Company directors, trustees of an express trust, nominee shareholders now in the ambit of PMLA

The Finance Ministry on Tuesday included directors of a company, trustees of an express trust and nominee shareholders of company as reporting entity under the Prevention of Money Laundering Act (PMLA) for certain activities undertaken in the course of business. In other words, they will also be responsible for any misconduct or violation of the law.

According to a notification issued by the Finance Ministry, five categories of activities, when carried out in the course of business on behalf of or for another person, included within the ambit of PMLA. These include “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. “ 

Some exemptions

However, some exemptions have been given. These include any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax. Also, any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or 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 as required Company law, will be exempted. Intermediaries will also not be included in the new notified categories.

This is second big developments under PMLA within a week. Last week, the Centre categorised practising chartered accountants, company secretaries and cost accountants as a “reporting entity” for certain activities undertaken by them on behalf of their clients.

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Editorial. Accountants rightly under PMLA lens for reporting transactions

Obligations have now been cast under the PMLA Act on these practising professionals — CAs, CS and cost accountants — to do know-your-client (KYC) norms of all clients entering into the specified activities and to maintain record thereof for a certain period. Basically, the role of these professionals in adherence to PMLA requirements has been enhanced by bringing them within the ambit of the meaning of ‘relevant persons’ or ‘person carrying on designated business or profession’.

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