Centre imposes money laundering provisions on cryptocurrencies

The Centre has imposed money laundering provisions on the cryptocurrency sector, in what many described as the government’s latest step to tighten oversight of digital assets.

According to a notification issued by the Ministry of Finance, firms dealing with virtual digital assets would now be legally responsible for monitoring suspicious financial transactions. They would also have to register with the Financial Intelligence Unit and comply with other mandatory processes under the Prevention of Money Laundering Act (PMLA).

The move makes crypto exchanges on par with stock brokers and banks that are required to have customer due diligence and maintain records related to KYC and PMLA.

“This permits the government to have greater oversight while ostensibly legitimising crypto currencies,” said senior advocate Sidharth Luthra. “It's actually a provision to enable the government to have complete information on all crypto trades.”

Crypto trade has been largely unregulated in India. While the Reserve Bank of India had banned cryptocurrencies in 2018, the country’s apex court overturned that decision in 2020. Last year, Asia’s third-largest economy imposed a hefty 30 per cent tax on any gains from the transfer of virtual digital assets.

The new provisions will add to the compliance burden on crypto exchanges, which saw a huge drop in domestic trading volumes last year after the government implemented stricter tax rules. Crypto exchanges, however, welcomed the government’s move on Wednesday, terming it as a step towards a regulated ecosystem for virtual digital assets.

“Slowly but surely, we are moving towards a regulated crypto ecosystem,” said Sumit Gupta, co-founder & CEO at CoinDCX. “We are committed to combating money laundering and terror financing. We have been voluntarily conducting these compliances for a while now, but happy to see that this has now been made into law.”

The money laundering laws will be applicable to the exchange between virtual digital assets and fiat (government-issued) currencies, the trade between one or more forms of virtual digital assets and the transfer of virtual digital assets.