PMLA coverage of accountants, CS to increase scrutiny

New Delhi: The finance ministry’s decision on Wednesday to include specific transactions conducted by accountants and company secretaries under the PMLA, or Prevention of Money Laundering Act, is expected to heighten their accountability and liability.

The move will alter the way they do due diligence of transactions, source of funds examination, and reporting of irregularities, experts said.

The government has designated chartered accountants, cost accountants and company secretaries as reporting entities under the PMLA. Till now, PMLA covered entities such as financial institutions, including banks, operators of games of chance, casinos, real estate agents as well as dealers of precious metals. On Friday, ICAI, the accounting rule-maker, said it will cooperate with the Centre and raise awareness among all its members about the responsibilities.

The amendment includes transactions by chartered and cost accountants and company secretaries that are related to buying and selling immovable properties, managing clients’ assets, bank and securities accounts, and organizing contributions for company formation and business incorporation under PMLA.

The professionals will be required to examine the genuineness of the ownership and source of funds of clients, said Anita Basrur, partner, direct tax at accounting firm Sudit K. Parekh & Co LLP. Accounting professionals must carry out know your customer (KYC) verification for their clients and maintain the records to furnish information to the authorities as and when asked for, said Basrur.

“Chartered accountants will need to exercise utmost care, adhere to professional standards and be vigilant in due diligence procedures. This will have a far-reaching impact on these professionals.”

The Centre has been enhancing reporting guidelines of accountants and disclosure regulations by companies as part of its efforts to improve corporate governance practices, and to check generation of unaccounted wealth, diversion of funds from businesses, bogus inter-corporate transactions and laundering of funds.

ICAI will initiate awareness programmes for its members in relation to all such financial transactions which are already prohibited on behalf of one’s client, president Aniket Sunil Talati said. “ICAI will also continue to work with the authorities and other regulators so that these changes are implemented in the right perspective and role of professionals is understood,” he added.

The inclusion of CAs under the PMLA will also enhance their accountability and liability, said Gopal Bohra, partner at N.A. Shah Associates, a multi-disciplinary tax firm. “All practicing chartered accountants will be required to verify that the financial transactions carried out by them on behalf of clients are not related to money laundering or financing of terrorism.” Experts said the compliance cost will increase substantially and non-compliance may lead to severe penalties and legal action against professionals.

ICAI president Aniket Talati said that ICAI already has prescribed a KYC requirement and standard on quality control which lay down quality standards for engaging accountants.