reporting Entities.” Presently, banks, financial institutions, and other intermediaries also fall under the definition of Reporting Entities.
The Reporting Entities are defined under the Act in Section 2(1)(wa) as inserted with effect from 15 February 2013. The term “reporting entity” means a banking company, financial institution, intermediary, or a person carrying on a designated business or profession.
The term “a person carrying on a designated business or profession” is defined in Section 2(1)(sa) and includes various categories.
Both notifications, dated 3 May 2023 and 9 May 2023, used sub-clause (vi) to bring legal and accounting professionals into the reporting framework of the PMLA.
The Notification S.O. 2036(E) dated 3 June 2023 includes certain activities carried out by “relevant persons,” which include legal and accounting professionals, in the reporting framework. The Notification S.O. 2135(E) dated 9 May 2023 includes certain other activities carried out by any person into the reporting framework but excludes these activities when carried out by legal and accounting professionals.
So, certain activities are included irrespective of the person carrying out these activities. For this discussion, Company Secretaries, Chartered Accountants, Cost Accounts, and Advocates are the “Relevant Persons” as mentioned in these notifications.
The 9 May 2023 Notification clarified that any activity carried out by an advocate, a chartered accountant, cost accountant, or company secretary in practice engaged in the formation of a company to the extent of filing a declaration under Section 7(1)(b) of Companies Act, 2013 (18 of 2013) shall not be regarded as an activity for the purposes of Section 2(1)(sa)(vi) of the PMLA. All other activities associated with incorporation may require reporting.
All other activities listed under these notifications shall make the “relevant person” a “reporting entity.” These activities include buying and selling of any immovable property, managing of client money, creation, operation or management of companies, and other specified activities.
The impact of these notifications is that the “relevant persons” become “reporting entities” under the PMLA for these activities so notified. The Reporting entities shall comply with the Reporting framework given under Chapter IV of the PMLA.