Mandatory linking of Aadhaar and PAN under PMLA

By Anita Baid, (finserv@vinodkothari.com)

PML Second Amendment Rules

The Ministry of Finance on 1st June, 2017 vide notification No. G.S.R. 538(E) issued the [1]Prevention of Money-Laundering (Maintenance of Records) Second Amendment Rules, 2017 (hereinafter referred to as “Second Amendment Rules”) mandating all account holders of the reporting entities i.e., banks and financial institutions to link Aadhaar number issued by the Unique Identification Authority of India and Permanent Account Number (PAN) or Form No. 60 as defined in Income-tax Rules, 1962. The timelines for the same were as below-

  1. on or before 6 months from the date of opening the account in case of new accounts opened with the Banks or Financial Institutions after the date of this notification and
  2. on or before 31st December 2017 for existing account holders having an account based relationship with reporting entities prior to date of this notification.

The account holders not eligible for Aadhaar number were required to provide PAN to the Bank or Financial Institution.

It is to be noted that the KYC due diligence and mandatory linking of Aadhaar and PAN also applies for beneficial owners in case of an account-based relationship with the reporting entities. The aforesaid rules further provided that in case of non-submission of Aadhaar number and PAN after the aforesaid prescribed time limits, the account shall cease to be operational till the time the Aadhaar number and PAN is submitted.

The Second Amendment Rules further added the list of documents required for due diligence for account holders with the reporting entities. It also mandated carrying out authentication using either e-KYC authentication facility or Yes/No authentication facility provided by Unique Identification Authority of India, at the time of receipt of the Aadhaar number. Below is comparative a table of list of documents required to be submitted for due diligence prior and post the amendment:

 

Sl No Particulars Requirements prior to amendment Post amendment implications
1. Individual Rule 9(4):

·         one certified copy of an ‘officially valid document’ containing details of his identity and address

·         one recent photograph and

·         such other documents including in respect of the nature of business and financial status of the client as may be required by the reporting entity

Rule 9(4):

Individual – eligible to be enrolled for an Aadhaar number for other than small accounts:

 

·         Aadhaar number issued by the Unique Identification Authority of India; and

·         PAN or Form No. 60 as defined in Income-tax Rules, 1962, and

·         such other documents including in respect of the nature of business and financial status of the client as may be required by the reporting entity

 

Provided that where an Aadhaar number has not been assigned, proof of application of enrolment for Aadhaar and in case the PAN is not submitted, one certified copy of an ‘officially valid document’ shall be submitted.

 

Rule 9(4A):

Individual – not eligible to be enrolled for an Aadhaar number for other than small accounts:

·         PAN  or Form No. 60 as defined in the Income-tax Rules, 1962

or

·         one certified copy of an ‘officially valid document’ containing details of his identity and address, one recent photograph and

·         such other documents including in respect of the nature or business and financial status of the client as may be required by the reporting entity

2. Individual – for opening small account in a banking company

 

Rule 9(5):

 

In case of small account being monitored and when there is suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of client shall be established through the production of officially valid documents, as referred to in sub-rule (4) of rule 9; and

 

(v) foreign remittance shall not be allowed to be credited into a small account unless the identity of the client is fully established through the production of officially valid documents, as referred to in sub-rule (4) of rule 9.

Rule 9(5):

 

For monitoring of small accounts under specified situations and for permitting foreign remittance to small accounts Aadhaar and PAN have been mandated. And for those who are not eligible for Aadhaar, the identity of client shall be established through the production of an officially valid document.

 

 

3. Company Rule 9(6):

Certified true copies of:

·                     Certificate of incorporation;

·                     Memorandum and Articles of Association;

·                     A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; and

·                     an officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf.

 

Rule 9(6):

Along with the documents required previously, PAN or Form 60 as defined in the Income-tax Rules, 1962, issued to managers, officers or employees holding an attorney to transact on the company’s behalf shall be submitted.

Where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar.

In case PAN is not submitted an officially valid document shall be submitted.

If such persons are not eligible to be enrolled for Aadhaar number and do not submit the PAN, certified copy of an officially valid document shall be submitted.

4. Partnership firm Rule 9(7):

Certified true copies of:

·         registration certificate;

·         partnership deed; and

·         an officially valid document in respect of the person holding an attorney to transact on its behalf

Rule 9(7):

Along with the documents required previously, PAN or Form 60 as defined in the Income-tax Rules, 1962, issued to person holding an attorney to transact on its behalf shall be submitted.

Where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar.

In case PAN is not submitted an officially valid document shall be submitted.

If such persons are not eligible to be enrolled for Aadhaar number and do not submit the PAN, certified copy of an officially valid document shall be submitted.

5. Trust Rule 9(8):

Certified true copies of:

·         registration certificate;

·         trust deed; and

·         an officially valid document in respect of the person holding an attorney to transact on its behalf.

Rule 9(8):

Along with the documents required previously, PAN or Form 60 as defined in the Income-tax Rules, 1962, issued to person holding an attorney to transact on its behalf shall be submitted.

Where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar.

In case PAN is not submitted an officially valid document shall be submitted.

If such persons are not eligible to be enrolled for Aadhaar number and do not submit the PAN, certified copy of an officially valid document shall be submitted.

6. Unincorporated association or a body of individuals Rule 9(9):

Certified true copies of:

·         resolution of the managing body of such association or body of individuals;

·         power of attorney granted to him to transact on its behalf;

·         an officially valid document in respect of the person holding an attorney to transact on its behalf; and

·         such information as may be required by the reporting entity to collectively establish the legal existence of such an association or body of individuals.

Rule 9(9):

Along with the documents required previously, PAN or Form 60 as defined in the Income-tax Rules, 1962, issued to person holding an attorney to transact on its behalf shall be submitted.

Where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar.

In case PAN is not submitted an officially valid document shall be submitted.

If such persons are not eligible to be enrolled for Aadhaar number and do not submit the PAN, certified copy of an officially valid document shall be submitted.

 

It has also been provided that non-residents and resident in the States of Jammu and Kashmir, Assam or Maghalaya and who do not submit the PAN shall submit to the Bank or Financial Institution, one certified copy of officially valid document containing details of his identity and address, one recent photograph and such other document including in respect of the nature of business and financial status of the account holder as may be required by the Bank or Financial Institution.

Recently, there were some news items that appeared in a section of the media quoting a reply to a Right to Information Act application that Aadhaar number linkage with bank accounts is not mandatory. Denying such claims of the media the RBI came up with a clarification[2] dated October 21, 2017 reiterating that, in applicable cases, linkage of Aadhaar number to bank account is mandatory under the Second Amendment Rules. Though there has been no specific clarification for other financial institutions including Non-Banking Finance Companies (NBFCs), the intention of the regulator is evident from the Second Amendment Rules, wherein the linking of Aadhaar and PAN has been made mandatory.

PML Fifth Amendment Rules

Another gazette notification issued by the Department of Revenue in the Finance Ministry, has made further amendments to the Prevention of Money-Laundering (Maintenance of Records) Rules. As per the Prevention of Money-Laundering (Maintenance of Records) Fifth Amendment Rules, 2017 (“Fifth Amendment Rules”)[3] the following explanation has been inserted after the proviso in sub-rule (4)-

“Explanation.- Obtaining a certified copy by reporting entity shall mean comparing the copy of officially valid document so produced by the client with the original and recording the same on the copy by the authorised officer of the reporting entity in a manner prescribed by the regulator.”

The text of the relevant rules of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 is reproduced herein below:

Rule 9. Client Due Diligence.—

(1) Every reporting entity shall—

(a) at the time of commencement of an account-based relationship—

(i) identify its clients, verify their identity, obtain information on the purpose and intended nature of the business relationship; and

(ii) determine whether a client is acting on behalf of a beneficial owner, and identify the beneficial owner and take all steps to verify the identity of the beneficial owner:

Provided that where the Regulator is of the view that money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business, the Regulator may permit the reporting entity to complete the verification as soon as reasonably practicable following the establishment of the relationship; and

(b) in all other cases, verify identity while carrying out—

(i) 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

(ii) any international money transfer operations.

**

(4) Where the client is an individual, who is eligible to be enrolled for an Aadhaar number, he shall for the purpose of sub-rule (1) submit to the reporting entity,—

(a) the Aadhaar number issued by the Unique Identification Authority of India; and

(b) the Permanent Account Number or Form No. 60 as defined in Income-tax Rules, 1962, and such other documents including in respect of the nature of business and financial status of the client as may be required by the reporting entity:

Provided that where an Aadhaar number has not been assigned to a client, the client shall furnish proof of application of enrolment for Aadhaar and in case the Permanent Account Number is not submitted, one certified copy of an ‘officially valid document’ shall be submitted.

Provided further that photograph need not be submitted by a client falling under clause (b) of sub-rule (1).

**

On a combined reading of the aforesaid rules along with the insertion vide the Fifth Amendment Rules, the reporting entity shall now be required to compare the copy of officially valid document so produced by the client with the original and recording the same on the copy.

It can accordingly be construed that at the time of commencement of an account-based relationship or while carrying out 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, the reporting entity shall be required to identify its clients and verify their identity by comparing the copy of officially valid document with the original documents.

The Second Amendment Rules introduced sub-rule 18 to Rule 9, wherein it was specified that for KYC, in case the identity information relating to the Aadhaar number or PAN submitted by the account holders of the Banks and Financial Institutions does not have the details of current address, the account holder shall submit an officially valid document such as electricity, gas, water bills, rent agreement, bank passbook etc., to the Bank or Financial Institution. Further, the Fifth Amendment Rules provides for insertion of a proviso to the existing sub-rule 18 of Rule 9, consequently the sub-rule shall be read as follows:

“(18) In case the identity information relating to the Aadhaar number or Permanent Account Number submitted by the client referred to in sub-rules (4) to (9) of rule 9 does not have current address of the client, the client shall submit an officially valid document to the reporting entity

Provided that in case of officially valid document furnished by the client does not contain updated address, the following documents shall be deemed to be officially valid documents for the limited purpose of proof of address:-

(a) utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill);

(b) property or Municipal tax receipt; (c) pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address;

(d) letter of allotment of accommodation from employer issued by State Government or Central Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and licence agreements with such employers allotting official accommodation;

Provided further that the client shall submit updated officially valid document with current address within a period of three months of submitting the above documents.”

Accordingly, in case the officially valid document furnished does not contain updated address, then initially a utility bill like electricity, telephone, post-paid mobile phone, piped gas or water bill which is not more than two months old can be considered as a proof of address. Also, property or municipal tax receipt, pension or family pension payment orders issued to retired employees by Government departments, or letter of allotment of accommodation from employer can be considered for the same purpose. However, subsequently the updated officially valid document with the current address must be submitted within a period of three months.

Conclusion

The provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 requires reporting entities to follow certain customer identification procedure while undertaking a transaction either by establishing an account based relationship or otherwise and monitor their transactions. The definition of reporting entities includes financial institution such as chit-fund company, housing finance institution, non-banking financial company etc. Accordingly, the requirement of linking the Aadhaar number and PAN at the time of commencement of an account-based relationship or while carrying out the specified transaction shall be mandatory for all NBFCs. Further, the requirement of comparing the copy of officially valid document so produced by the client with the original and recording the same on the copy is also be applicable on all reporting entities including NBFCs.

[1] http://egazette.nic.in/WriteReadData/2017/176407.pdf

[2] https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=42024

[3] http://www.egazette.nic.in/WriteReadData/2017/179633.pdf

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