The government has further tightened rules for the ultimate beneficiary and fine-tuned the definition of reporting entity under the Prevention of Money Laundering Act (PMLA). Experts say the amendments aim to give more power to the agency under the PMLA Act and enlarge the type and nature of individuals who can come under the ambit of the Act.

The Finance Ministry has notified changes in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Accordingly, a person having ownership of more than 10 per cent of the capital or profits of a partnership will be brought within the ambit of the sub-rule 3 as a ‘beneficial owner’. Earlier, this limit was 15 per cent. Similarly, a person, who does not have any ownership or entitlement to more than 15 per cent (now 10 per cent) of capital or profits of the partnership but exercises control over the partnership through other means, will be treated as a beneficial owner.

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Explaining this provision, Samarjit G Pattnaik, Partner, Karanjawala & Co, said the explanation makes it clear that a person is said to exercise control if he has the right to control management i.e, make appointments to the management etc., and also controls policy decisions of a partnership.

S Vasudevan, Executive Partner at Lakshmikumaran & Sridharan Attorneys, said the amendment ensures that the beneficial owner will include not only the partners who have ownership of more than 10 per cent of the capital or profits of the partnership but also “those partners who have ownership of ten per cent or less of the capital or profits of the partnership but exercise control through other means.”

Principal officer

Change has also been made in the definition of ‘principal officer of a reporting entity’. The principal officer is responsible for furnishing the information to the Financial Intelligence Unit. Prior to the amendment, a reporting entity had the discretion to appoint any officer as ‘Principal Officer’. After the amendment, only an officer at the management level can be appointed as ‘Principal Officer’.

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Another amendment prescribes the reporting entity shall ensure that in case of a Trust, the trustees shall disclose their status or position they occupy in the trust. According to Vasudevan, after this amendment, where the client is a trust, a reporting entity will be required to ensure that trustees disclose their status at the time of commencement of an account-based relationship or when carrying out any transaction of an amount equal to or exceeding ₹50,000 , whether conducted as a single transaction or several transactions that appear to be connected or any international money transfer operations.

One amendment is related with records of the identity of clients. Now reporting entities will be required to keep records containing analysis of transactions and client due diligence for a period of five years after the business relationship with the client had ended or the account has been closed, whichever is later.

Durgesh Khanapurkar, Partner with Desai & Diwanji, said on account of these amendments “while in the short term, compliance related complexities may see an increase, it would lead to greater regulation and transparency vis-à-vis the operations of trusts, family offices and other legal artifices, which were often used to bypass reporting requirements.”

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