The Government of India notified through the official Gazette that cryptocurrencies would also be under the prevention of money laundering act. This action is in accordance with the standard view that cryptocurrencies might be used for the illegal purpose of money laundering.
India defines Virtual Digital Assets (all blockchain-based financial instruments) under Clause (47A) of Section 2 of the Income-Tax Act, 1961 (43 of 1961). Till now, most of the regulations were either tax-oriented. Even the Budget 2023 had no mention of crypto.
The law is supposed to check crypto funds that have been sourced from illegal activities such as fraud, phishing, scams, etc.
Nischal Shetty, one of the founders of WazirX, has welcomed the move saying that these will help regulate crypto businesses in India. He further commented that it would boost KYC and other compliances.
All crypto businesses in the country would come under ambit of PMLA
This is a good step towards regulating the crypto industry in India
This also ensures all crypto businesses must perform necessary KYC, transaction monitoring etc as part of their process.
Good progress ✌️ pic.twitter.com/lVhs5LWG4I
— Nischal (Shardeum) ⚡️ (@NischalShetty) March 8, 2023
Crypto and Financial Crime in India
Cryptocurrencies have been used to launder money in India, and this has been a matter of prime concern where black money in the financial system is one of the core electoral issues.
Further, virtual cryptocurrency exchanges have emerged as tax havens in the country. In 2021 alone, more than ₹4000 crores or $500 Million were unearthed by investigative authorities. As per Chainalysis, most crypto transactions of illicit nature were done using Altcoins such as Ethereum(63%) and Stablecoins(57%).
In Dec 2022, Delhi Police intercepted a crypto scam of ₹500 Crore or $62.5 Million. In another case, three Indian crypto firms have been under scrutiny for a $3.3 billion drug-related transaction.
Cryptocurrency exchanges have earlier been notified that they must store and exchange the past ten years of data with the authorities on demand.
Global Actions to Check Misuse of Crypto
Cryptocurrencies have been widely used to launder money and store black money. Chainalysis estimates that around $8.6 Billion was laundered using cryptocurrencies in its 2022 Crypto Crime Report.
Further, there is always a risk of Terro Financing using crypto. Al Qaeda, ISIS, and Hamas were known to have used crypto to receive donations that were later used for terror financing. Israel intercepted and seized a substantial amount of funding received by known terrorist organizations.
With the G20 Meeting, IMF and FSB have been tasked to present a technical paper on crypto which will help the G20 members to regulate cryptocurrencies. Indian crypto regulation is expected to draw heavily from these reports.