Government Mandates Money Laundering Laws for the Crypto Industry

Synopses: In a notification published on March 7, 2023, the Finance Ministry stated that crypto trading, safekeeping, and related financial services now fall under the purview of anti-money laundering legislation.

While the Government has taken multiple steps in the recent past to strengthen control over digital assets, the latest step is the implementation of money laundering laws on the crypto market. Trading, safekeeping, and related financial services have now been made subject to the Prevention of Money Laundering Act, 2002 (“PMLA”).The notification states “Exchange between virtual digital assets and fiat currencies, exchange between one or more forms of virtual digital assets, transfer of virtual digital assets, safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, and participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset” will be covered by the PMLA.

The move by the Indian Government is in line with theglobal drift requiring digital asset platforms to adhere toanti-money laundering standards like those adopted by other regulated entities like banks or stockbrokers.”.

Most players in the cryptocurrency industry have greeted the move, since it heralds a move towards a regulated crypto ecosystem, as opposed to a time when the sword of a complete ban hung over its head. However, the question remains whether any grace time has been given to them to adhere to these requirements since these are onerous.

The notification provides that entities dealing in virtual digital assets will be considered “reporting entity” under the PMLA, and hence be required to maintain a record of all transactions including KYC details. Other ‘reporting entities’ are banks, financial institutions, and entities engaged in the real estate and jewellery sector. In addition, from now on, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (“FIU-IND”)