■ Amendment to Prevention of Money Laundering (Maintenance of Records) Rules:
The Government of India, through gazette notifications dated March 07, 2023, and September 04, 2023, amended the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules). Pursuant to amendments in Rule 9(3) of the PML Rules, the threshold for determination of beneficial ownership has been revised, (i) from 25% to 10% (shares / capital / profits) in case of a company; and (ii) from 15% to 10% (capital / profits) in case of a partnership firm or a trust.
■ Modification of SEBI Master Circular:
In light of the amendments to the PML Rules, the Securities and Exchange Board of India (SEBI) has updated its Master Circular for Alternative Investment Funds dated July 31, 2023 (Master Circular) vide its circular on foreign investment in Alternative Investment Funds (AIFs) dated January 11, 2024 (Circular). Paragraph 4.1.2. under Chapter 4 (Investment in AIFs) of the Master Circular, has been modified to reflect the revised thresholds for determining beneficial ownership of investors in AIFs. The Circular mandates that at the time of onboarding investors, AIF managers must ensure that the investor or its beneficial owner, as determined in accordance with Rule 9(3) of the PML Rules, is not included in the Sanctions List notified by the United Nations Security Council. Moreover, they must also confirm that the investor or its beneficial owner is not a resident of a country identified by the Financial Action Task Force as having deficiencies in anti-money laundering or combating the financing of terrorism strategies.
■ Implications on investments in AIFs
The Circular also stipulates the consequences in the event investors fail to meet the aforesaid criteria. If investors already onboarded do not fulfil the specified conditions, AIF managers are prohibited from drawing down further capital contributions from such investors for any investment until compliance is achieved.