Government imposes anti-money laundering provisions on cryptocurrency, virtual assets
In the latest blow to the cryptocurrency sector in the country, the Indian government has imposed money laundering provisions on the industry. The move is aimed at tightening the oversight of digital assets. Entities dealing in crypto will now have to follow KYC and anti-money laundering regulations. Notably, India isn't the only country to bring the crypto sector under anti-money laundering provisions.
Why does this story matter?
- India has been discussing bringing legislation to regulate the crypto sector, but the country has yet to make a final decision.
- If it is up to the Reserve Bank of India (RBI), crypto will be banned in the country. However, the government believes the industry must be regulated rather than banned.
- The latest decision is in line with that.
Crypto exchanges have to report suspicious activities
The Ministry of Finance notified via a gazette paper that crypto or virtual digital asset businesses are now under the ambit of the Prevention of Money Laundering Act, 2002 (PMLA). The legislation will now apply to crypto trading, safekeeping, and financial services related to that. From now on, crypto exchanges will have to report suspicious activities to the Financial Intelligence Unit.
The government is regulating 'virtual digital assets'
"The Central Government hereby notifies that the following activities... participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset," the gazette paper reads. "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)."
What are virtual digital assets?
Per Section 2 of the Income Tax Act, virtual digital assets refer to any digital representation of value generated through cryptographic means or otherwise. They are used for financial transactions, investments, or store value. This includes cryptocurrencies, NFTs, and other specified digital assets.
Banking and financial institutions are already covered under PMLA
The decision by the government puts the crypto sector in the same category as banking companies, financial institutions, and intermediaries. Under PMLA, they are obligated to keep records of transactions and furnish such reports as and when necessary. Now, the crypto sector will also need to do the same. In the long run, this could benefit the industry.