The Union Finance Ministry has amended money laundering rules to incorporate more disclosures for non-governmental organisations (NGO) by reporting entities like financial institutions, banking companies or intermediaries.
- The amendment has also defined “politically exposed persons” (PEPs) under the Prevention of Money Laundering Act (PMLA) in line with the recommendations of the Financial Action Task Force (FATF).
Politically Exposed Persons
- The new clause in the rules for PMLA compliance defines “Politically Exposed Persons” 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.
- The amendment is in relation to foreign PEPs and not domestic ones.
- The amendment to define politically exposed persons under PMLA is to bring uniformity with a 2008 circular of the Reserve Bank of India (RBI) for KYC norms/anti-money laundering standards for banks and financial institutions, which had defined PEPs in line with FATF norms.
- The FATF has 40 recommendations. In its recommendations, the FATF states that financial institutions should be required to have appropriate risk-management systems to determine whether a customer or beneficial owner is a domestic PEP or a person who is or has been entrusted with a prominent function by an international organisation.
Beneficial owner
- The amended rules have lowered the threshold for identifying beneficial owners by reporting entities, where the client is acting on behalf of its beneficial owner, in line with the Companies Act and Income-tax Act.
- The term ‘beneficial owner’ was defined to mean ownership of or entitlement to more than 25 per cent of shares or capital or profit of the company, which has now been reduced to 10 per cent, thereby bringing more indirect participants within the reporting net.
NGO
- 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.
- The definition of a non-profit organisation has also been amended and linked to the definition of charitable purpose provided under Section 2(15) of the Income Tax Act, 1961 to include any entity or organisation, constituted for religious or charitable purposes under I-T Act.
