During the last one month, there was a heated debate among accounting and legal professionals on two notifications issued by the Indian Ministry of Finance in May 2023. These two notifications first time bring these professionals within the reporting framework of the Prevention of Money – Laundering Act, 2002 (The Act/the PMLA).
With these two 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 come into the definition of the Reporting Entities.
The Reporting Entities is defined under the Act in Section 2(1)(wa) as inserted with effect from 15 February 2013. It says the “reporting entity” means a banking company, financial institution, intermediary or a person carrying on a designated business or profession.
The terms banking company defined in Section 2(1)(e), financial institutions in Section 2(1)(l), and intermediary in Section 2(1)(n) of the PMLA. For our analysis, the meaning of “a person carrying on a designated business or profession” is important.
Section 2(1)(sa) defines a person carrying on a designated business or profession in the following exhaustive terms:
“person carrying on designated business or profession” means,—
(i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
(ii) Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government;
(iii) real estate agent, as may be notified by the Central Government;
(iv) dealer in precious metals, precious stones and other high-value goods, as may be notified by the Central Government;
(v) person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
(vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time to time.
For the present discussion, sub-clause (vi) hereinabove is important.
Both notifications, dated 3 May 2023 and 9 May 2023, used this sub-clause for bringing legal and accounting professionals into the reporting framework of the PMLA.
The Notification S.O. 2036(E) dated 3 June 2023 brings certain activities carried out by the “relevant persons” including legal and accounting professionals, into the reporting framework. The Notification S.O. 2135(E) dated 9 May 2023 brings 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, prima facie, 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 also mentioned in these notifications.
The 9 May 2023 Notification clarified that any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice who is 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. So, the signing this declaration on the company incorporation form does not require reporting, but all other activities associated with incorporation may.
All other activities listed under these two notifications shall make the “relevant person” a “reporting entity.” These activities are:
- buying and selling of any immovable property;
- managing of client money, securities or other assets;
- management of bank, savings or securities accounts;
- organisation of contributions for the creation, operation or management of companies;
- creation, operation or management of companies, limited liability partnerships or trusts, buying and selling of business entities;
- acting as a formation agent of 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 or accommodation, correspondence or administrative address for a company or 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.
The impact of these two notifications on the “relevant persons”- an advocate, a chartered accountant, cost accountant or company secretary in practice- becomes “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 PMAL. We will discuss the Reporting Framework under the PMLA in the subsequent discussion.