Why in news? Govt amends anti-money laundering rules, widening the scope of Know Your Customer (KYC) norms to include Politically Exposed Persons (PEPs), non-profit organizations (NPOs) and those dealing in virtual digital assets (VDA) as reporting entities

Highlights:

• Under the modified PML Rules, the Finance Ministry defined 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”.
• Following this amendment, banks and financial institutions will now have to maintain records of financial transactions of PEPs and NGOs but also share them with the Enforcement Directorate, as and when sought.
• The amendments to PMLA rules also include tightening of the definition of beneficial owners under the anti-money laundering law and mandating reporting entities like banks and crypto platforms to collect information from their clients.

Reporting entities

• Under the anti-money laundering law, ‘reporting entities’ are banks and financial institutions, firms engaged in real estate and jewellery sectors. They also include intermediaries in casinos and crypto or virtual digital assets.
• 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.
• Another key decision is the lowering of ownership threshold from 25% to 10%, thereby treating any individual or group holding 10% ownership in a reporting entity as a “beneficial owner” for the purpose of PMLA rules.

What are the Impact of the amendments ?

• The changes have been criticised by some NGOs, as new rules are burdensome and will impede their work.
• The changes to the PMLA rules, will help to prevent financial crimes and
• It can be potential for abuse, particularly if the rules are used to target individuals or organisations for political reasons.

About Prevention of Money Laundering Act, 2002

• It is an Act of the Parliament of India enacted to prevent money-laundering and to provide for confiscation of property derived from money-laundering.
• The Act and Rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to Financial Intelligence Unit – India
• The act was amended in the year 2005, 2009 and 2012
• The Adjudicating Authority is the authority appointed by the central government through notification to exercise jurisdiction, powers and authority conferred under PMLA.
• An Appellate Tribunal Orders can be appealed in appropriate High Court (for that jurisdiction) and finally to the Supreme Court.