International Tax Panorama

The finance ministry has notified that crypto or virtual asset businesses will now be in the ambit of the Prevention of Money Laundering Act, 2002 (PMLA).

Now Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).

It mandates entities dealing in crypto to follow KYC, anti-money laundering regulations and due diligence as followed by banking and other financial entities which fall under the classification of reporting entities under PMLA.

“Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset… For the purposes of this notification ‘virtual digital asset’ shall have the same meaning assigned to it in Clause (47A) of Section 2 of the Income-Tax Act, 1961 (43 of 1961),” said a gazette paper of issued by the Government of India.

This is big step towards a regulated crypto ecosystem! Entities such as CoinDCX are now required by law to conduct due diligence and enhanced due diligence under the PMLA.

The move by India aligns with a global trend of requiring digital-asset platforms “to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers.

Last year India implemented more stringent tax rules on the crypto sector, including applying a levy on trading. Those moves, as well as a global rout in digital assets, caused a plunge in domestic trading volumes.

India’s Enforcement Directorate, which has the mandate to investigate money laundering and forex violation cases, has already been probing crypto companies including exchanges CoinSwitch Kuber and WazirX.

The latest anti-money laundering measure is concerning as implementing the requisite compliance measures is likely to require time and resources.