In its ongoing efforts to monitor the activities of NGO Registration in India, the government has introduced significant amendments to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 (“PMLA Rules”).
These amendments, outlined in the Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023 (“2023 Amendment Rules”), aim to enhance transparency and regulatory oversight over NGO Registration in India.
Definition of NGOs
One of the key amendments introduced by the 2023 Amendment Rules is the revision of the definition of “non-profit organization.” Previously, the term encompassed entities or organizations constituted for religious or charitable purposes. However, the amended definition now specifically references Section 2(15) of the Income-tax Act, 1961, which pertains to organizations eligible for tax benefits or exemptions.
This amendment clarifies that the compliance requirements under the PMLA Rules apply to NGO Registration in India as trusts, societies under the Societies Registration Act, 1860, or companies under Section 8 of the Companies Act, 2013, primarily engaged in religious or charitable activities. Entities primarily involved in for-profit activities are now excluded from the definition of “non-profit organization” for the purposes of PMLA Rules.
- Expert Insight: The inclusion of Section 2(15) reinforces the government’s intention to align PMLA regulations with tax laws, ensuring transparency and accountability in NGO operations. NGOs must review their activities to ensure alignment with charitable or religious purposes as per the Income-tax Act to avoid compliance issues.
- Adaptation Strategy: NGOs should conduct a thorough review of their objectives, activities, and registration status under relevant legislation to ensure compliance with the revised definition. Seeking expert legal advice can help navigate the complexities of tax and regulatory frameworks.
NGO Registration in India
Another significant amendment introduced by the 2023 Amendment Rules pertains to the registration of NGOs with banking companies, financial institutions, and their intermediaries. Previously voluntary, NGOs are now required to mandatorily register on the DARPAN portal of NITI Aayog, a centralized repository of information for NGOs.
This mandatory registration ensures that all relevant information regarding NGOs is easily accessible to regulatory authorities. Banking companies and financial institutions are tasked with registering the details of their NGO clients on the DARPAN portal and maintaining these records for a period of five years after the termination of the business relationship.
- Expert Insight: The mandatory registration on the DARPAN portal streamlines data collection and monitoring of NGO activities, enabling authorities to track financial transactions and identify potential risks of money laundering or terrorist financing.
- Adaptation Strategy: NGOs must promptly register on the DARPAN portal and ensure accurate and up-to-date information submission. Collaborating with financial institutions to facilitate registration and compliance procedures can streamline the process.
Additional Submissions
The 2023 Amendment Rules also impose additional submission requirements on NGOs to facilitate the verification of their identity and beneficial ownership. Depending on their legal structure, NGOs are now required to submit names of partners, trustees, or persons holding senior management positions, along with details of their registered office and principal place of business, as part of the Know Your Customer (KYC) process.
This amendment aligns with similar KYC requirements introduced under the Foreign Contribution Regulation Act, 2010 (FCRA). The lower threshold for determining beneficial ownership aims to enhance transparency and prevent money laundering activities within non-profit organizations.
- Expert Insight: The expanded KYC requirements strengthen due diligence measures and mitigate the risk of illicit financial activities through NGOs. Identifying beneficial owners with significant control or interest enhances transparency and accountability in NGO governance.
- Adaptation Strategy: NGOs must update their KYC records promptly and ensure compliance with the revised requirements. Establishing robust internal processes for collecting and verifying beneficiary information can facilitate compliance and mitigate regulatory risks.
Impact on PMLA Non-Compliance and Enforcement:
Non-compliance with the amended PMLA Rules may result in legal consequences, including penalties and prosecution under the Prevention of Money-laundering Act, 2002 (PMLA). Recent reports highlight increased scrutiny and enforcement actions against NGOs for alleged violations of FCRA and PMLA regulations.
- Expert Insight: NGOs must prioritize compliance with PMLA regulations to avoid legal and reputational risks. The burden of proof and criteria for bail under PMLA place significant obligations on accused parties, necessitating proactive measures to ensure compliance with regulatory requirements.
- Adaptation Strategy: NGOs should invest in robust compliance frameworks, including internal controls, risk assessments, and ongoing monitoring of regulatory developments. Seeking legal counsel and adopting best practices in governance and financial management can enhance resilience to regulatory challenges.
Implications and Challenges
These amendments have significant implications for NGOs operating in India. While they aim to enhance transparency and regulatory oversight, NGOs may face challenges in complying with the increased reporting and registration requirements. The mandatory registration on the DARPAN portal and the submission of additional information for KYC purposes may impose administrative burdens on NGOs.
Furthermore, non-compliance with the requirements introduced by the 2023 Amendment Rules could lead to legal repercussions under the PMLA. NGOs must ensure strict adherence to these regulations to avoid potential penalties or legal action.
Conclusion
The recent amendments to the PMLA Rules have reshaped the regulatory landscape for NGO registration in India. By strengthening compliance requirements and enhancing transparency, these changes aim to curb money laundering activities and promote accountability within the non-profit sector.
NGOs must proactively adapt to these regulatory changes, ensuring robust governance practices and compliance mechanisms to navigate the evolving regulatory environment effectively.
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