Changes in anti-money laundering law can impact foreign investment: CAs

Chartered accountants are seeking clarifications on the finance ministry's recent notification on extending the ambit of anti-money laundering law as it can adversely impact ease of doing business and facilitation of foreign investments.

According to industry sources, chartered accountants (CAs) and company secretaries often act as formation agents for foreign companies setting up businesses in India and often provide their own address for communication in the initial phase.

They also act as resident directors of the foreign company trying to establish presence in the country and also operate bank accounts on behalf of their clients.

Industry sources said there is no way that an accountant can know whether the money that an investor is bringing into India is bonafide or laundered money and verify its source.

In view of the pending review by the global watchdog on terror financing and money laundering scheduled later this year, the finance ministry has in recent months tightened and expanded the scope of the Prevention of Money Laundering Act (PMLA).

As part of the exercise, chartered and cost accountants and company secretaries have been included in the ambit of the PMLA, if they undertake specified activities on behalf of their clients.

These transactions include buying and selling of properties; management of bank accounts or other assets; and management of the companies, limited liability partnerships or trusts.

In another notification, the ministry said that entities and individuals working as 'formation agents', or acting as director/secretary/partner too would be covered under PMLA provisions. It would also apply to individuals or entities who provide a business address or correspondence address for a company/LLP/trust.

According to industry sources, the activities mentioned in the notifications are performed by CAs for foreign companies trying to start their business in India.

"Chartered accountants cannot check the money trail for companies bringing money to India to start business. It is the job of Financial Intelligence Unit (FIU) and RBI to check the source of investment," a source said.

According to sources, the chartered accountants are in touch with the finance ministry and seeking guidance on the recent changes in the anti-money laundering law.

At the most, a monetary penalty may be imposed on CAs and not the strict provisions of the PMLA law as several of these activities are part of the temporary hand-holding and accounting support required for facilitating foreign investment.