Govt Extends Ambit of PMLA; 'Ease of Doing Business' and Privacy Concerns Linger

The central government, via a notification passed in May, extended the ambit of the Prevention of Money Laundering Act (PMLA) to cover chartered accountants (CA), Company Secretary (CS), and Cost And Works Accountants (CWAs) – if they executed financial transactions on behalf of a client.

The activities covered under this include:

• Buying and selling of any immovable property

• Managing client money, securities, or other assets

• Management of bank, savings, or securities accounts

• Organisation of contributions for the creation, operation, or management of companies

Note: While the CAs, CSes and CWAs were, via the notification, included in the list of “persons carrying on designated business or profession,” the list does not include lawyers.

Consequently, these persons (included by the notification) now also fall within the ambit of ‘reporting entity’ under the Act, thereby mandating then to retain and disclose specific information in relation to financial transactions of their clients.

As pointed out by experts, this development – while not entirely unreasonable – paves way for two key concerns. These pertain to:

It may also be worth mentioning that the PMLA, by itself, is an extremely stringent law which allows the Enforcement Directorate (ED) a lot of brazen powers. Even the burden of proof, under this act and unlike most others, falls on the accused – despite the State having many more resources at its disposal. But more on the concerns pertaining to the Act, by itself, here.

For now, the notification...

EASE OF DOING BUSINESS

“This notification imposes a lot of reporting obligations on individuals doing business with companies in the capacity of CAs, CSes etc., including retaining details of transactions done by these companies for a five year period. So there is added pressure on such professionals, where non compliance can lead to monetary penalty,” Ishan Khanna, a white collar criminal litigation specialist, told The Quint.

While it is true that authorities under the PMLA have always had the right to access any data during the course of an investigation, here's how this changes things –

This new notification mandates recording of data by CAs, Company Secretaries and CWAs.

So, as these professionals now become ‘reporting entities’, the data in question can be recovered from them by the ED even when it is not required for an ongoing investigation. 

"Hence, the scope to access financial data of millions of businesses lies at the discretion of the ED, now," Khanna pointed out.

But hang on!

What does the term "person carrying on designated business or profession” even mean?

As per the Act – Section 2(1)(sa) to be precise – the term entails:

(i) a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;

(ii) Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government;]

(iii) real estate agent, as may be notified by the Central Government;

(iv) dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;

(v) person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government;

or (vi) person carrying on such other activities as the Central Government may, by notification, so designate, from time to time

The government has brought in the three new groups of professionals by amending sub-clause (vi) (under Section 2(1)(sa)).

Thus, as pointed out by Khanna:

"If we look at the businesses already included in the Act, they are businesses of a specific nature – businesses like casino and gaming etc, where the Government may wish to keep a closer watch on this source of money."

"For others businesses, the ED could only ask for financial data when investigating money laundering cases to which such businesses are linked, and not otherwise," he further clarified.

But now that CAs, CSes and CWAs have also been included...

According to Khanna:

"Now if you have included professionals such as CAs in this also, then by default, you have added almost every business, because CAs are required in every business. Hence, now all these persons have to make all their clients’ transactional data available to the ED, without any justification on part of the ED being required."

"You have also expanded the scope of the kind of obligations you are imposing on businesses so much that every CA, CS has to maintain all of these records," he added.

This, in turn, might lead to a reduction in the ease of doing business in India.

"Where the professional burden is greater, there the ease of doing business suffers," Ishan Khanna said.

RIGHT TO PRIVACY

Right to privacy is a fundamental right under Article 21 of the Indian Constitution. Recent apex court judgments also suggest that any privacy-related law has horizontal application, which means that it can be claimed against both state and non-state actors.

However, there may potentially be reason to worry about the impact of this new amendment on a business-person's right to privacy.

"The privacy of everybody who has a CA or CS or any professional named under the notification, may be at risk," Khanna said.

But how?

By the asking of all businesses (essentially their CAs) to maintain a plethora of records that they earlier were not bound to, and which may be required to be disclosed at the whims of the ED.

"Earlier, the CA could have been asked for such records only if the ED issued a summons under Section 50 PMLA, in the course of an ongoing investigation. Now, these records can be called for at the ED’s whims and the CA can be penalised for not producing them’, Khanna noted.

So what does this change imply?

"The intent behind this might be to make more and more financial data of companies and individuals available for open access to the ED, which was earlier available only for select business types."

Ishan Khanna, white collar criminal litigation specialist

While earlier, in order to access most of the personal data, the ED had to show that they are investigating a case; now the personal transactions of individual entities, even those who are not undergoing a criminal investigation under the PMLA may be accessible to the ED – (as reiterated before) even if there is no investigation underway.

Everything may be open to the ED now. So is effectively everything an inquiry?

"Yes," says Khanna.

Are the courts likely to help out?

Perhaps not, as this latest notification paves way for such easy access of data, anyway.

Thus as privacy teeters on a slippery slope, with the courts too perhaps being rendered powerless before certain draconian laws,  it becomes pertinent to recall the apex court's views on this right. In Justice KS Puttaswamy (Retd) v Union of India, the Supreme Court had held:

"Fundamental rights are the only constitutional firewall to prevent State’s interference with those core freedoms constituting liberty of a human being. The right to privacy is certainly one of the core freedoms which is to be defended. It is part of liberty within the meaning of that expression in Article 21."