CAs, CSes worried about new tweaks in anti-money laundering law

Mumbai: Chartered accountants, company secretaries and cost and works accountants are worried about the new regulation that would bring them under the stringent anti-money laundering law if they enter into financial deals on behalf of their clients. Chartered accountants said the new rule would only make their job riskier.

Due to "a few unfortunate incidents", services such as setting up companies by these professionals have come under the Prevention of Money Laundering Act (PMLA), said Amit Maheshwari, tax partner at AKM Global. "The Act is a highly strict legislation and adhering to its regulations requires a significant amount of effort and diligence. These professionals are already regulated by professional bodies set up under various Acts of Parliament and such measures are uncalled for," he said. A major concern bugging the professionals is that if the clients were up to some mischief behind their backs, they would also be charged under the PMLA.

Reporting Entities

The revenue department notified the new regulation on May 3 under Section 2 (1) (sa) of the PMLA, 2002, which defines a person carrying on specified business or profession. The accounting professionals have been added to a list that includes people involved in gaming activities, registration authorities, real estate agents and dealers in precious metals and stones.

These professionals have now become the reporting entity for the transactions they carry out on behalf of clients. As a reporting entity, they must do a KYC verification of all the clients entering into such transactions and maintain the records. Interestingly, lawyers have been kept out of the purview of the new regulations.

Aniket Sunil Talati, president of the Institute of Chartered Accountants of India (ICAI), said the ICAI Council already had prescribed a KYC requirement and quality standards for engagements with clients, and that it would engage with the stakeholders to implement the new regulation.

"Our rules require auditors of a certain class of companies to report on non-compliance with laws and regulations. The institute will also continue to work with the authorities and other regulators so that these changes are implemented in the right perspective and the role of professionals is understood," Talati said.

Experts said the government has come out with the regulation to beef up the requirements under the Financial Action Task Force, the intergovernmental organisation that develops policies to combat money laundering and terror financing.

"The Financial Action Task Force is expected to undertake an assessment of India later this year. At the time when such an assessment of India is due, the ambit of the PMLA has been expanded to include select professionals too. A few days ago, the Indian crypto sector was also brought under the PMLA, and banks were also mandated to maintain the detailed records of certain officials," said Paras Savla, partner at CA firm KPB & Associates. "With the expansion, any financial wrongdoing can now be scrutinised by the Enforcement Directorate."

The government came out with these rules after it found that some professionals were running companies as a front for Chinese companies involved in loan scams and were actively involved in creating structures that helped in moving money outside India.

The May 3 Department of Revenue notification listed out the financial transactions carried out by a professional on behalf of his client that would be under scrutiny. These include buying or selling property; managing clients' money, securities and other assets; management of bank, savings or securities accounts; and organisation of contribution for creation, operation and management of the companies.