Multi-state co-op societies likely to come under money laundering law

Multi- state cooperative societies (MSCS) may soon come under the purview of the Prevention of Money Laundering Act (PMLA).

In early January, as a step towards bringing them within the Act’s fold, the central government told them to give details of their turnover. They have been given time till January 31 to do so.

An MSCS is a cooperative society set up by individuals involved in the same venture, and having a presence in more than one state.

Recently, in a circular to the National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB), the Ministry of Agriculture and Farmers’ Welfare said: “As the matter regarding bringing MSCS under the definition of reporting entities under the Prevention of Money Laundering Act, 2002, is under consideration, in the Department of Revenue, Ministry of Finance, Government of India, the details of the turnover of all the multi-state cooperative societies under various turnover slabs are required to be provided by this department to them.”

The NAFCUB is the apex body of urban cooperative banks and credit societies.

There are about 1,267 such societies in the country, with about 500 of them being credit societies, which account for the highest of the total. The agro and housing sectors come second and third, respectively.

During demonetisation, some credit cooperative societies had come under fire for allegedly accepting unaccounted cash. Apart from this, with a spurt in lowcost housing schemes, there has been a proliferation in the number of housing societies. At present, there are about 137 of them registered with the government. Maharashtra has the highest number of registered MSCS.

“Last year, the standing committee of the Ministry of Finance had suggested all unregulated financial entities be brought under the PMLA. They had also suggested that regulations for MSCS be tightened. The present circular is a step in that direction,” Subhas Gupta, chief executive, NAFCUB, told Business Standard.

Last year, the Reserve Bank of India (RBI) had instructed all credit societies not to describe themselves as banks. In a circular, the RBI said in November: “It has come to the notice of the RBI that some cooperative societies are using the word ‘bank’ in their names. This is a violation of Section 7 of the Banking Regulation Act, 1949 (as applicable to cooperative societies) (the Banking Regulation Act, 1949)."

So far credit societies have largely remained outside the purview of banking regulation. However, they are governed by the MultiState Cooperative Societies Act, 2002.