Trusts/NGOs & money laundering

Wolf in the sheep’s clothing!

It is no secret that under the garb of ‘charity’ some so-called Trusts and NGOs have been carrying on unlawful economic activities and getting away with it. To combat the menace of money laundering and terror financing, the International community had set up an inter-government body, called Financial Action Task Force (FATF).

India too has recognised the need for bringing NGOs under PMLA since earlier entities covered by PMLA included only chit fund companies, banks, financial institutions and housing finance companies. Money laundering in India was rampant through NGOs and other entities functioning as ‘charitable trusts’ that could not be forced to disclose their source of funds, except in specific circumstances. Clearly this loophole was grossly abused by unscrupulous elements for their nefarious activities under the garb of the ‘NGO’ façade.

The Government of India vide its Notification dated November 12, 2009 under PMLA has stipulated that any company registered under section 25 of the Indian Companies Act, 1956, and/or as a trust or society under the Societies Act, 1860, or any similar state legislation, will be brought under the purview of PMLA. Consequently, NGOs and trusts will now have to adhere strictly to know-your-customer (KYC) norms in case of any donations they receive, according to banking standards, and will have to regularly maintain detailed statements of their funds received and investments made.

Better late than never!