CA, CS and CWAs are now under purview of PMLA

The Prevention of Money Laundering Act (PMLA) now covers Chartered Accountants, Company Secretaries, and Cost and Work Accountants who conduct financial transactions on behalf of their clients. In a notification dated May 3, the Ministry of Finance made this announcement.

According to the finance ministry, the following actions by the aforementioned professionals will be subject to the law’s anti-money laundering provisions: buying and selling real estate, managing client funds, securities, and assets, running companies, LLPs, and trusts, and buying and selling business entities on behalf of their clients.

The goal of extending the reach of money laundering legislation is to combat the threat of money laundering and related criminal activity while bolstering the due diligence and corporate governance practises carried out by working professionals.

Gurugram-based A practising chartered accountant, Rajesh Ahuja, told Entrackr that the announcement is a little ambiguous because due diligence can be done by experts and the PLMA will only be implemented when personal involvement in any crime is evident. Additionally, professionals are expected to follow the obligations outlined in the relevant law.

However, Ahuja stated that the action will help reduce the role of such specialists in the establishment and management of shell businesses, which costs the government exchequer money. Overall, he argued, it is a sound method for preventing money laundering.

Recall that 400 chartered accountants and company secretaries were recommended for discipline by the central government last year due to their alleged involvement in the incorporation of shell firms while violating norms and regulations.

There is no doubt that the government’s relationship with these experts can be a little tense at times since in recent years, the government has started to accuse them of aiding clients in tax evasion and other serious offences. Industry has responded, saying that they cannot truly be held responsible as long as it falls under legal authority.

The reality is that, for many businesses, this level of participation might be their only point of differentiation, especially for smaller businesses, whilst larger businesses can charge high rates for “consulting” services by creating such channels.

In recent months, there have been a number of raids and actions against GST evaders and fraud rackets, which suggests some substantial expertise is at work in these schemes. This may be one of the reasons why the government has chosen the simple route rather than going after the likely source for the time being, in its opinion.

Unfortunately, as any tax payer will tell you, the most obvious and sensible solution—simplified tax regimes and open procedures—continues to seem to escape everyone’s attention. Perhaps because an army of accountants is kept occupied and in business by these very laws. Instead of attempting to criminalise an increasing number of behaviours, including honest mistakes, one hopes that we will eventually get around to reexamining this strategy as well.