Since Jan 2024, foreign investors in AIFs have been required to comply with ‘beneficial ownership’ (BO) norms under AML law (PMLA) requiring disclosure of the ultimate natural person investing more than 10% in the foreign investor or exercising control
This moves away from SEBI’s initial standard where only the primary investor and its ‘underlying investor’ investing 25% or more were required to be disclosed. Last year, PMLA thresholds for beneficial ownership themselves were reduced from 25% (for companies) and 15% (for trusts and partnerships) to a blanket 10% threshold
Also, the investor/ its beneficial owner cannot be listed in the UNSC Sanctions List or FATF black / grey list. For reference, UAE was on the grey list till Feb 2024; Cayman till Oct 2023 and Mauritius till Jan 2022
Bottom Line?
Could pose enhanced procedural challenges for the GPs – since further drawdowns (on committed capital) can’t now be made without running the necessary checks. If LPs don’t support, GPs could be at risk. No grandfathering for committed capital – likely irritant for LPs who have committed capital
If earlier grey list cleared countries slip back in, relationship with defaulting LPs might get strained, never mind what the fund documents say
Standardization of the 10% thresholds for BO test across different laws (PMLA, FPI/ AIFs, and RBI KYC) likely settles the argument that the test of BO under PN3 as well is linked to 10%, though not expressly clarified
Relevant Analysis
RBI eases restrictions on Bank investments into AIF – Why and what next?
Visit our website to view our analysis:
RBI eases restrictions on Bank investments into AIF – Why and what next?
GP-Led Secondaries in India – Considerations and Challenges
Visit our website to view our analysis:
GP-Led Secondaries in India – Considerations and Challenges
