AUDIT OF REPORTING ENTITIES UNDER PMLA, 2002 FROM ANTI MONEY-LAUNDERING, COUNTERING THE FINANCING OF TERRORISM AND COMBATING PROLIFERATION FINANCING PERSPECTIVE - Handbook of GST Law & Procedures (CBIC) [October 2024] - GST

8. AUDIT OF REPORTING ENTITIES UNDER PMLA, 2002 FROM ANTI MONEY-LAUNDERING, COUNTERING THE FINANCING OF TERRORISM AND COMBATING PROLIFERATION FINANCING PERSPECTIVE: 8.1 DG Audit as Regulator under the Prevention of Money-laundering Act, 2002 : The Central Board of Indirect Taxes and Customs (CBIC) has been notified as the Regulator in respect of the Dealers in Precious Metals and Precious Stones and the Real Estate Agents under Rule 2(1)(fa) (iii) and Rule 2(1)(fa)(iv) of the Prevention of Money Laundering ( Maintenance of Records) Rules, 2005(PMLR) and accordingly, the Principal Director General/Director General, Directorate General of Audit has been appointed as Regulator under the Prevention of Money Laundering Act, 2002(PMLA), to work on behalf of the CBIC for these two sectors. 8.2 The Regulator has prescribed separate Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Combating Proliferation Financing (CPF) Guidelines for Dealers in Precious Metals and Precious Stones and Real Estate Agents under the Prevention of Money Laundering Act, 2002, the Unlawful Activities (Prevention) Act, 1967 (UAPA) and the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMDA). The dealers and real estate agents are defined under the PMLA as the persons carrying on designated business or profession and are the reporting entities under the PMLA, 2002 and the PML (Maintenance of Records) Rules, 2005, as notified under Section 2(1)(wa) of the PMLA, 2002. The guidelines have been updated from time to time, circulated to all the stakeholders and are uploaded in the departmental website of the CBIC at www.cbic.gov.in. 8.3 As prescribed in the guidelines, the reporting entities are obligated upon to comply with certain regulatory requirements, as prescribed under Chapter-IV of the PMLA and PMLR. These requirements are related to conducting Client Due Diligence (CDD), Enhanced Due Diligence (EDD), undertaking KYC while entering into a transaction of a specified amount with a customer, maintaining records of all transactions, reporting transactions specified under Rule 3 of the PMLR, setting up internal controls and conducting regular AML, CFT and CPF specific training for their staff to mitigate risk of money laundering, terror financing and proliferation financing. 8.4 Though, the PMLA and the PMLR notify Dealers in Precious Metals and Precious Stones and the Real Estate Agents as the Reporting Entities based on their cash transactions and the annual turnover, respectively, as specified in the respective guidelines, and most of the regulatory requirements are subjected to the reporting entities only, the provisions of Section 51A of the UAPA and Section 12 A of the WMDA apply to all the Dealers in Precious Metals and Precious Stones and the Real Estate Agents , irrespective of any threshold of cash transaction or annual turnover. These provisions are related to the entities and individuals who are subjected to the United Nations Security Council (UNSC) and the Government of India sanctions measures related to terror financing and the proliferation financing. The Details of such entities and individuals are regularly provided to all the reporting entities and other stakeholders, including the Centre and the State GST authorities, immediately on receipt. In this regard, the relevant procedures have been prescribed under the Orders issued under Section 12 A of the WMDA and Section 51A of the UAPA. 8.5 Guidelines for risk-based supervision of the reporting entities under the PMLA, 2002: (i) The Pr. ADG/ADG, DG Audit has been notified as the Director to exercise powers under section 13 of the PMLA, 2002. The Director is competent to make or cause enquiry with regard to the obligations of the reporting entities under Chapter-IV of the PMLA, read with the PMLR and to impose penalties thereof. (ii) In view of the aforesaid powers vested under Section 13 of the PMLA, the Regulator has prescribed separate Guidelines for Supervision of Dealers in Precious Metals and Precious Stones and Real Estate Agents on a Risk-Sensitive Basis, issued on 03.11.2023. These guidelines prescribed various risk matrices, which classify the reporting entities under high, medium and low risk. Accordingly, frequency of audit based on their risk categorization is prescribed in the guidelines, which is yearly for high risk and two-yearly for medium risk entities. The low risk shall be audited as and when they move up to medium and high-risk categories. (iii) Presently, it has been decided to conduct the audit of the reporting entities in the two sectors, i.e., Dealers in Precious Metals and Precious Stones and Real Estate Agents through the GST audit authorities of the Centre and the States. The audit process involves a comprehensive review of the reporting entity s policies, procedures, and systems related to anti-money laundering (AML) and combating the financing of terrorism (CFT). (iv) Checklist for Audit: The aforesaid guidelines for risk-based supervision are supplemented by an 18-Point Checklist prescribed by the Regulator. These checkpoints can be changed or expanded based on feedback received from audits of the reporting entities. S.N. Checkpoints Remark 1. Whether the Reporting Entities have received the Guidelines for Reporting Entities under the Prevention of Money Laundering Act,2002? (Yes/No) 2. Whether any AML/CFT/TF/PF policy and/ or procedure was in place prior to the issuance of the Guidelines by DG Audit as Regulator? (Yes/No) 3. If yes, details thereof. 4. Details of Principal Officer and the Designated Director? Whether appointed? 5. Whether records as prescribed by PMLR guidelines are maintained? Such records should capture/contain the following info (as per Rule 3 and 4 of the Prevention of Money-Laundering (Maintenance of Records Rules), 2005: (i) Details of the reporting entity (ii) Details of the Principal Officer and the Designated Director (iii) Details of clients/ customers including contact number. (iv) KYC records of the clients (PAN/Aadhar, Voter Id, Passport etc. (v) Records of all transactions including cash transactions. (vi) Cash/ suspicious transaction (CTR/STR) details and reports submitted to FIU-IND, if any. (Yes/No) 6. Where are these records maintained? 7. Who maintains them? 8. Whether they are maintained physically or electronically? 9. What are the policy and procedures to ensure that confidentiality of information referred to above is maintained? 10. What steps are being taken to ensure that no-tipping happens in case a Cash Transaction Report and Suspicious Transaction Report (CTR/STR) is generated? (The reporting entity may not actually have generated one) 11. What is the policy/ Procedure for intra-group and intra-organization exchange of information related to AML/CFT/TF/PF? 12. Is any third-party database/ public source information received for Know Your Client (KYC)/ Client Due Diligence/ EDD? 13. Have all the directors/Officers/ employees been trained at AML/CFT/TF/PF requirement? If so, details thereof? 14. Have you received any TF/PF related information? If so, how has it been handled? 15. What are the difficulties, if any, you envisage in implementation of these guidelines?