Gem and Jewellery sector brought under the ambit of Prevention of Money Laundering Act
[2013] 33 taxmann.com 324 (Article)
Gem and Jewellery sector brought under the ambit of Prevention of Money Laundering Act
RAGHAV KUMAR BAJAJ
CA
Introduction
1. The administrators and the regulators have had a hard time in preventing the offence of money laundering. Once committed, its detection is almost an impossible task. To curb all this, the Prevention of Money Laundering Act, 2002 ('the original Act' for short) was passed with the object of preventing money-laundering and to provide for confiscation of the property derived from or involved in, money-laundering and for matters connected therewith or incidental thereto.
The original Act was amended in the years 2005 and 2009. With the passage of time, it was felt that the offence of money laundering can take place in a lot more ways in business areas that were already covered under the original Act.
Keeping pace with the recent developments the original Act has been amended by the Prevention of Money-Laundering (Amendment) Act, 2012 ('the Amending Act' for short). Vide NOTIFICATION NO. SO 343(E)[F.NO.P.12011/3/2009-S.O.(E.S. CELL)], dated 8 February, 2013 issued under section 1(2) of the Amending Act, the Central Government appointed 15 February, 2013 as the date on which the provisions of the Amending Act shall come into force. Thus, the amendments brought in by the Amending Act have come into force.
The most important amendment by the Amending Act is the widening of the scope and the applicability of this anti-money laundering law. Now, this law is applicable even to the gem and jewellery sector, which is predominantly cash dominated industry. The Amending Act has also introduced the concept of 'corresponding law' to link the provisions of the Indian law with the laws of the foreign countries.
Amendments by the Amending Act to the anti-money laundering law
2. The most important amendment by the Amending Act is the widening of the scope and the applicability of this anti-money laundering law. Now this law is applicable even to the gem and jewellery sector, which is predominantly cash dominated industry. The Amending Act has also introduced the concept of 'corresponding law' to link the provisions of the Indian law with the laws of the foreign countries. But these are not the only major amendments that have been made by the Amending Act. Some of the major amendments have been depicted in the following Table:
| S.No. | Basis | Prevention of Money Laundering Act (pre-2012 amendment) | Prevention of Money Laundering Act (post-2012 amendment) | |||||||||||||||||||||||||||||||||
1. | Applicability and scope | It was applicable to;
Relevant Section: Section 12 | The Amending Act has extended the applicability of this law to a 'reporting entity' which has been defined to mean a banking company, financial institution, an intermediary or a person carrying on a designated business or profession'. The expression "person carrying on designated business or profession" means as follows—
Further, the expressions "precious stone" and "precious metal" have been defined as follows:
Relevant Sections: Section 2(wa), 2(sa), 2(sb), 2(sc) | |||||||||||||||||||||||||||||||||
2. | Concept of corresponding law | There was no concept prior to the coming into force of the Amending Act. | The Amending Act has introduced the concept of 'corresponding law' to link the provisions of Indian law with the laws of foreign countries and provide for transfer of the proceeds of the foreign predicate offence in any manner in India. Relevant Section: Section 2(ia) | |||||||||||||||||||||||||||||||||
3. | Penalty for the offence of money laundering | The punishment for the offence of money-laundering shall be:
For a long time, the discussion had been going on to remove the upper limit on the fine leviable on the person who commits the offence of money-laundering. Relevant Section: Section 4 | The Amending Act has done away with this upper limit on the fine for the offence of money-laundering. Now, the fine leviable on the person who commits the offence of money-laundering shall be on the discretion of the regulators and shall, obviously, be dependent on the amount involved in the offence. Relevant Section: Section 4 | |||||||||||||||||||||||||||||||||
4. | Appeal against the order of Appellate Tribunal | Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within 60 days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of lawor fact arising out of such order. Relevant Section: Section 42 | After the coming into force of the Amending Act, the appeal against the order or decision of the Appellate Tribunal shall lie to the Supreme Court. Further, appeal can be filed only on any question of law, and not on any question of fact. The appeals pending before the High Courts shall continue to be disposed of as per the pre-amendment law only. Relevant Section: Section 42 | |||||||||||||||||||||||||||||||||
5. | Meaning of Scheduled Offence | Scheduled offence is:
Relevant Section: Section 2(y) | The Amending Act has not made any change in the definition of the scheduled offence. However, it has amended the Schedule appearing at the end of the Act in such a manner that all the offences of Part B are now shifted to Part A and in Part C the reference to Part B has been omitted. Relevant Section: Section 2(y), read with the Schedule | |||||||||||||||||||||||||||||||||
6. | Period of provisional attachment | When the Prevention of Money Laundering Act first came into force in 2002, the maximum period of provisional attachment was kept at 90 days. Later on this period was increased to 150 days in the 2009 amendment. Relevant Section: Section 5(1) | The Amending Act has increased the maximum period of this provisional attachment to 180 days. Relevant Section: Section 5(1) | |||||||||||||||||||||||||||||||||
7. | Liability of directors, employees, etc. | No such provision in the pre-amendment law. | The Amending Act has made the reporting entity, its designated directors on the Board and employees responsible for omissions or commissions in relation to the reporting obligations. |
3. Impact of the amendments to the anti-money laundering law
3.1 Rules laid down by the Central Government - After gaining knowledge on the amendments to the India's anti-money laundering law, it becomes imperative to understand their impact on the concerned persons. For starters, all the requirements of reporting the details of prescribed transactions; maintenance of records of prescribed transactions; furnishing of prescribed information which was earlier applicable to banks, financial institutions, intermediaries shall now be applicable to all reporting entities. It's pertinent to mention here that in this regard, the Central Government has prescribed the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 ('the Rules' for short).
3.2 Rules prescribed under the Original Act would continue to operate - Like the original Act, even the Amending Act empowers the Central Government to prescribe the rules with respect to the maintenance of records, verification of the identity of client, furnishing of information, etc. Till now the Central Government has not prescribed any rules after the coming into force of the Amending Act. In such a case, it would be safe to presume that till the time any rules are prescribed under the Amended law, the Rules prescribed under the Original Act would continue to operate.
3.3 Mandatory maintenance and reporting of transactions by those covered under the law - As per the prescribed Rules, the maintenance and the reporting of the following transactions is mandatory by all those who are covered under the law:
| ♦ | all cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency; | |
| ♦ | all series of cash transactions integrally connected to each other which have been valued below rupees ten lakhs or its equivalent in foreign currency, where such series of transactions have taken place within a month; | |
| ♦ | all transactions involving receipts by non-profit organisations of value more than rupees ten lakh, or its equivalent in foreign currency; | |
| ♦ | all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions; | |
| ♦ | all suspicious transactions, whether or not made in cash. |
These Rules have also prescribed the formats in which the reporting has to be done. Further, the time period within which such information has to be furnished has also been prescribed by these Rules.
3.4 Verification of the identity of the client - As far as the verification of the identity of the client is concerned, Rule 9 of the prescribed Rules prescribes that every banking company, financial institution and intermediary, as the case may be shall:
| ♦ | at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship, | |
| ♦ | in all other cases, verify identity while carrying out the following: | |
| ♦ | transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or | |
| ♦ | any international money transfer operations. |
Conclusion
4. Considering the enormous amount of tainted money blocked in the Indian economy (especially in the real estate sector and gem & jewellery sector), the anti-money laundering law has been made applicable to these sectors. Objectively speaking, it was never a question of 'Will these sectors be covered or not?', rather it was always a case of 'When will these sectors be covered?'
The inclusion of the gem & jewellery sector under the ambit of the Prevention of Money Laundering Act has expectantly raised a large number of eyebrows among the multi-billion dollar jewellery industry in India. Their concerns are genuine. The issue is not whether these sectors should have been brought within its ambit or not, the problem lies in the lack of awareness among the dealers of precious metals and precious stones regarding their liability under this anti-money laundering law in India. This lack of awareness should not become a reason for non-compliance by the dealers of precious metals and precious stones. The writing is clear on the wall. The intention of the law makers is clear. One can fondly hope that this intention (of preventing money laundering) does not end up as a "tool" in the hands of the regulators to simply extract the money from the Indian jewellers.
Regards
Prarthana Jalan
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