Note on PMLA, 2002 for PCS 30042024

The Ministry of Finance, on October 17, 2023, notified the Prevention of Money Laundering (Maintenance of Records) Third Amendment Rules, 2023, and enforced the following amendments in the Rules:

 Rule 3A of the PMLR, 2005 was substituted with the following: –

 1. Rule 3A: Implementation of policies by groups;

• Every reporting entity, which is part of a group, shall implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror finance risk management and such programmes shall include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.

• Groups are required to implement group-wide policies for the purpose of discharging obligations under the provisions of Chapter IV of the Prevention of Money Laundering Act, 2002.

2. Provision for Prompt Reporting of suspicious transactions under Rule 8 which provides for furnishing of information to the Director;

Rule 8(2) was substituted with the following:

“(2) The principal officer of a reporting entity shall, on being satisfied that the transaction is suspicious, furnish the information promptly in writing by fax or by electronic mail to the Director in respect of suspicious transactions as mentioned under Rule 3 (1) (D) of the Rules.

 Extract of Rule 3(1)(D) is as follows

Every reporting entity shall maintain the record of all transactions including, the record of all suspicious transactions whether or not made in cash and by way of:

i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of:

• cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other    instrument of payment of money including electronic receipts or credits and electronic payments or debits, or

• traveller’s cheques, or

• transfer from one account within the same banking company, financial institution and intermediary, as the case may be, including from or to Nostro and Vostro accounts, or

• any other mode in whatsoever name it is referred to;

ii) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained by the banking company, financial institution and intermediary, as the case may be;

iii) money transfer or remittances in favour of own clients or non-clients from India or abroad and to third party beneficiaries in India or abroad including transactions on its own account in any currency by any of the following: —

• • payment orders, or
  • cashiers cheques, or
  • demand drafts, or
  • telegraphic or wire transfers or electronic remittances or transfers, or
  • internet transfers, or
  • Automated Clearing House remittances, or
  • lock box driven transfers or remittances, or
  • remittances for credit or loading to electronic cards, or
  • any other mode of money transfer by whatsoever name it is called;

iv) loans and advances including credit or loan substitutes, investments and contingent liability by way of:

• • subscription to debt instruments such as commercial paper, certificate of deposits, preferential shares, debentures, securitised participation, interbank participation or any other investments in securities or the like in whatever form and name it is referred to, or
  • purchase and negotiation of bills, cheques and other instruments, or
  • foreign exchange contracts, currency, interest rate and commodity and any other derivative instrument in whatsoever name it is called, or
  • letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates and any other instrument for settlement and/or credit support;

v) Collection services in any currency by way of collection of bills, cheques, instruments or any other mode of collection in whatsoever name it is referred to.

3. Rule 8(6) which provides for confidentiality was inserted as follows;

“(6) Every reporting entity, its Directors, officers, and all employees shall ensure that the fact of maintenance of records referred to in rule 3 and furnishing of information to the Director is kept confidential.

1. Provided that nothing in this rule shall inhibit sharing of information under rule 3A of any analysis of transactions and activities which appear unusual, if any such analysis has been done.”

4. Rule 9 which provides for Client Due diligence was amended as follows;

Rule 9(1) was substituted with the following:

“(1) Every reporting entity shall, at the time of commencement of an account-based relationship or while carrying out an occasional transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, –

• identify its clients, verify their identity using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship, where applicable;
• take reasonable steps to understand the nature of the customer’s business, and its ownership and control;
• determine whether a client is acting on behalf of a beneficial owner, and identify the beneficial owner and take all steps to verify the identity of the beneficial owner, using reliable and independent sources of identification:

Provided that where the Regulator is of the view that money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business, the Regulator may permit the reporting entity to complete the verification as soon as reasonably practicable following the establishment of the relationship:

Provided further that where a client is subscribing or dealing with depositary receipts or equity shares, issued or listed in jurisdictions notified by the Central Government, of a company incorporated in India, and it is acting on behalf of a beneficial owner who is a resident of such jurisdiction, the determination, identification and verification of such beneficial owner, shall be as per the norms of such jurisdiction and nothing in sub-rule (3) to sub-rule (9) shall be applicable for due-diligence of such beneficial owner.

Explanation. – For the purposes of this proviso, the expression “equity shares” means a share in the equity share capital of a company and equity share capital shall have the same meaning as assigned to it in the Explanation to section 43 of the Companies Act, 2013.”

5. Reliance on Third party for Due Diligence

As stated in Rule 9(1)(a) above, the reporting entity has to identify its clients, verify their identity using reliable and independent sources of identification, obtain information on the purpose and intended nature of the business relationship, where applicable;

 For the purpose of Rule 9(1)(a), a reporting entity may rely on a third party subject to various conditions as stated in Rule 9(2).

Under the Rule 9(2), Clause (a) was substituted with the following:

• the reporting entity immediately obtains from the third party or from the Central KYC Records Registry, the record or the information of such client due diligence carried out by the third party.