Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering (Maintenance of Records) Rules, 2005
The PMLA states the duties of reporting entities in general terms; the Maintenance of Records Rules, 2005 supply the detail. They define the key terms, list the transactions to be recorded and reported, set the time limits, prescribe client due diligence and beneficial ownership tests, and fix retention periods. They have been amended many times, most substantially in 2023, when definitions of politically exposed persons were added, beneficial ownership thresholds lowered, and obligations for non-profit organisations strengthened. This note walks through the Rules.
The Rules as a spine, rule by rule
1. Source and Status
i. Framed by the Central Government in consultation with the RBI, under the rule-making power in Section 73, read with Section 15.
ii. In force from 1 July 2005, with the Act.
iii. Supplemented by the directions of sectoral regulators, such as the RBI's KYC Master Direction, SEBI's circulars, and FIU-IND's guidelines.
2. Rule by Rule
Rule | Subject |
|---|---|
1 | Short title and commencement |
2 | Definitions: including officially valid document, Principal Officer, Designated Director, Central KYC Records Registry, suspicious transaction, client due diligence, politically exposed person, non-profit organisation |
3 | Maintenance of records of transactions: cash transactions above ten lakh rupees; integrally connected monthly cash series; receipts by NPOs above ten lakh rupees; counterfeit currency; suspicious transactions; cross-border wire transfers above five lakh rupees; immovable property transactions of fifty lakh rupees or more registered by the authority |
4 | Records to contain the nature, amount and currency, date, and parties of each transaction |
5 | Procedure and manner of maintaining records, as specified by the regulator, with an internal mechanism |
6 | Retention: five years from the date of the transaction |
7 | Procedure and manner of furnishing information, through the Principal Officer, to the Director, FIU-IND |
8 | Time for furnishing: monthly reports by the 15th of the following month; STRs within seven working days |
9 | Client due diligence: identification, verification, beneficial ownership, purpose of the relationship, ongoing diligence, CKYCR, periodic updation, and special measures for PEPs and NPOs |
10 | Records of client identity: five years after the relationship ends or the account closes, whichever is later |
3. Key Definitions
Term | Meaning, in substance |
|---|---|
Officially valid document | Passport, driving licence, proof of possession of Aadhaar, voter identity card, job card under the rural employment scheme, and letter of the National Population Register |
Principal Officer | The officer designated by the reporting entity to furnish information to FIU-IND |
Designated Director | The person designated to ensure overall compliance with Chapter IV, including the managing director or a whole-time director |
Suspicious transaction | A transaction, including an attempted one, giving reasonable ground of suspicion of proceeds of crime or terror financing, or appearing unusually complex or without economic rationale |
Politically exposed person | An individual entrusted with prominent public functions by a foreign country (2023) |
Central KYC Records Registry | The entity notified to receive, store and retrieve KYC records in digital form, operated by CERSAI |
4. The 2023 Amendments
§ Changes ahead of the FATF evaluation • Politically exposed persons defined, and enhanced diligence required. • Beneficial ownership thresholds lowered to ten per cent for companies and partnerships. • Non-profit organisations. Reporting entities to register the details of NPO clients on the NITI Aayog's DARPAN portal and maintain records for five years after the relationship ends. • Expanded reporting entities through separate notifications for virtual digital asset service providers, trust and company service providers, and certain professionals. |
5. Frequently Asked Questions
What do the Maintenance of Records Rules, 2005 do?
They specify the transactions reporting entities must record and report, the time limits, client due diligence and beneficial ownership tests, and retention periods.
Which rule lists the transactions to be recorded?
Rule 3, including cash transactions above ten lakh rupees, suspicious transactions, counterfeit currency, cross-border wires above five lakh rupees, NPO receipts, and certain property transactions.
What changed in 2023?
PEPs were defined, beneficial ownership thresholds lowered to ten per cent for companies and firms, and NPO obligations strengthened.