Section 12 - Reporting entity to maintain records.

Prevention of Money-Laundering Act, 2002

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

Who are the reporting entities under PMLA? - Discussed in detail separately as:  Reporting Entity under Prevention of Money Laundering Act, 2002 (PMLA)

Role and Responsibilities of Reporting Entities under PMLA

1. Verification of identity by reporting entity

Section 11A of the PMLA, 2002 puts burden on the Reporting Entity to verify the identity and beneficial owners. Various methods and modes of identification have been prescribed in the section itself. Moreover, various notifications have been issued in this regard.

2. Reporting entity to maintain records.

Section 12 of the PMLA, 2002 puts burden on reporting entity to keep and maintain records of the transactions in the prescribed manner.

The information to be furnished to the Director with the stipulated time limit and in the prescribed manner.

It is the responsibility of the reporting entity to keep the maintained, furnished or verified as confidential.

The records shall be kept for 5 years from the date of the transaction or 5 years from the end of the business relationship between a client and the reporting entity.

3. Access to the information

Section 12A of the PMLA, 2002 empowers the Director (designated officer) to call for from any reporting entity any of the records and any additional information as he considers necessary for the purposes of this Act.

Reporting entity has to comply with the directions and shall keep the information sought by the Director as confidential.

4. Enhanced due diligence – Before entering into the specified transactions

Section 12AAof the PMLA, 2002 casts certain responsibilities upon the reporting entity to exercise due diligence before commencement of each specified transaction.

• Reporting entity has to verify the identity of the client.
• Reporting entity has to take additional steps to examine the ownership and financial position, including sources of funds of the client, in such manner as may be prescribed.
• Reporting entity take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties

In case the reporting entity finds any transaction suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed.

5. PML (MAINTENANCE OF RECORDS) RULES, 2005

Prevention of Money-Laundering (Maintenance of Records) Rules, 2005

Central Government has framed rules for maintenance of records of the nature and value of transactions, the procedure and manner of maintaining and time for furnishing of information and verification of records of the identity of the clients of the banking companies, financial institutions and intermediaries.

These rules are being amended from time to time.

 

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Power to Director of PMLA

Section 13 of the PMLA, 2002 prescribes powers of Directors under the PMLA as

1. Inquiry with regards to obligations of reporting entity

The Director may, either of his own motion or on an application made by any authority, officer or person, make such inquiry or cause such inquiry to be made, as he thinks fit to be necessary, with regard to the obligations of the reporting entity, under this Chapter

2. Audit of Reporting entity

If at any stage of inquiry or any other proceedings before him, the Director having regard to the nature and complexity of the case, is of the opinion that it is necessary to do so, he may direct the concerned reporting entity to get its records, as may be specified, audited by an accountant (chartered accountant) from amongst a panel of accountants, maintained by the Central Government for this purpose.

Cost of the Audit shall be born by the Central Government.

3. Levy of Fine or Taking action against the Reporting Entity

If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations under this Chapter, then, without prejudice to any other action that may be taken under any other provisions of this Act, he may-

(a) issue a warning in writing; or

(b) direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or

(c) direct such reporting entity or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or

(d) by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.

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Safeguard in favor of Reporting Entity

Section 14 of PMLA, 2002 states that, No civil or criminal proceedings against reporting entity, its directors and employees in certain cases

Save as otherwise provided in section 13, the reporting entity, its directors and employees shall not be liable to any civil or criminal proceedings against them for furnishing information under clause (b) of sub-section (1) of section 12

 

 

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Section 12 - Reporting entity to maintain records.

Reporting entity obligations require identity verification, enhanced due diligence and prescribed recordkeeping to support regulatory oversight. Reporting entities must verify client identity and beneficial ownership, perform enhanced due diligence on specified transactions including examining ownership, financial position and sources of funds, and record transaction purpose and intended relationship. They must maintain and furnish records in the prescribed manner for a prescribed retention period, respond to Director requests for records and information while maintaining confidentiality, and comply with rules on record maintenance and furnishing.