India Introduces Cryptocurrency-Specific Anti-Money Laundering Measures


Anti-money-laundering regulations pertaining to cryptocurrencies and other virtual assets have been implemented by the government as part of an effort to increase the government’s level of control over virtual assets.

The Ministry of Finance made the announcement in the official gazette that anti-money laundering legislation will now apply to the trading of cryptocurrencies, the safeguarding of cryptocurrency, and linked financial services. When this date has passed, cryptocurrency exchanges in India will be compelled to report any suspicious trading activity to the Financial Intelligence Unit of the country (FIU-IND).

This modification is in line with the growing movement towards regulating digital asset platforms in the same stringent manner as traditional financial institutions such as banks and stock exchanges in order to prevent the laundering of illicit financial funds.

In recent years, NFTs (non-fungible tokens) and other types of digital currency and assets have been gaining popularity all over the world. This trend is expected to continue. The establishment of cryptocurrency exchanges has resulted in a significant increase in the volume of trade that takes place in these assets. But, up until just one year ago, India did not have a unified plan for taxing or regulating the types of investments being discussed here.

What does the law actually state?

India’s finance ministry has announced that crypto transactions will be covered under the Prevention of Money Laundering Act, 2002 (PMLA). Noting that the move “is a positive step in recognizing the sector,” a crypto insider explained that it will strengthen the industry’s efforts to prevent virtual digital assets “from being misused by bad actors.”

India has made significant strides towards bolstering regulation of the digital asset market by expanding the purview of the Prevention of Money Laundering Act (PMLA), 2002 to include bitcoin trading, custody, and other financial services. These steps were taken in an effort to strengthen regulation of the digital asset market.

On March 7, 2023, the government published a notice in the gazette that required VDA and crypto exchange intermediaries to conduct know your customer (KYC) checks on their customers and platform users. In addition, it is mandatory for these organisations to report any potentially illegal behaviour to the Financial Intelligence Unit of India (FIU-IND).

This comes after India’s finance minister, Nirmala Sitharaman, recently announced that her country and the other G-20 nations were debating the necessity for standard operating procedures to control crypto assets. This development comes as a direct result of her previous statement. Sitharaman asserted that Web 3.0 and cryptocurrency assets were still in their infancy and that widespread international collaboration would be extremely beneficial to the development of both of these areas.

In recent years, there has been a rise in interest in non-fungible tokens, often known as NFTs, along with other varieties of digital currency. Since the establishment of the first bitcoin exchanges, the total amount of transactions has significantly expanded. In spite of this, India did not have a comprehensive strategy for regulating or taxing these many types of assets until just this year.

According to the notification, the following activities are prohibited: “Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset; exchange between one or more forms of virtual digital assets; transfer of virtual digital assets; safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets.”

Any code, integer, or token generated by cryptographic processes that claimed or purported to have an underlying value was referred to as a “virtual digital asset,” and the term “virtual digital asset” was used to characterise it.

According to a remark made by India’s Finance Minister Nirmala Sitharaman in front of Parliament one month ago, the country was having discussions with other G-20 nations about the necessity of adopting a uniform operating mechanism for regulating crypto assets.

The reaction of cryptocurrency exchanges to this shift

The cryptocurrency business in India, on the other hand, has a positive outlook following the most recent announcement issued by the Central government. According to crypto specialists, the implementation of such restrictions would put an end to activities such as money laundering and other illegal use of the technology.
This notification will assist in the development of more openness within the ecosystem, which will serve to promote the India VDA sector. Ashish Singhal, the current CEO and co-founder of CoinSwitch, feels that this will also assist in the development of a common standard across all VDA platforms in India.

The most recent action taken by the government of India is symptomatic of the fact that governments all over the world are understanding the need for clear rules and are seeking to protect the interests of crypto investors. This was demonstrated by the fact that governments in India have taken action.

What does the experts have to say

The move has been praised by several professionals in the field since the announcement was made public. ‘It demands entities dealing in crypto to follow KYC, anti-money laundering standards, 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.

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