Key Amendments under Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023

Synopses: The Central Government has recently introduced new amendment rules i.e., the “Prevention of Money-Laundering (Maintenance of Records) Amendment Rules, 2023 to ensure stricter compliance with anti-money laundering laws.

The recently introduced amendments rules have been notified by the Department of Revenue under the Ministry of Finance and have been brought into effect using the authority vested in the government under Section 73 of the Prevention of Money-Laundering Act of 2002.

The latest Amendment Rules have incorporated various definitions and regulations, some of which are discussed below:

1. Anew definition of “Group,” has been incorporated which expands its scope to include entities belonging to a multinational enterprise group or a group mandated to prepare consolidated financial statements under any law or regulation.[1] This new definition is aligned with Section 286(9)(e) of the Income Tax Act, of 1961.
2. The definition of a “beneficial owner”, under Rule 9(3)(e), previously included individuals who owned or had the right to more than 25% of the company’s shares, capital, or profits. However, the recent amendments have lowered this threshold to 10%, thereby bringing more indirect players into the reporting network.[2] Also, the recent amendments to the rules have lowered the threshold for identifying beneficial owners by reporting entities in line with the existing provisions of The Income-Tax Act, 1961, and The Companies Act.
3. The Definition of Controlling Ownership Interest under Rule 9(3)(a) has been modified to include a person owning even 10% of shares or capital or profits for the company. Earlier the definition was limited to persons owning 25% or more.
4. The amendments have also introduced a revised definition of Politically Exposed Persons (PEPs).[3]It now clarifies the individuals that qualify as PEPs, including foreign PEPs. PEPs are considered high-risk clients due to their susceptibility to corruption or bribery, as they hold significant public positions or have close associations with such individuals.
5. Non-profit organizations have also been included in the amended rules.[4] The definition has been expanded to include any entity or organization constituted for religious or charitable purposesas referred to in Section 2(15) of the Income Tax Act, 1961and the same to be registered under the Societies Registration Act, 1860, or any similar state legislation or u/s 8 of the Companies Act, 2013.
6. [SB1] [5]
7. Further, Rule 9, which deals with client due diligence, has undergone certain amendments. The new amendments require clients to submit additional documents under Rules 9(6), 9(7), and 9(8) to the reporting entity. Furthermore, two new sub-rules have been inserted after Rule 9(9), namely, Rule 9(9A) and Rule 9(9B). Under Rule 9(9A), Banking Companies, Financial Institutions, or intermediaries are now required to register the details of non-profit organizations that are not yet registered on the DARPAN Portal of NITI Aayog. These registration records must be maintained for five years after the business relationship between a client and reporting entity has ended or the account has been closed. On the other hand, Rule 9(9B) mandates that clients must submit updated documents for those already submitted under Rule 9(4), Rule 9(5), Rule 9(6), Rule 9(7), Rule 9(8), and Rule 9(9) to the reporting entity within 30 days of the update.

[1] Rule 2(cba)

[2]Rule 9(3)(e)

[3] Rule 2(iv) (db)

[4] Rule 2 (iii) (cf)

[5] sub-rule 9-A