Introduction
On 08.12.2023, the Ministry of Finance, through the Department of Revenue, in consultation with the Unique Identification Authority of India (‘UIDAI’) and the Reserve Bank of India (‘RBI’), released a notification[i] mandating Aadhaar authentication for Reporting Entities (‘REs’). By exercising the power conferred under the proviso to s. 11A(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’), the Central Government has appointed seven REs to perform authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (‘Aadhaar Act’) for the purposes of s. 11A of PMLA.
To understand the bearing of the notification, it is imperative to understand what exactly constitutes a RE and the functions assigned to such entities under the PMLA.
Background
What is a RE?
According to s. 2(wa) of PMLA, a RE includes a banking company, financial institution, intermediary, or a person carrying on a designated business or profession. Furthermore, s. 2(1)(sa)(vi) of PMLA, defines ‘person carrying on designated business or profession’ as a person carrying on such other activities as the Central Government may by notification, so designate.
Functions of RE
The functions of a RE are assigned under s. 11A of PMLA, which are as follows:
Every RE shall verify the identity of its client and the beneficial owner by:
Authentication under the Aadhaar Act if the RE is a banking company, or
Offline verification under the Aadhaar Act or use of passport issued under s. 4 of the Passport Act, 1967, or
Use of any other officially valid document or modes of identification as may be notified by the Central Government.
The 2nd proviso to s. 11A(1) of PMLA provides that the Central Government in consultation with the UIDAI established under s. 11(1) of the Aadhaar Act permits other entities, by way of a notification, to perform such authentication for the purposes of s. 11A of PMLA.
The Notification
On 08.12.2023, the Central Government permitted the following 7 REs to perform Aadhaar authentication for the purposes of s. 11A of PMLA–
AEON Credit Service India Private Limited,
Appint Technology Private Limited,
Capital Trust Limited,
Poonawalla Housing Finance Limited,
Poonawalla Fincorp Limited,
Shri Ram Finance Corporation Pvt Ltd,
VFS Capital Limited.
These entities are required to comply with the standards of privacy and security under the Aadhaar Act.
Conclusion
REs under the PMLA play a pivotal role in combatting financial crimes i.e., money laundering in India. These entities ascertain the genuineness of the transactions and report any suspicious transactions under the PMLA. The notification issued by the Central Government expresses confidence in the effectiveness of these entities.
End Note
[i] Notification No. S. O. 5213(E) dated 08.12.2023.
Authored by Kushagra Gahlot, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
AUTHORED BY
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