Center expands financial probe

The expanded definition also includes cryptocurrencies under the provisions of Monitoring Illicit Financial Flows.

The rules were revealed by the Union finance ministry late on Tuesday as part of two gazette notifications, including one relating to politically exposed persons (PEPs), persons working for a foreign country, senior politicians, political Covers party functionaries, senior bureaucrats. judges, and military personnel.

For these people, as well as NGOs, banks will be required to maintain records on the nature and value of transactions, adds the new rule, along with how this information will be shared. The procedure for keeping will also be determined. , and the manner in which the identity records of such customers shall be maintained by banking companies, financial institutions and intermediaries.

“The new rules make it mandatory for banking/financial companies to record transactions of several entities and individuals, which were earlier not covered under the PMLA (Prevention of Money Laundering Act). The provisions for financial reporting purposes under the PMLA cover virtually everyone important in politics, senior government officials and even heads of states.”

To ensure this, financial institutions are required to carry out Know Your Customer (KYC) additional checks for PEP under RBI guidelines. The new rules now mandate additional transaction recording under PMLA compliance.

The ED is the lead agency probing charges under the PMLA.

For non-governmental organisations, the new rules add more data retention requirements: every banking company or financial institution must register details of such a customer on NITI Aayog’s Darpan portal and the records, if not already registered, will be kept for a period should be maintained for Five years “after the termination of the business relationship between a client and a reporting entity or the closure of the account, whichever is later.”

Experts flagged some concerns.

Manvendra Mishra, partner, Khaitan & Co, said: “The amendment aims to widen the scope of the definition of such beneficial owner of an entity and provides for a revised reporting mechanism. The definition of PEP, however, leaves much to interpretation.” and in the absence of clear markers as to what rank, for how long after leaving office, a person would be considered PEP, it would give too much discretion to the officers. Such discretion, if not curbed, could be easily misused. and it would be best to define the ambiguities left in this amendment.”

The changes to PMLA rules announced in a separate notification include those related to cryptocurrencies, which will now be brought under the purview of the money laundering watchdog.

These rules cover a host of activities carried out “for or on behalf of” another person through cryptocurrencies such as bitcoin and ethereum under the PMLA. Notified activities included transactions between fiat currencies and crypto, transactions between one crypto and another, safeguarding and participating in such assets. or providing financial services on the basis of these.

In other words, it will cover those dealing with transactions as well as those offering crypto-based financial services, such as some of the popular Web3 financial services.

A second official aware of the ED probe said the agency was already probing several cases related to cryptocurrencies, and the new rules would clarify the legal position for the agency as well as those perpetrating frauds through such modes of digital currency. do.

“Some crypto exchanges were also found allegedly involved in money laundering and ED took action on them,” he added. 940 crore, five people have been arrested and many cases are pending in courts, he said.

The government has recently expressed concern over irregularities by cryptocurrency exchanges, e-wallets and mobile gaming apps. Several exchanges and apps such as WazirX and Coinswitch have been probed by the ED in the last one year.

As of now, cryptocurrencies are unregulated in India, although the government imposes a tax on their withdrawal in rupees. The Reserve Bank of India (RBI) has opposed any measure that could legalize their use as an investment or currency, saying they could adversely affect the Indian economy.

Experts said the move would bring clarity in dealing with money laundering and terror funding. Anu Tiwari, partner at law firm Cyril Amarchand Mangaldas, called it “positive and necessary for India’s growing Web 3 industry”.

According to the second official cited above, the notification related to NGOs is also aimed at strengthening the ED’s scrutiny on “religious or charitable” NGOs.

Abhimanyu Kampani, partner, Luthra & Luthra Law Offices India, said the amendment has broadened the definition of non-profit organization to include organizations that work for charitable purposes, including providing relief to the poor, education or Medical relief etc.

“Furthermore, a new category of Politically Exposed Persons (PEPs) has been defined, which will be subjected to greater scrutiny. In addition, financial institutions will mandatorily have to register details of non-profit organizations that It has clients on the NITI Aayog portal and such records will have to be maintained for at least five years.

Representatives of the crypto industry welcomed the move concerning them. Dilip Senberg, founder and CEO of crypto-fintech platform Muffinpay, said: “This is a positive step towards regulation of the cryptocurrency industry in India. Additionally, it guarantees that all cryptocurrency businesses have the required KYC, transaction monitoring, etc. Following the enactment of the PMLA, cryptocurrency companies will now be required to conduct enhanced due diligence by law.”