India Tightens Grip On Crypto: Virtual Assets Under Money Laundering Provisions – Here Is All You Need To Know

NEW DELHI: On March 7th, the Indian Finance Ministry issued a notification bringing virtual digital assets under the Prevention of Money Laundering Act (PMLA).

The move covers transactions involving the exchange, transfer, and safekeeping of crypto assets and is expected to widen the taxation and regulatory net. Additionally, it includes covering exchange between virtual digital assets and fiat currencies.

The PMLA coverage of virtual digital assets is set to aid investigative agencies such as the Enforcement Directorate and Income Tax Department in their actions against cryptocurrency companies. The measure is expected to make it easier to carry out actions against crypto companies suspected of involvement in money laundering.

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WHAT DOES THE NOTIFICATION SAY

The notification covers participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset. The notification specifies the following activities that will be covered under PMLA:

• Exchange between virtual digital assets and fiat currencies.
• 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.
• Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.

The Indian government’s move to bring virtual digital assets under PMLA has been largely welcomed by the cryptocurrency industry. However, there are concerns about the wide ambit of the fresh notification and its enforcement in the absence of a direct regulator.

The Indian government has not yet framed any further regulations for cryptocurrencies, despite imposing a tax for them in the Union Budget last year. This was even as the Reserve Bank of India, which had earlier proposed a ban on cryptocurrencies, subsequently saw the restriction being set aside by a court order.

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HELP TO THE LAW ENFORCEMENT AGENCIES

The Enforcement Directorate has already taken action against several companies running cryptocurrency exchanges and transactions. Last year, the ED froze bank balances of Rs 64.67 crore belonging to a company running a popular cryptocurrency exchange named WazirX. The agency also searched the premises of a director of Zanmai Labs, which was alleged to have created a web of agreements to obscure the ownership of the crypto exchange. Other companies and apps dealing with crypto, such as CoinSwitch and E-Nuggets, have also been probed by ED in similar cases.

While the industry has publicly welcomed the decision, some insiders are concerned that the notification does not offer entities any transition time to adhere to the fresh norms. Moreover, in the absence of a central regulator like the Reserve Bank of India for banks, crypto entities could end up dealing directly with enforcement agencies like the ED.

The Indian government’s move to bring virtual digital assets under PMLA is expected to aid investigative agencies in their actions against crypto companies. The move is expected to make it easier to carry out actions against crypto companies suspected of involvement in money laundering. While the industry has welcomed the decision, there are concerns about the enforcement of the fresh notification in the absence of a direct regulator.

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