NGOs and the Prevention of Money Laundering Act (PMLA)

The government has amended rules under the anti-money law, making it mandatory for banks and financial institutions to collect information about the financial transactions of non-profit organisations or NGOs under the provisions of the Prevention of Money Laundering Act (PMLA).

The financial institutions will also have to register details of their NGO clients on the Darpan portal of the NITI Aayog and maintain the record for five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later, the amendment said.

Following this amendment, banks and financial institutions will now have to not only maintain records of financial transactions of NGOs but also share them with the Enforcement Directorate, as and when sought.

Also, reporting entities are now required to register details of the client if it’s a non-profit organisation on the DARPAN portal of NITI Aayog. “Every Banking Company or Financial Institution or intermediary, as the case may be, shall register the details of a client, in case of client being a non-profit organisation, on the DARPAN Portal of NITI Aayog, if not already registered, and maintain such registration records for a period of five years after the business relationship between a client and a reporting entity has ended or the account has been closed, whichever is later,” the notification said.

This has been done with the purpose to have some repository of basic information on all NGOs in the Darpan portal of NITI Aayog, one of the officials cited above said.

The definition of a non-profit organisation has also been amended and linked to the definition of charitable purpose provided under Section 2(15) of the Income Tax Act, 1961 to include any entity or organisation, constituted for religious or charitable purposes under I-T Act, that is registered as a trust or society under the Societies Registration Act or any similar state legislation or a company registered under the Companies Act.

The due diligence documentation requirements, which were until now limited to obtaining the basic KYCs of clients such as registration certificates, PAN copies and documents of officers holding an attorney to transact on behalf of the client, have now been extended.

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