The government's decision to include chartered accountants (CAs), company secretaries (CS) and cost and management accountants (CMAs) under the Prevention of Money Laundering Act (PMLA) 2002 if financial transactions are executed on behalf of a client, has made many professionals in the sectors unhappy.
"The government's decision to keep a tab on client's financial transactions will deter professionals from their practice and will not work long term. It is not inclusive and does not include lawyers," CAs and CMAs told Moneycontrol.
The modification was notified on May 4 and brings CAs and other professionals under the PMLA ambit if they undertake any dubious financial transactions; buy or sell immovable property on behalf of clients; manage client money, securities and other assets; manage client's bank saving or securities account; organisation of contributions for the creation, operation or management of companies; and creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities.
“If the company indulges in dubious activity, which a CA created, why should he become a party to it? Why are lawyers not covered under it? It’s obstructing the business of CAs, all these activities will get shifted to lawyers now. If I create a company, and now I'm not auditing it, why should I be liable? The notification says even if I created the company, I can be held liable under PMLA. A lot of clients ask to deposit their tax, will it be treated as handling of their money and covered under PMLA? The government keeps regulating the CA profession more and more,” former ICAI President Amarjit Chopra told Moneycontrol.
The PMLA tweak comes after investigations into Chinese companies found that even the addresses of establishments given were fake.
As many as 400 CAs and company secretaries had come under the lens in 2022 for incorporating Chinese shell companies, which were allegedly vehicles of money laundering and illegal funding.
“Because of few professionals, the entire profession can’t be held liable. Can't the CAs check from where the client is bringing money from overseas? The government is creating every kind of obstruction, taking away the autonomy of doing a profession, and creating an atmosphere in which CAs will shirk from doing their profession. Recognised foreign funds, which have invested in Indian companies have refused to divulge the names of beneficiaries, how do you expect the CAs to know from where the funds have exactly flown in,” Chopra said.
The industry is also questioning why the lawyers have been exempted from being covered under the PMLA modification.
“If foreign money is coming into clients’ accounts, the source of money can’t be verified. Lawyers have been exempted which is the main challenge. Unless they are covered, the step will not be successful. It's a fear psychosis, the bona fide has to be proved by the individual thus a lot of issues will come up. A lot of people have left certificates of practice under CA, they will not come under this tweak. This is a new trend that is coming up. People do not want to sign in as practising chartered accountants. Getting tough to practice CA profession,” a Delhi-based cost accountant told Moneycontrol.
ICAI President Aniket Sunil Talati said that the tweak is likely in view of the Financial Action Task Force (FATF) assessment of the implementation of anti-money laundering and counter-terrorist financing (AML/CFT) standards in India.
“This current notification has been issued under section 2(1)(sa) of the PMLA 2002. This section defines a person carrying on a specified business or profession. This section already includes gaming activity, registration authority, real estate agents and dealers in precious metals and stones.
Now, CA, CS and CMA have become reporting entities for the purposes of these transactions. "As a reporting entity they have to do KYC of all clients entering into above transactions and to maintain record thereof,” Talati told Moneycontrol.
The Institute of Chartered Accountants of India Council has prescribed a KYC requirement and standard on quality control which lay down quality standards for engagements. The ICAI code of conduct and ethical standards for members also requires auditors of certain classes of companies to report on non-compliance with laws and regulations.
“We will conduct an awareness program for its members in relation to such financial transactions, which are already prohibited on behalf of one's client, in the course of his or her profession. ICAI will also continue to work with the authorities and other regulators so that these changes are implemented in the right perspective and the role of professionals is understood,” he said.
As every practising CA/CS/CMA undertaking specified transaction on behalf of their client would now be covered under the Prevention of Money-laundering Act, 2002, their responsibilities would include maintaining records for a period of at least five years, conducting customer due diligence, reporting of suspicious transactions to the financial intelligence unit within a specified time frame, train its employees to identify suspicious transactions and to comply with the requirements of the PMLA, appointing a compliance officer, implementing a risk management system and submitting periodic reports.
“Professionals not holding a certificate of practice would not be hit by these provisions and thereby won’t face any additional compliance. However, these new provisions would deter all professionals from undertaking benami transactions on behalf of clients or helping them to undertake such transactions. Failure to comply with the obligations under the PMLA can lead to penalties, fines, or even prosecution. Ideally, professionals practising in assurance, advisory, and litigation divisions should not be impacted by these provisions,” Rajat Mohan, Senior Partner, AMRG & Associates told Moneycontrol.
The government isolating select professions over the menace would not be a proper long-term policy framework for the economy. Policymakers must work on an inclusive solution whereby troublemakers, irrespective of their educational background, are reprimanded, he said.
Some of the professionals are hoping that the tweak may act as a surgical strike on money laundering and the CAs acting in a bona fide manner will have nothing to worry about.
“With determination to weed out corruption, the government has gone in for one more surgical strike to disrupt the chain of creation of corrupt money generation. The government brought in five categories of activities like managing bank accounts, purchasing sale of properties, etc on behalf of clients by professionals CMA, CA and CS under the net of PMLA, the professionals supporting can be booked under PMLA,” Sanjay Gupta, former president of Institute of Cost Accountants of India, told Moneycontrol.
However, any action by the authorities under the PMLA 2002 shall be guided by the principles of natural justice. In view of the same, the understanding is that the explanation shall not be applicable to individuals who act in good faith and in a bona fide manner, he said.
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