CA, company secys fret over increased compliance burden under new PMLA

Chartered accountants, company secretaries and other such professionals are concerned about the growing compliance burden after the widened ambit of the Prevention of Money Laundering Act (PMLA).

While financial transactions carried out by practising CAs, CSs and cost management accountants were brought under the purview of the Act on May 3, the extension to include anyone who acts as a formation agent of companies or LLPs, a trustee of an express trust or nominee shareholder for another person is also now subject to PMLA provisions.

Professionals would have to undertake due diligence measures to verify the identities of their clients and beneficial owners as well as sources of funds. Records will also have to be kept for a longer period.

“This would increase the risk of legal liability for the professionals, leading to reputational damage and loss of business. The increase in cost of these compliances would make it difficult for small and medium-sized firms, and may lead to a consolidation of the industry,” said Maneet Pal Singh, Partner, IP Pasricha & Co.

Persons acting as or arranging for another person to act as a director or secretary of a company or partner of LLP, providing a business or registered office address for a company or an LLP or a trust would also be held liable under the PMLA as reporting entities.

According to sources, the government had taken action against professionals who were involved in helping certain Chinese companies create shell companies and layer their proceeds. “The new PMLA rules do not categorise those simply providing advisory services to companies as reporting entities. But the rules hold those who act as agent and provide services of directors, registered office -which several law firms also do - as liable. There the intention is loud and clear,” said Amit Gupta, a chartered accountant.

Widening the net

• Transactions carried out by practising CAs, CSes, and CMAs on behalf of their clients under the scope of PMLA
• Buying and selling of any immovable property
• Managing client money, securities, or other assets
• Management of bank, savings, or securities accounts
• Creation, operation, or management of companies, LLPs or trusts, and buying and selling of business entities

Industry experts, however, have said that professionals should maintain an arm’s length in providing services to their clients to safeguard themselves.

“As professionals, we can only rely on documentary evidence. If a document is forged, there’s not much we can do. The law should have provided some safeguard to honest professionals,” a Delhi-based company secretary said.

Then there are others who believe that the amendment seeks to penalise specialised professionals who tend to help culprits of money laundering in evading the due process of law.

“The onus is being put on professionals to ensure that the services rendered by them are not used for evading law. While the amendments might make some professionals indulging in such activities jittery, they do not in any way hamper professionals doing their duties diligently,” said Abhimanyu Kampani, Partner, Luthra and Luthra Law Offices India.

The objective of the law is to bring increased accountability in relation to professionals involved in transactions which deal with proceeds of financial crimes.  

“This should lead to enhanced scrutiny on such individuals and ensure that such illegitimate transactions are not as easily carried out through proxies,” said Sanket Jain, Partner, Pioneer Legal.

Reporting entities now also include

• Formation agent of a company 
• Director or secretary of a company or partner 
• Someone acting as a trustee of an express trust  
• Nominee shareholder for another person