Aadhaar now bigger brother... mandatory for financial transaction

TT, New Delhi, June 16: The Aadhaar card has been made mandatory for opening bank accounts and carrying out any financial transaction above Rs 50,000.

Existing bank account holders will have to furnish their Aadhaar number to their branches by December 31 this year - and will be frozen out of their accounts if they fail to do so.

The directives have drawn charges that the Narendra Modi government is shredding the last vestige of privacy that citizens enjoy even though the privacy issue is still pending in the Supreme Court.

The Centre has changed the rules governing customer engagement with banks through a notification dated June 1 that it chose not to publicise.

"In case the client fails to submit the Aadhaar number and Permanent Account Number within the six months period, the said account shall cease to be operational till the time the Aadhaar number and Permanent Account Number is submitted by the client," the notification said.

The latest attempt to use the Aadhaar card as the overarching proof of identity to legitimise bank accounts and financial transactions far exceeds the original objective for which the biometric card was conceived in September 2010.

In its original form, the Aadhaar card was meant to ensure targeted delivery of financial and other subsidies and benefits to citizens that were paid out of the Consolidated Fund of India. Enrolment for the biometric card was entirely voluntary.

However, the Modi government has been aggressively trying to push the use of the Aadhaar card beyond the realm of entitlements and has tried to make its use compulsory, raising the hackles of privacy advocates.

Last week, the Supreme Court had allowed those who do not possess Aadhaar cards to obtain a permanent account number (PAN) and file income-tax returns until the larger issue of privacy is resolved. But the apex court had upheld the constitutional validity of the law that made Aadhaar mandatory for applying for the PAN and filing tax returns.

The latest notification seeks to amend the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 and makes it mandatory to quote the Aadhaar number along with the PAN or Form 60 in the case of individuals, companies and partnership firms for all financial transactions of Rs 50,000 or above from June 1.

Bengal chief minister Mamata Banerjee slammed the Centre's move. "The poorest of the poor, the marginalised people will be the worst sufferers if adhaar is made mandatory unilaterally," Mamata tweeted.

She questioned the privacy issues linked to the Aadhaar card and said the Centre must assure security of the citizens of the country before making it mandatory. "Aadhaar has serious issues about privacy. Govt must not make it mandatory before 100% coverage is achieved," the chief minister said.

Under the existing rules, bank customers were required to produce their PAN cards while making any cash transaction above Rs 50,000.

However, there have been instances lately where insurers have started insisting on the production of PAN even when making a premia payment of more than 50,000 through a cheque. The new rule could stretch this absurdity further by requiring the production of an Aadhaar number to legitimise cheque payments above Rs 50,000.

In Budget 2017, the government had made it mandatory for seeding of Aadhaar number with PAN to stop individuals using multiple PANs to evade taxes.

At present, under the PMLA Rules, it is mandatory to provide PAN number or Form 60 to banks while opening of accounts or for high-value transactions.

Companies, partnership firms and trusts wanting to open bank accounts will have to submit the Aadhaar number of managers, or employees and persons holding an attorney to transact on their behalf.

The amendment also tightens the rules governing the operation of small accounts that can be opened without any officially valid know your customer (KYC) documents. However, there is a rider that the maximum deposit in these accounts cannot exceed Rs 50,000.

The amendment says the small accounts can now be opened only at branches that have a core banking solution. This is being done to ensure "that foreign remittances are not credited to a small account" and "the stipulated limits on monthly and annual aggregate of transactions and balance in such account is not breached" before a transaction is allowed to take place.

Such small account shall remain operational initially for a period of 12 months and thereafter for a similar period if the account holder provides evidence that he or she has applied for officially valid identification documents.

"The small account shall be monitored and when there is a suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of claim shall be established through the production of official valid documents," it said.

"Foreign remittance shall not be allowed to be credited into the small account unless the identity of the client is fully established through the production of officially valid documents," the notification added.

The Aadhaar number will be needed to validate these transactions. "Where an Aadhaar number has not been assigned to the client, he will have to produce proof of application towards enrolment for Aadhaar along with an officially valid document that include passport, driving licence, voter's identity card, job card under the National Rural Employment Guarantee Act (NREGA) and letter issued by the National Population Register.

The Prevention of Money Laundering Act (PMLA) forms the core of the legal framework put in place by India to combat money laundering and generation of black money.

The PMLA and rules impose an obligation on reporting entities like banks, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to Financial Intelligence Unit of India (FIU-IND).

According to Rule 9, every reporting entity shall at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship.