Central idea: The Finance Ministry has amended the Prevention of Money Laundering (Maintenance of Records) Rules for widening the scope of Know your Customer (KYC) norms to include Politically Exposed Persons (PEPs), non-profit organisations (NPOs) and those dealing in virtual digital assets (VDA) as reporting entities.

Who are Politically Exposed Persons (PEP)?

• According to the modified PML Rules, the Finance Ministry has defined PEPs as-

1. Individuals who have been entrusted with prominent public functions by a foreign country
2. Includes 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.

• Banks and financial institutions must maintain records of financial transactions of PEPs and share them with the Enforcement Directorate as and when sought.

Other key changes introduced

Recording of financial transactions of NPOs/NGOs

• The financial institutions must register the details of their NGO clients on the Darpan portal of the Niti Aayog.
• They are required to maintain the record for five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later.

Tightening of the definition of beneficial owners

• The amendment to the PMLA rules includes the tightening of the definition of beneficial owners under the anti-money laundering law.
• As per the amendments, any individual or group holding 10 per cent ownership in the client of a ‘reporting entity’ will now be considered a beneficial owner against the ownership threshold of 25 per cent applicable earlier.
• The reporting entities include banks and financial institutions, firms engaged in real estate and jewellery sectors, intermediaries in casinos and crypto or virtual digital assets.

Collection of information from clients

• Reporting entities such as banks and crypto platforms are mandated to collect information from their clients under the anti-money laundering law.
• So far, these entities were required to maintain KYC details or records of documents evidencing the identity of their clients, as well as account files and business correspondence relating to clients.
• They will now have to also collect the details of the registered office address and principal place of business of their clients.
• Additionally, they are required to maintain a record of all transactions, including the record of all cash transactions of more than Rs 10 lakh.

Why such move?

• FATF assessment: The amendments assume significance ahead of India’s proposed FATF assessment, which is expected to be undertaken later this year.
• Risk-management: In one of its 40 recommendations, FATF recommends that financial institutions have risk-management systems to identify domestic and international PEPs.
• Remove ambiguities: The broader objective is to bring in legal uniformity and remove ambiguities before the FATF assessment.

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