Non-profit organization
Also written Non-profit organization (PML definition) · Non-profit organisation · Non-profit organisations
Under the PML framework, an entity constituted for religious or charitable purposes under section 2(15) of the Income-tax Act and registered as a trust, a society or a section 8 company.
In plain language
Charities handle other people's money, move it for causes that are hard to verify, and often do so across borders. That makes them useful to launderers and to terrorist financiers alike, and it is why the AML rules single them out.
The definition is narrow and mechanical, and it is worth reading carefully. An organisation is a non-profit organisation for these purposes only if two things are both true: it is constituted for religious or charitable purposes referred to in section 2(15) of the Income-tax Act, 1961, and it is registered in one of three ways — as a trust, as a society under the Societies Registration Act, 1860 or similar State law, or as a company under section 8 of the Companies Act, 2013.
Once a client falls within it, three separate obligations follow: a report, a registration and a higher standard of due diligence.
How it works
1. The report — NTR. Rule 3(1)(BA) requires a record of all transactions involving receipts by non-profit organisations of value more than Rs 10 lakh, or its equivalent in foreign currency. Under Rule 8(1) this goes to FIU-IND monthly, by the 15th day of the succeeding month — the Non-Profit Organisation Transaction Report (NTR). The Principal Officer is responsible for timely submission of the CTR, STR and NTR, and utmost confidentiality applies to all three.
2. The registration — DARPAN. Rule 9(9A), repeated in the SEBI guidelines, requires every intermediary to register the details of a client that is a non-profit organisation on the DARPAN Portal of NITI Aayog, if not already registered, and to maintain the registration records for five years after the business relationship has ended or the account has been closed, whichever is later.
3. The diligence — CSC. Trusts, charities, NGOs and organisations receiving donations are named Clients of Special Category, so enhanced due diligence applies.
Documents. A trust submits its registration certificate, trust deed, PAN or Form No. 60, the documents of the persons holding an attorney, and the names of the beneficiaries, trustees, settlor and authors (Rule 9(8)). SEBI's list for a registered society adds the list of managing committee members, the committee resolution naming authorised signatories, and the society's rules and bye-laws certified by the Chairman or Secretary.
No nil return. No NIL reporting needs to be made where there are no cash, suspicious or non-profit organisation transactions to report.
A worked example
The trust, dates and amounts are illustrative; the rules are the workbook's.
Sri Venkatesa Vidya Trust, a registered public charitable trust running two schools, opens a demat and trading account with a Hyderabad depository participant and broker on 4 June.
At onboarding.
| Step | What the intermediary does |
|---|---|
| Is it an NPO? | Charitable purpose under section 2(15) of the Income-tax Act and registered as a trust — yes |
| DARPAN | Checks the Portal; the trust is not registered, so the intermediary registers its details |
| Documents | Registration certificate, trust deed, PAN, list of trustees, names of beneficiaries, settlor and authors |
| Beneficial owners | Author, trustees, beneficiaries with 10% or more interest, and anyone exercising ultimate effective control |
| Category | Client of Special Category — enhanced due diligence |
In August. The trust sells a block of government-bond fund units and receives Rs 18.4 lakh through the intermediary on 21 August. That is a receipt by a non-profit organisation of more than Rs 10 lakh, so it goes into the NTR for August, due by 15 September. A second receipt of Rs 6.5 lakh on 27 August is below the figure and does not.
In December. The trust closes the account. The DARPAN registration records must be kept for five years from the later of the end of the relationship and the closure of the account.
Why NISM asks about it
The definition sits in Chapter 6 (SEBI Guidelines for AML, CFT and PF), section 6.2.10, with the NTR deadline beside it; the Rs 10 lakh receipts clause is Rule 3(1)(BA) and the DARPAN obligation Rule 9(9A) in Chapter 3; and Chapter 1 lists the NTR among the reports FIU-IND receives. Expect a straight definition question (which registration routes qualify), the Rs 10 lakh figure, the monthly NTR deadline and the five-year DARPAN retention.
Common exam traps
- Both limbs are needed. A charitable purpose under section 2(15) and registration as a trust, a society, or a section 8 company. An unregistered charitable group is not within the definition.
- More than Rs 10 lakh. The receipts figure reads more than, the same wording as the cash limb.
- NTR is monthly, by the 15th. The quarterly deadline belongs to immovable property transactions, not NTRs.
- DARPAN is registered by the intermediary, if the client is not already registered — it is not merely a document the client produces.
- Five years from whichever is later — the end of the relationship or the closure of the account.
- No nil NTR. A month with nothing to report needs no filing.
- Other papers define a not-for-profit organisation differently for their own purposes; for the AML paper, use the PML wording above.
Check yourself
1.By when must a registered intermediary submit a Suspicious Transaction Report to FIU-IND?
- a)Within 7 days of arriving at a conclusion that the transaction or series of transactions is of a suspicious nature
- b)By the 15th of the succeeding month
- c)Within 30 days of the transaction
- d)Only when FIU-IND requests it
Show the answer
Answer: (a) Within 7 days of arriving at a conclusion that the transaction or series of transactions is of a suspicious nature
The Suspicious Transaction Report (STR) shall be submitted within 7 days of arriving at a conclusion that any transaction, whether cash or non-cash, or a series of transactions integrally connected are of suspicious nature.
The clock runs from the conclusion, not from the transaction — which is why the guidelines add that it shall be ensured that there is no undue delay in arriving at such a conclusion. Postponing the conclusion does not lawfully postpone the report.
The Principal Officer shall on being satisfied that the transaction is suspicious, furnish the information promptly in writing by fax or by electronic mail to the Director — and shall record his reasons for treating any transaction or a series of transactions as suspicious.
Option B gives the deadline for the other two reports: the Cash Transaction Report (CTR) (wherever applicable) for each month shall be submitted to FIU-IND by 15th of the succeeding month, and the Non Profit Organization Transaction Reports (NTRs) for each month shall be submitted to FIU-IND by 15th of the succeeding month.
Option D reverses the duty. Reporting is proactive; the Principal Officer will be responsible for timely submission of CTR, STR and NTR to FIU-IND.
Three related rules. Utmost confidentiality shall be maintained in filing of CTR, STR and NTR to FIU-IND. No NIL reporting needs to be made to FIU-IND in case there are no cash/ suspicious/non-profit organization transactions to be reported. And registered intermediaries shall not put any restrictions on operations in the accounts where an STR has been made.
No threshold limits the duty: irrespective of the amount of transaction and/or the threshold limit envisaged for predicate offences specified in part B of Schedule of PMLA, 2002, an STR must be filed where there are reasonable grounds to believe that the transactions involve proceeds of crime.
And attempts count: report all such attempted transactions in STRs, even if not completed by clients, irrespective of the amount of the transaction.
Where this is taught
Free preparation for NISM Series XXIVRelated terms
- Beneficial ownerThe investor who owns dematerialised securities for every practical purpose — the depository is the registered owner on the company's books, but the dividends, bonus, rights and votes are the investor's.
- Clients of Special CategoryA named list of client types — NRIs, HNIs, trusts, NGOs, PEPs, non-face-to-face clients and others — on whom SEBI requires enhanced due diligence rather than the ordinary standard.
- Suspicious Transaction ReportA report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
- Retention periodsHow long AML records must be kept: five years from the transaction for transaction records, and five years after the relationship ends or the account is closed, whichever is later, for identity records.
- FIU-INDIndia's central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions, set up in November 2004 and reporting to the Economic Intelligence Council.
- Not for Profit OrganisationA social enterprise that is a charitable trust, charitable society or Section 8 company (or other entity SEBI specifies); it can register on an SSE and raise money mainly through ZCZP instruments.