The good news: PMLA is a knowledge-based statute. A business that documents its transactions well, knows its counterparties, and refuses to accommodate structuring can very confidently stay out of trouble. This note explains the shift and offers a short compliance roadmap.
The Perimeter Has Widened
Three sets of changes have re-drawn the map. First, a Ministry of Finance notification of May 2023 brought a range of ordinary business activities within the PMLA regime as "designated business or profession". If you or your firm act as a formation agent for companies, serve as a nominee director or secretary, hold shares as a nominee for another person, provide a registered office or correspondence address as a service, or act as trustee of an express trust, you are now a "reporting entity" with KYC, record-keeping and Suspicious Transaction Report (STR) obligations.
Second, all virtual digital asset (crypto) service providers are now within the net — exchanges, wallets, custody providers and issuers alike. Third, a wider definition of "beneficial owner" and a stricter customer due diligence timeline mean that reporting entities can no longer take days to identify who really owns and controls their client.
The practical implication: a promoter who casually lets his office address be used as the registered office of another company, or who agrees to hold 5% in a friend's venture as a nominee, has taken on statutory obligations that did not exist three years ago.
The Knowledge Trap — Where Most Businesses Get Caught
Even without committing any offence themselves, business owners can be pulled into a PMLA proceeding if they knowingly hold, use or help move property that is "proceeds of crime" — the profits or assets derived from a "scheduled offence". The list of scheduled offences is long and includes cheating, forgery, corporate fraud under Section 447 of the Companies Act, 2013, customs fraud above Rs. 1 crore, bribery under the Prevention of Corruption Act, drug-trafficking offences and much else.
The Supreme Court in Pavana Dibbur (2023) confirmed that an unwitting third party — one who genuinely did not know the origin of the money — cannot be convicted. But "knowledge" can be inferred from red flags that a prudent businessperson should have noticed: mismatched valuations, structuring across accounts, opaque ownership chains, or a counterparty already under investigation. This is why documented due diligence is the single most effective defence.
What the Supreme Court Has Said Recently
Recent decisions have restored important procedural safeguards. In Pankaj Bansal (2023) and Prabir Purkayastha (2024), the Court held that grounds of arrest must be furnished in writing — not orally. In Tarsem Lal (2024), it held that once a Special Court takes cognizance of a PMLA complaint, the Enforcement Directorate loses independent power to arrest and the Court must issue summons — not warrants — where the accused has cooperated throughout. In Sarla Gupta (2025), it ordered that the accused is entitled to see not just the documents the ED relies on, but also every document collected in the investigation. And in Subhash Sharma (2025), it held that an arrest violating Article 22(2) of the Constitution results in bail without the rigour of the twin conditions.
These decisions are important, but they are protections after the fact. A business is always better served by never being in the docket at all.
Five Practical Rules for a Well-Run Business
● Know your counterparty. Complete KYC and beneficial-owner identification for every material customer, vendor, JV partner or investor. Refresh annually for high-risk relationships. Screen foreign counterparties against sanctions lists and for politically exposed person status.
● Digitise consideration. Above the statutory thresholds under Sections 269SS and 269ST of the Income-tax Act, transact only in banking channels. Prohibit any structuring — splitting a receipt into smaller amounts to avoid a reporting threshold is itself a red flag.
● Document commercial rationale. Every related-party transaction, every unusual credit note, every advance not followed by delivery, needs a paper trail explaining the commercial logic at the time of the transaction — not a reconstruction three years later during an ED investigation.
● Refuse nominee and accommodation requests. Nominee directorships, nominee shareholdings and "just use my address" arrangements now carry statutory consequences. Say no unless the arrangement is within immediate family and properly documented.
● Build a defence dossier. For every high-value engagement, maintain a single file containing the engagement letter, counterparty KYC, ownership chain, source-of-funds letter, board approvals and independent professional certificates. What is not on paper effectively does not exist in an ED file.
A Closing Thought
PMLA is no longer the concern of only large corporations. It has become a real-world consideration for family businesses, MSMEs, professionals, promoters and startups. The cost of a preventive compliance framework — a written policy, a short KYC template, a documentation discipline — is trivial. The cost of a single ECIR, in reputation, in disruption and in legal fees, is not.
At DSRV & Co. LLP, we work regularly with businesses, promoters and professionals on PMLA readiness — from policy design and beneficial-owner mapping to representation before adjudicating and appellate forums. If you would like to review your current exposure, please write to us. A one-hour review often surfaces issues that are simple to fix today, and expensive to defend tomorrow.
