strict regime of reporting.
Let me expound on the implications of these events. As part of its commitment to the FATF, India enacted the Prevention of Money Laundering (PML) Act and rules followed by OEMs (other enforceable means) issued by sectoral regulators.
The concept of ‘beneficial ownership’ has become an integral part of the lexicon. India was recently validated by FATF to have adequately completed its promised actions, among which is placing the onus on regulated entities to conduct Client Due Diligence (CDD) in order to ascertain beneficial ownership as well as ‘control’ embedded within the structure of its client.
On-going CDD involves monitoring sources of income and wealth of the client and setting off alarm bells in case of suspicions. This applies equally to accounts held by FIIs wherein PNs have been issued. There is no reason why an account opened by a regulated entity in its home territory should be looked upon differently than one opened here, when both jurisdictions are signatory members of the FATF.
The implication is that past fears about the type of money and its ownership are not relevant or pertinent today since money entering India has passed the test of CDD in an Foreign Investment Promotion Board (FIPB) member country. In fact, the recent news on FIPB raising queries due to absence of beneficial ownership details appears straight out of the PML Rulebook and rightfully so.
The information about beneficial holders of PNs is uploaded on a periodic basis to the regulator. The additional mandatory conditions that could be imposed before the government of India truly smiles at PNs are that FIIs must perform a role of ‘execution only’ for any buy, sell, borrow or lend order of a PN client and that the bank account of PN holders must be located in an FATF member country.
The onus of tax and regulatory compliances arising from investing in India is on the FII; the PN holder bears the economic implications of the same. The PN holder therefore does not worry about obtaining a PAN or engaging tax services. The universal model