On October 17, 2023, the Ministry of Finance notified amendments to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. These rules were last amended on September 4, when the threshold for determining beneficial ownership in a partnership firm was brought down from 15% to 10% of capital or profits in the partnership.
The key highlights of the notification are as follows: –
- At the time of commencement of an account-based relationship or while carrying out transactions of an amount equal to or exceeding Rs. 50,000, whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, the reporting entities have to verify the identity of their clients and beneficial owners by “using reliable and independent sources of identification”. Further, the rules highlight the need for reporting entities to take “reasonable steps” to determine the nature of the customer’s business.
- If the reporting entity relies on a third party for client verification under Rule 9(1)(a), the reporting entity is obligated to “immediately” obtain the record or information of such due diligence (carried out by the concerned third party) from the third party itself or the Central KYC Records Registry. Before the amendment, the reporting entities had to acquire the said information within 2 days.
- The client due diligence programme framed by the reporting entities under the 2005 rules should have regard to money laundering, terrorist financing risks and the size of the client’s business.
- As per Rule 3A(1), a reporting entity which is part of a group is required to implement group-wide programmes against money laundering and terror financing. These programmes are expected to include safeguards to maintain confidentiality, prevent tipping off, etc.
- The information pertaining to suspicious transactions carried out through any of the modes under Rule 3(1)(D) has to be promptly shared with the Director. Earlier, the said information had to be communicated within 7 working days under Rule 8(2).
- By insertion of sub-rule (6) in Rule 8, the amendment rules seek to ensure the confidentiality of the records maintained under Rule 3 and the information shared with the Director under Rule 8.