AIF regulations modified to align with 'beneficial ownership' in anti-money laundering rules

Sub-rule 3 of Rule 9 in PMLA traces the beneficial owner to a natural person who has controlling interest, has a claim over certain percentage of capital or profits, and so on.

The Securities and Exchange Board of India (Sebi) on January 12 revised the norms governing foreign investment in alternative investment funds (AIFs) to align with updated thresholds for determining beneficial ownership under anti-money laundering regulations.

This modification applies to the section defining investors prohibited from contributing funds to AIFs.

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A circular issued by the SEBI stated that Chapter 4 of the master circular for AIFs stands modified as below:

"The investor, or its beneficial owner as determined in terms of sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, is not the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as –

(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures apply; or

(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies."

Sub-rule 3 of Rule 9 in PMLA traces the beneficial owner to a natural person who has a controlling interest, has a claim over a certain percentage of capital or profits, is a senior managing official, or are beneficiary with a percentage of interest in the trust, etc.

The earlier version of the AIF Regulations read as below:

The investor or its underlying investors contributing twenty-five percent or more in the corpus of the investor or identified based on control, is not the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as–
(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures
apply; or

(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

For the aforesaid clause, “control” includes the right to appoint a majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by shareholding or management rights or shareholders agreements or voting agreements or in any other manner."