Extending liability

New PMLA rules will help curb black money

The government’s notification last week bringing practising chartered accountants (CAs), company secretaries (CSes), and cost and works accountants (CWAs) within the purview of the Prevention of Money Laundering Act (PMLA), 2002, for select activities done on behalf of clients can be viewed as a practical move to check black money-related transactions. The notification covers buying and selling immovable property; managing client money, securities, and other assets; managing bank, savings and securities accounts; organising contributions for creating, operating, and managing companies, and creating and managing limited-liability partnerships or trusts; and buying or selling business entities. CAs, CSes, and CWAs have been designated reporting entities in the context of such transactions and are required to complete the KYC protocols for all clients on whose behalf they conduct these specified transactions and maintain records of them. The implication is that CAs, CSes, and CWAs will bear equal responsibility for these transactions under the PMLA. The notification clarifies the provision of regular services — such as certifying accounts or financial advice rendered for a fee — will not come within the purview of the Act.

The immediate need for the change was dictated by the assessment due in November this year of the Financial Action Task Force (FATF), a global money-laundering and terror-financing watchdog, founded in 1989. India last came under the FATF’s assessment in 2010 and the next one was postponed owing to the pandemic. As part of this compliance exercise, the government in March had amended the money-laundering rules, making it mandatory for banks and other financial institutions to record transactions of non-profit organisations and non-governmental organisations (NGOs) as well as “Politically Exposed Persons” (PEPs) that are defined as those “entrusted with prominent public functions by a foreign country, including the heads of State or Government, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials”.

Predictably, the accounting community has expressed reservations about the onerous reporting requirements that have been imposed on them with this notification. They have questioned, with some validity, the fact that lawyers and legal professionals have been kept outside the new provision. The reason as explained by the government is that although lawyers do conduct such financial transactions for their clients, they are prohibited from accepting money for these services because the Advocates Act debars them from acting as agents. Practising accountants, on the other hand, render these services because there is no explicit bar on them in the relevant laws. This amounts to a split-hair difference.

Assuming that the real intent of including CAs, CSes, and CWAs as reporting entities for client transactions is to track fraudulent practices and money laundering, it is hard to understand why lawyers and other legal professionals should be excluded from its purview. Receiving a fee for a transaction or not should not, logically, determine the nature of the transaction. Even if the latest notification is being done to comply with a global task force, its real utility in curbing black money deals, which remains the scourge of the Indian economy, should not be diluted by excluding other entities that can perform the same functions with impunity.