The Indian government has taken a significant step to tighten regulations around cryptocurrencies and virtual assets by bringing them under the purview of money laundering laws. The move comes amid growing concerns about the use of these digital assets for illicit activities such as money laundering, terrorism financing, and tax evasion.
In a notification dated March 7, the country’s finance ministry announced that it has brought the transactions of virtual digital assets (VDAs) – including cryptocurrencies – under the ambit of the Prevention of Money Laundering Act (PMLA) 2002. The anti-money laundering legislation now applies to a varied range of transactions in the crypto sector.
These include exchanges between VDAs and fiat currencies, exchanges between one or more forms of VDAs, and the transfer of VDAs. The “safekeeping or administration” of VDAs or instruments that enable control of the same, and the “participation in and provision of financial services related to an issuer’s offer and sale” of a VDA now fall under the purview of the country’s money-laundering laws as well.
Going forward, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND). For those who are unaware, Clause 47(a) of Section 2 of the Income-tax Act, 1961 defines virtual digital assets as any information, code, number, or token (which is not Indian currency or foreign currency) that has been generated through cryptographic means or otherwise.
This development marks the latest step taken by the government to tighten oversight of digital assets in the country. India has perennially been a tough market for the crypto sector to crack, and its uses in illicit activities such as money laundering have not endeared it to the Indian government. The decision to bring cryptocurrencies and virtual assets under money laundering laws is a significant development in India’s efforts to regulate the use of these digital assets.
Furthermore, it is expected to help to address the concerns of law enforcement agencies who have been worried about the use of these assets for illegal activities. The move is expected to make it more difficult for criminals to use cryptocurrencies and virtual assets to launder money or finance terrorism.
It also falls in line with global efforts to bring a greater degree of regulation and legislation in the crypto industry due to the potential of its misuse in illicit activities. Countries across the globe require digital-asset platforms to follow anti-money laundering standards, and India lacked proper legislation and policies to deal with the regulation and taxation of cryptos and digital assets for a long time.
“It mandates entities dealing in crypto to follow KYC, anti-money laundering regulations, and due diligence as followed by banking and other financial entities which fall under the classification of reporting entities under PMLA,” said Sharat Chandra, co-founder of the India Blockchain Forum.
“Slowly but surely, we are moving towards a regulated crypto ecosystem! Entities such as CoinDCX are now required by law to conduct due diligence and enhanced due diligence under the PMLA,” Sumit Gupta, co-founder and CEO of crypto exchange CoinDCX, commented on the matter.
