Section 2 - Definitions.

Prevention of Money-Laundering Act, 2002

Role and Responsibilities of Reporting Entity

Preamble 

Introduction & Overview of Prevention of Money Laundering Act

Origin & Object of PMLA

Objective is to curb acts of moneylaudering & to punish the offender

PMLA, 2002 came into force w.e.f 1st July 2005 and has undergone several amendments till now.

 • It extends to whole of India including Jammu and Kashmir

• Preamble is to prevent money-laundering and provide for confiscation of property derived from, Or involved in money-laundering and to punish those who commit the offence.

Defination of Money Laundering

 Means any act of acquiring untainted property or disguising financial assets

• According to Section 3 Read with rule 2 of Prevention of Money Laundering Act

– “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money

Laundering.

• Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them.

Process of Money Laundering: Placement, Layering & Integration

1. Placement (depositing into banks)

Dirty money being inserted in financial system. The first stage is the physical disposal of cash. The launderer introduces his illegal profits into the financial system. This placement is accomplished by depositing the cash in domestic banks or in other types of formal or informal financial institutions.

2. Layering (making shell companies causing rotation of money)

Separates the proceeds from their criminal origin by moving them through a series of financial transactions. The Second stage in money laundering is layering. The launderer engages in a series of conversions or movements of the funds to distance them from their source. Shell companies (i.e. paper companies/bogus companies) serve as front and are registered in offshore havens. They are a common tool in the layering phase.

3. Integration(acquiring legitimate explanation through investments, loans etc)

Creating a legitimate explanation for their sources of funds, allowing them to be retained, invested or used, to acquire goods or assets. This is the stage where the funds are returned to the legitimate economy for later extraction. Examples include investing in a company, purchasing real estate, luxury goods, etc. This is the final stage in the process.

Reporting Entity

To strength the control and achieve the desired goal, the concept of reporting entity is introduced w.e.f. w.e.f. 15-2-2013 to the PMLA, 2002

Accordingly, clause (wa) to section 2(1) read as:-

(wa) "reporting entity" means a banking company, financial institution, intermediary or a person carrying on a designated business or profession;

Thus, as per clause (wa) the following persons are made reporting entity under PMLA

• • a banking company (see clause (e))
  • a financial institution (see clause (i))
  • an intermediary (see clause (n))
  •  a person carrying on a designated business or profession (see clause (sa) hereinbelow:)

Simultaneously, clause (sa) inserted to section 2(1) to define the scope and meaning of “person carrying on designated business or profession" introduced as:

(sa) "person carrying on designated business or profession" means,-

(i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;

(ii) Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908.) as may be notified by the Central Government;

(iii) real estate agent, as may be notified by the Central Government;

(iv) dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;

(v) person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or

(vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time to time;

Notified Persons / Reporting entities u/s 2(1)(sa)

With the passage to time, Ministry of Finance of the Central Government is notifying more and more category of persons as reporting entity as:

1.       As per notification dated 24-9-2014 (Issued u/s 2(1)(sa)(vi))

Looping of reporting entity

• • any person carrying on the business, either on its own behalf or on behalf of other reporting entities,
  • of storing, safeguarding and retrieving the records of the documents mentioned in clause (e) of sub-section (1) of section 12 of the said Act and the rules made thereunder
  • shall be deemed to be a person carrying on designated business or profession

2.       Notification No. 2/2015 dated 15-4-2015 (Issued u/s 2(1)(sa)(vi))

• • any person, licensed by the Insurance Regulatory and Development Authority
  • to perform the functions as specified in regulation 3 or regulation 4 or regulation 5 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002,
  • shall be deemed to be a "person carrying on designated business or profession"

3.       Notification no. 3/2015 dated 17-4-2015 (Issued u/s 2(1)(sa)(ii))

• • a Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908)
  • as a "person carrying on designated business or profession".

4.         Notification no. 4/2017 dated 23-8-2017(Issued u/s 2(1)(sa)(iv))

                   From 23-8-2017 to 5-10-2017

• • dealer in precious metals, precious stones and other high value goods
  • having a turnover of rupees two crore in a financial year
  • as a person carrying on designated business or profession.

This notification has been rescinded vide notification dated 6-10-2017

5.       Notification No. 8/2017 dated 15-11-2017 (Issued u/s 2(1)(sa)(iii))

                   From 15-11-2017 to 27-12-2020

• • ‘real estate agents’ as defined under clause (zm) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (No. 16 of 2016)
  • shall be deemed to be a “person carrying on designated business or profession”

 Interestingly, the meaning of ‘real estate agents’ has been defined u/s 2(1)(va) of PMLA, which has reference to section 65(88) of Chapter V of Finance Act, 1994 (Known as Service Tax Act) which has already been repealed, the impugned notification make a reference to RERA Act.

This notification has been rescinded vide notification dated 28-12-2020 

6.         Notification No. 3/2018 dated 4-5-2018 (Issued u/s 2(1)(sa)(vi))

• •  the Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002 (39 of 2002)
  • designated as a “person carrying on designated business or profession”.

7.         Notification dated 28-12-2020 (Issued u/s 2(1)(sa)(iv))

• • the dealers in precious metals, precious stones as persons carrying on designated businesses or professions
  • if they engage in any cash transactions with a customer equal to or above Rupees ten lakhs, carried out in a single operation or in several operations that appear to be linked.

8.         Notification dated 28-12-2020 (Issued u/s 2(1)(sa)(iv))

                   From 28-12-2020 to 28-11-2022

• •  the “Real Estate Agents”, as a person
  • engaged in providing services in relation to sale or purchase of real estate and having annual turnover of Rupees twenty lakhs or above,
  • as “persons carrying on designated businesses or professions”.

This notification has been rescinded vide Notification dated 29-11-2022

9.         Notification dated 29-11-2022 (Issued u/s 2(1)(sa)(iii))

                   From 29-11-2022

• •  ‘real estate agents’
  • as defined under clause (zm) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016) and as a person engaged in providing services in relation to sale or purchase of real estate and having annual turnover of Rupees twenty lakhs and above,
  • as a “person carrying on designated business or profession”.

Interestingly, the meaning of ‘real estate agents’ has been defined u/s 2(1)(va) of PMLA, which has reference to section 65(88) of Chapter V of Finance Act, 1994 (Known as Service Tax Act) which has already been repealed, the impugned notification make a reference to RERA Act.

10.         Notification dated 7-3-2023 (Issued u/s 2(1)(sa)(vi))

• • activities when carried out for or on behalf of another natural or legal person in the course of business as an activity for the purposes of said sub sub-clause, namely:-

(i) exchange between virtual digital assets and fiat currencies;

(ii) exchange between one or more forms of virtual digital assets;

(iii) transfer of virtual digital assets;

(iv) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and

(v) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.

Explanation:- For the purposes of this notification “virtual digital asset” shall have the same meaning assigned to it in clause (47A) of section 2 of the Income-tax Act, 1961 (43 of 1961).

11.       Notification dated 3-5-2023 (Issued u/s 2(1)(sa)(vi))

Practicing CA, CS, CWA included in the list as:

• •  the financial transactions carried out by a relevant person on behalf of his client, in the course of his or her profession, in relation to the following activities-

(i) buying and selling of any immovable property;

(ii) managing of client money, securities or other assets;

(iii) management of bank, savings or securities accounts;

(iv) organisation of contributions for the creation, operation or management of companies;

(v) creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,

shall be an activity for the purposes of said sub-section.

Explanation 1.- For the purposes of this notification ‘relevant person’ includes –

(i) an individual who obtained a certificate of practice under section 6 of the Chartered Accountants Act, 1949 (38 of 1949) and practicing individually or through a firm, in whatever manner it has been constituted;

(ii) an individual who obtained a certificate of practice under section 6 of the Company Secretaries Act, 1980 (56 of 1980) and practicing individually or through a firm, in whatever manner it has been constituted;

(iii) an individual who has obtained a certificate of practice under section 6 of the Cost and Works Accountants Act, 1959 (23 of 1959) and practicing individually or through a firm, in whatever manner it has been constituted.

Explanation 2.- For the purposes of this notification ‘firm’ shall have the same meaning assigned to it in sub-clause (i) of clause (23) of section 2 of the Income-tax Act, 1961 (43 of 1961).

12.       Notification dated 9-5-2023 (Issued u/s 2(1)(sa)(vi))

Specified activities notified - Reporting entity

 Following activities when carried out in the course of business on behalf of or for another person, as the case may be, as an activity for the purposes of said sub-clause, namely:-

(i) acting as a formation agent of companies and limited liability partnerships;

(ii) acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;

(iii) providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;

(iv) acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and

(v) acting as (or arranging for another person to act as) a nominee shareholder for another person.

Explanation.–For removal of doubts, it is clarified that the following activities shall not be regarded as activity for the purposes of sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Act, namely:-

(a) any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 (43 of 1961); or

(b) any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or

(c) any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under clause (b) of sub-section (1) of section 7 of Companies Act, 2013 (18 of 2013); or

(d) any activity of a person which falls within the meaning of an intermediary as defined in clause (n) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003).

Also see:

Role and Responsibilities of Reporting Entity

Note:

The above list is prepared for general information purpose only by TMI, for more information please check the original notifications issued by the Government.

More notification u/s 2(1)(sa) may follow the list. 

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