Presently, in line with the government tightening the noose on crypto regulations, India has set up money laundering provisions on the crypto sector. The Finance Ministry has stated that an anti-money-laundering legislation is now applicable on safekeeping, crypto trading, and the related financial services. This has further been specified by a Finance ministry notice which Bloomberg has cited.
A global trend currently prevails wherein digital-asset platforms are required to adhere by anti-money laundering standards. These stands bear similarities to the regulatory standards that entities in the regulated sector, such as stock brokers and banks follow. Setting up of money laundering provisions by India over the crypto sector is being seen in line with the same developments.
Another noteworthy development in the same regard had taken place in December, when in India, the Finance Ministry shared with the parliament that each of the policies that are put in place for the crypto sector will call for international collaboration. The same also stands true for any regulation that is put forth with regard to cryptocurrencies. With relation to the crypto markets, Finance minister Nirmal Sitharaman has specified that Web3 and crypto assets are growing markets.
The Finance Ministry had stated that any legislation that is finalized on the subject will be deemed effective only if it involves a sufficient degree of international collaboration. This way, regulatory arbitrage can be avoided.
The development mentioned above came into being after it was announced in Budget 2022 that starting April 1 of the year gone by, each of the crypto assets or Virtual Digital Currencies (VDCs) that are sold at a profit will invite taxation of 30%. Domestic trading volumes plunged sharply after this announcement in Budget 2022. A related reason for the same was global decline in digital assets.
In October 2022, Finance Minister Nirmala Sitharaman had specified that regulation is a must for cryptocurrncies and the government will implement the same. But all countries need to work together towards the move.
The Finance Minister had said that at a national level, handling cryptocurrencies won’t be possible. She also said that when the G-20 meet takes place under India’s presidency, crypto is going to be a part of India’s agenda.
The Finance Minster had added that before the global community, India has been attempting to present a strong case for cryptocurrncy regulation at a global level. This is to ensure that the risks associated with terror funding and money laundering is well addressed.
Nevertheless, as specified by what Trilegal counsel Reddy has shared with Bloomberg, the latest anti-money laundering measure is a matter that seeks attention. Resources and time will be called for to implement sufficient compliance measures.
Top developments that stand behind the new anti laundering regulation by the Indian government
Across the contemporary history, several crypto-related scandals have taken place across India. These scandals made it even more important to have robust framework for the regulation of cryptocurrencies in place. The anti laundering regulation on the crypto sector is vastly been seen as a step in the same line.
It was in November 2022 that hackers had taken down the internet server of All India Institute of Medical Sciences (AIIMS). They had demanded cryptocurrencies worth over $24 million in ransom.
Another related incident which also took place in November 2022 is associated with fraudulent gaming called E-nuggets. Herein, Bitcoin worth $2.5 million was seized by Indian directorate of enforcement (ED). This amounted to 150.22 Bitcoin. ED had ransacked the Binance user’s wallet connected to the mobile gaming application.
Before this, in September, ED had frozen the account balances of different Chinese-controlled entities. This was in connection with a probe in HPZ, which is an app-based token. Amount worth 9.82 crores was herein held.
Indian government had earlier imposed a 1% tax deducted at source (TDS) and a capital gains tax of 30% on crypto transactions on any Indian who would buy or sell crypto.
What all will change after the new anti laundering regulations posed by the GoI?
Following the implementation of the anti-laundering regulations, it has become a must for Indian crypto exchanges to report activities with nefarious undertones to the Financial Intelligence Unit of India. Across the couple of years gone by, Assets such as non-fungible tokens (NFTs) and digital currencies have gained traction. New crypto exchanges are being launched by the day and the trading in the assets has also increased manifolds.
So, the time was right for bringing such provisions into the picture because with more crypto transactions taking place across the world, the odds of fraudulent activities such as terror funding and money laundering also increase.
Still, right up to last year, policies that were being followed for regulating and taxing crypto assets by India did not feature a high degree of clarity.
As per the notification issued by the Finance Ministry, Prevention of Money-laundering Act, 2002 will now oversee a host of matters. This includes exchange between fiat currencies and virtual digital assets, transfer of virtual digital assets, and exchange between one or more forms of virtual digital assets. Similarly, other activities that now come under the purview of the act include administration and safekeeping of virtual digital instruments and assets, which will render control over virtual digital assets. Also included in the list are participation in and provision of financial services associated with the sale of virtual digital asset and an issuer’s offer.
As per the Indian government, the definition of virtual digital assets is any token, number, or code that has been generated via cryptographic means. This must have a representation or a promise of having an intrinsic value.
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