No New Burden Of Compliance On G&J Industry Under PMLA: Rohan Shah

The gem and jewellery trade may have collectively heaved a sigh of relief yesterday as Rohan Shah, one of the nation’s foremost legal minds, shed light on the impact of the 28th December, 2020 notification that brought the gems and jewellery sector under the ambit of the Prevention of Money Laundering Act (PMLA). 

In conversation with Colin Shah, Chairman, GJEPC, on the IIJS Virtual platform, Rohan Shah informed that subsequent clarifications from the government on 8th January, 2021 had addressed many of the issues and concerns raised by the trade and there was no need to be stressed. 

Rohan Shah noted that the fear among the trade, in the worst-case scenario, was that the entire industry had been made a reporting entity, and would be required to maintain a KYC for every transaction over Rs.50,000; file monthly returns; and inform authorities about suspicious transactions. “However, the authorities have clarified that there is no new compliance under PMLA which you are required to undertake after 28th December that you were not undertaking before,” he explained. PMLA compliance is only applicable in cash transactions of over Rs.10 lakh and not for others.  

“Under income tax, the industry was already complying with KYC at the level of Rs.2 lakh, now you have to comply under PMLA at the level of Rs.10 lakh. So if you comply with income tax, according to the government, you have no additional compliance under the PMLA,” Rohan Shah clarified. 

He further explained that the Indian Government had been under pressure from the Financial Action Task Force (FATF) to bring the gems and jewellery industry under the purview of PMLA, just as several countries across the world had done, to prevent the industry from being used as a conduit to fund acts of terrorism.  

Gems and jewellery along with many other businesses such as banking, insurance, and forex broking were vulnerable to being used to convert the proceeds of a crime or illegal activity into another asset class that could then be realised in another country as official money, he informed.  

Shah said it is unclear whether the Central Board of Indirect Taxes and Customs (CBIC) or Enforcement Directorate (ED) would look into breaches, etc. and whether the two departments would initiate parallel investigations against jewellers. He advised the GJEPC to seek written clarifications from the Ministry of Finance.  

Shah also pointed out practical difficulties and risks in implementing PMLA such as 60-70% of jewellers in rural India having no access to the internet and latest billing technology, making e-KYC practically impossible.  

Shah recommended that at least two senior officers at the commissioner level be present during PMLA investigations to prevent any abuse of power by junior officers, as had been done when excise had been enforced.  

“Since the clarifications released last night I don’t think there is any reason to panic and hopefully in the next 3-4 days through the efforts of GJEPC and other trade associations, other issues will also get clarified,” Shah concluded. 

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