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

Chartered Accountants (CA), Company Secretaries (CS) and cost and works accountants are concerned about the new regulation that would subject them to the strict anti-money laundering law if they enter into financial transactions on behalf of their clients, a report in the Economic Times (ET) said.

Chartered accountants stated that the new rule would increase the risk of their work.

Amit Maheshwari, tax partner at AKM Global told ET that a few unfortunate incidents have brought services like company formation by these professionals under the Prevention of Money Laundering Act (PMLA).

“The Act is a highly stringent piece of legislation, and complying with its regulations necessitates a significant amount of effort and diligence. Such measures are unnecessary as these professionals are already regulated by professional bodies established under various Acts of Parliament,” he said.

A major concern for the professionals is that if their clients are up to some mischief behind their backs, they would be charged under the PMLA as well.

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

These professionals are now the reporting entity for the transactions they carry out on behalf of their clients. As a reporting entity, they must conduct KYC verification of all the clients engaging in such transactions and maintain the records. Lawyers, however, have been exempted from the new regulations.

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

“Our rules require auditors of a specific type of company to report on non-compliance with laws and regulations. The institute will also continue to work with the authorities and other regulators to ensure that these changes are implemented correctly and professionals' roles are understood,” Talati said.
According to experts, the government issued the regulation to strengthen the requirements under the Financial Action Task Force (FATF), an intergovernmental organisation that develops policies to combat money laundering and terror financing.

“The FATF is expected to conduct an assessment of India later this year. At the time when such an assessment of India is due, the PMLA's scope has been expanded to include select professionals as well. A few days ago, the Indian crypto sector was also brought under the PMLA, and banks were also mandated to keep detailed records of certain officials,” Paras Savla, partner at CA firm KPB & Associates, told ET.
“With the expansion, any financial wrongdoing can now be investigated by the Enforcement Directorate," he added.

The government enacted these rules after discovering that some professionals were acting as a front for Chinese companies involved in loan scams and were actively involved in creating structures that aided in moving money outside India.

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