Govt. of India brings crypto trading under PMLA - Sathish Puthan Madathil, Bangalore, India

Government of India brings Crypto Trading under the Money Laundering Law like Prevention of Money Laundering Act - PMLA - By Sathish Puthan Madathil, Bangalore, India.

Government of India in its strategic move, in order to tighten oversight of Digital Assets, it has brought Crypto Currency Trading, Safekeeping and related financial services under the ambit of PMLA Act, 2002. It is learnt that the Government of India's initiative is really a great move to protect our assets and prevent Money Laundering which is now a days largely used for all the anti- national activities including Terrorist funding. This move will help the agencies to get the 'Red Flag' when some activities are being perpetrated by the offenders. India has several Economic Offences preventive and detection agencies like ED, FIU, SFIO, Income Tax, GST, NIA, CBI which monitor the movement of money illegally which can be used for criminal activities, both conventional and Financial Crimes, National or Transnational.

Crypto exchanges and intermediaries dealing with virtual digital assets now be required to perform KYC of their clients and users of the platform. This facilitate the origin of the transaction by the Investigating agencies, particularly when there is a red flag arises. Besides this all Money Exchanges operating in India is mandatory to disclose and report such suspicious transactions, if any to the Financial Intelligence Unit of India (FIU).

Background : In the last year itself the Finance Minister of India, during the presentation of the Annual Fiscal Budget has introduced 30 % tax on VDAs and 1 % on transactions. So for example, even if I wanted to make a payment to my daughter studying in Australia, the bank who make the remittance of Foreign Currency by using the resources from my Indian Bank Account Collects 1 % tax of the total value of the transactions which can be deducted at source while making the transfer. It is also made provision by the government that any corporate not complying will be penalized heavily on this. RBI's position is that it has likened crypto Ponzi schemes, reasoning recognizing them lead to the 'Dollarisation' of the economy, which would be against the interest of India (particularly in the favorable Balance of payments, which means excess of receipt of Foreign Currency than the payment liability in Foreign Currency). RBI has been reportedly highlighting the risks cryptos post to financial stability and to overcome this they decided to launch Indian Crypto Currency or Digital Currency.

It is also learned that the notification of the Finance Ministry of India says that entities dealing in virtual digital assets will be considered as "reporting entity" under PMLA like currently the Banks and financial institutions entities engaged in real estate and jewellery sectors as well as Casinos are considered reporting entities Under this law and every reporting entity is required to maintain the record of all the transactions. The central government move to bring the cryptocurrency section under the ambit of the PMLA 2002 is in line with the global trend of requiring digital assets platforms to follow strictly the anti-money laundering standards and compliance, similar to that of followed by the Banks, or Stock brokers.

It may be noted that last year India implemented more stringent tax rules on the crypto sector since it was found that this has been used for evading tax and for doing other financial illegal transactions by Cartels and other interested groups. It is also found that Crypto is being used by the terrorist groups for the terrorist funding and other illegal transactions very popularly, since it is more or less transnational and less regulated payment application systems. India is now levying taxes on Crypto trading.

It is reported that last month our FM, informed Parliament that India was discussing with the G 20 members the need to develop a Standard Operating Procedures (SOP) for regulating the Crypto Assets. According to her crypto assets and web3 are relatively new and evolving sectors and require significant international collaboration for any specific legislation on these sectors to be fully effective. As per the notification of India, exchange between virtual digital assets, and flat currencies, exchange between one or more forms of Virtual Digital Assets (VDAs), transfer of the VDAs, safekeeping or administration of the VDAs or instruments enabling control over the VDAs, and participation in and provision of financial services related to issue's offer and sale of VDAs will now be covered under the PMLA 2002. Under the law, every reporting entity which is engaged in the Crypto Assets is required to maintain a record of all the transactions including the record of all cash transactions if any, of more than Rs. 10 Lakhs . Also they are required to maintain records of all series of cash transactions integrally connected to each other, which have been individually valued below Rs. 10 Lakhs, where such series of transactions have taken place within a month and monthly aggregate exceeds Rs. 10 Lakhs, besides other records.?

The entities dealing in VDAs will now be considered reporting entity under the PMLA 2002. According to some financial experts, all such intermediaries need to maintain record of all transactions and such records to be maintained for a minimum period of 5 years. Now the challenge of the Government of India while launching the Indian Crypto Currency / Digital Indian Rupee Currency is to formulate a policy around Crypto sector. According to them, in the coming years more stringent policies and rules are expected to be announced by the government to regulate it in the industry.

CONCLUSION:

Bringing in virtual digital assets under money laundering provisions, the Finance Ministry has notified transactions involving the exchange, transfer and safekeeping of crypto assets?under the Prevention of Money Laundering Act 2002 (PMLA 2002).?The PMLA coverage is set to widen the taxation and regulatory net, as it also covers the exchange between virtual digital assets and fiat currencies.

What does the notification say?

In the notification dated March 7, the central government has notified participation in and provision of financial services, which are related to an issuer’s offer and sale of a virtual digital asset, under PMLA. “…the central government hereby notifies that the following activities when carried out for or on behalf of another natural or legal person in the course of business as an activity for the purposes of said sub sub-clause, namely:- (i) exchange between virtual digital assets and fiat currencies; (ii) exchange between one or more forms of virtual digital assets; (iii) transfer of virtual digital assets; (iv) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and (v) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset,” it said listing out the nature of transactions to be covered under PMLA.

This will allow a very well defined policy, procedures and law in dealing with Crypto Currency assets in India. It is also facilitate organised players to enter the sector with bigger investments. It is expected that the cloud of doubt about the risk in investing the Crypto Currency Assets will be slowly removed from the market in India and the Investors will be confident in playing in this like shares and stocks, because of some regulated and safe environment of operation in the Virtual Digital Assets or Crypto Assets. Government may also need to constitute a Regulatory Authority like SEBI in the Crypto Currency assets also.

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