Govt. Widens PMLA’s Scope, Brings Directors, Nominee Shareholders, and Formation Agents under its Ambit

Introduction

Money laundering is a sophisticated process that involves disguising the proceeds of illegal activities as legitimate funds. In 2002, India introduced the Prevention of Money Laundering Act (PMLA) to combat money laundering and terrorist financing. The PMLA aims to prevent and control money laundering activities and confiscate property involved in such activities.

Recently, the Central Government vide notification, S.O. 2135(E), Dated May 9, 2023, made amendments to Section 2 of the PMLA. These amendments include adding directors or secretaries of a company, partners of a firm, trustees of an express trust, and nominee shareholders of a company as reporting entities under the PMLA. These entities are now required to report certain activities undertaken in the course of their business to tackle money laundering.

1. Govt. notifies certain activities to be covered under PMLA

The Ministry of Finance has notified an amendment to Section 2(1)(sa) of the Prevention of Money Laundering Act, 2002 (PMLA).

The Central Government, by using the authority granted u/s 2(1)(sa)(vi) has notified that certain activities, when carried out on behalf of or for another person in the course of business, will be regarded as activities for the purpose of this sub-clause. These activities are as follows –

(a) Acting as a formation agent of companies and LLPs;

(b) 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 LLPs;

(c) Providing a registered office, business address or accommodation, correspondence or administrative address for a company or a LLP or a trust;

(d) 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

(e) Acting as (or arranging for another person to act as) a nominee shareholder for another person.

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