Prevention of Money Laundering Act, 2002 (“PMLA”) was formed and implemented to prevent the act of money laundering, i.e., legalising the income generated from illegal sources. If any property (Cash or otherwise) is proved to be generated from illegal sources then it is liable for confiscation along with other legal proceedings.
PMLA Act specifies reporting entities who are required to maintain various records and also required to furnish various information under Chapter IV (Section 12 to Section 15 of PMLA) to designated authorities.
“Reporting entity” means a banking company, financial institution, intermediary or a person carrying on a designated business or profession (Section 2(wa) of PMLA).
“Person carrying on a designated business or Profession” included dealers in precious metals, precious stones and other high value goods, as may be notified by the Central Government (Section 2(sa) of PMLA). However, no jewellers were notified by the Central Government under Section 2(sa) of PMLA. Therefore, provisions of PMLA act with respect to maintenance of records was not applicable to jewellers..
1. Jewellers and Real Estate agents are notified under PMLA
In exercise of power given under Section 2(sa) of PMLA, following persons are notify:
- Vide Notification No. G.S.R. 799(E) – Dated: 28-12-2020, Ministry of Finance notified the dealers in precious metals, precious stones as persons carrying on designated businesses or professions – if they engage in any cash transactions with a customer equal to or above INR 10 Lacs, carried out in a single operation or in several operations that appear to be linked.
- Vide Notification No. G.S.R. 798(E) – Dated: 28-12-2020, ministry of finance notified the “Real Estate Agents”*, as a person engaged in providing services in relation to sale or purchase of real estate and having annual turnover of INR 20 Lacs, as – person carrying on designated business or professions.
*Real estate agent are same as defined under clause (zm) of Section 2 of the Real Estate (Regulation and Development Act) 2016 Which says ““real estate agent” means any person, who negotiates or acts on behalf of one person in a transaction of transfer of his plot, apartment or building, as the case may be, in a real estate project, by way of sale, with another person or transfer of plot, apartment or building, as the case may be, of any other person to him and receives remuneration or fees or any other charges for his services whether as a commission or otherwise and includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, as the case may be, and includes property dealers, brokers, middlemen by whatever name called.”
Therefore, with effect from 28th December, 2020, every jeweller who is engaged in cash transactions of INR 10,00,000 or above (through single operation or several linked operations) and Real Estate agents having annual turnover of INR 20 Lacs or more, is covered by PMLA and therefore, he is required to maintain various records and liable for filing various information. As defined, any person involved in sale is covered under PMLA and therefore, all persons engaged in construction and sale of immovable property are not covered.
Prior to this inclusion, there was only financial liability of 82.50% of unaccounted money but after the inclusion of jewellery industry and Real Estate agents under PMLA, multiple compliances and legal obligations have been increased for jewellers engaged in cash transactions with a customer of INR 10 lacs or more and for Real Estate Agents.
2. Consequences of coming under purview of PMLA
Following are the consequences of coming under purview of PMLA:
- As per Section 12 of PMLA, Jewellers and Real Estate Agents are now required to maintain various information related to various transactions in such a manner so as to enable it to reconstruct individual transactions. Following are the records to be maintained: –
- It is mandatory to maintain all the transactions record, its nature and value whether the transactions comprise of a single transaction or a series of transaction related to each other and where such transactions take place within a month.
- Furnish information of the above transaction/s to the Director within prescribed time limit whether attempted or executed, the nature and value of the transaction.
- Further, It shall also be required to maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.
These records under section 12 of PMLA above must be maintained for the period of 10 years from the date of transaction/s.
- If jewellars or Real Estate Agement fails to comply with provisions of PMLA then director may:
- issue a warning in writing; or
- direct such person or its designated director on the Board or any of its employees, to comply with specific instructions; or
- direct such person or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or
- may impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than INR 10,000 but may extend to INR 1,00,000 for each failure.
- If persons coming under purview of PMLA fails to produce documents, they will be awarded 3-7 years of imprisonment apart from attaching their properties. At present, 82.5 percent of the value of the seized gold and money is paid to the government. As PMLA is enforced, they will also have to face investigation.
- In pursuance of inclusion of jewellars under PMLA, Enforcement Directorate (“ED”) has asked the jewellers to follow the rules of the game and also sent them do and don’ts for sale such as:
- In case of purchases of “gold, silver, diamond or other expensive jewellery worth Rs 10 lakh and above” the seller should preserve the documents of transaction details and the same should be communicated the same to ED.
- The name and other details of people purchasing ornaments with cash should be registered,
- If gold or cash is seized without proper documents, the same would be attached by the government.
- Jewellers and their staff members, upon failing to provide documents, would be made liable to get 3 to 7 years imprisonment.
- Know Your Customer (KYC) is mandatory for the sale of gold ornaments above Rs 2 lakh (by cash). But in case gold ornaments worth Rs 2 lakh are purchased through multiple cash transactions, the jeweller would not require to keep the customers.
Government of India has clarified in the notification that all the transaction which has no proper recording with the dealer dealing with jewellery, gems or any other precious stones then it would be investigated and if it is found the dealer is involved in the money laundering activities then he have to bear serious consequences as well as huge financial loss and can be a jail term of 3 years which may increase up to 7 years.