New Delhi: The Indian Ministry of Finance has issued show cause notices to 9 offshore virtual digital assets service providers (VDA SPs) for violating the anti-money laundering law. The notices were sent to crypto exchange operator Binance and eight other platforms: Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.
The Financial Intelligence Unit (FIU), a wing of the Finance Ministry that monitors financial crimes, has also requested the Ministry of Electronics and Information Technology (MeitY) to block access to these 9 digital platforms in India. The FIU found that these platforms were operating in India without complying with the Prevention of Money Laundering Act (PMLA), 2002.
The PMLA requires all VDA SPs that offer services to Indian customers to register as a reporting entity with FIU-IND, the Indian counterpart of the FIU. A reporting entity is obliged to maintain records of all transactions, verify the identity of its customers, and report any suspicious or unusual activities to the FIU-IND. The FIU-IND is a central agency that collects, processes, analyzes, and disseminates information related to money laundering, terrorist financing, and other financial crimes to enforcement agencies and foreign FIUs.
According to the Finance Ministry, the 9 offshore VDA SPs failed to register as a reporting entity with FIU-IND, despite offering services to Indian customers. This poses a risk of money laundering, tax evasion, fraud, and other illicit activities through the use of cryptocurrencies. The FIU-IND has given these platforms 15 days to respond to the show cause notices and explain why they should not be penalized under the PMLA.
So far, only 31 VDA SPs have registered themselves with FIU-IND, out of which 27 are Indian and 4 are foreign. The FIU-IND has also issued guidelines for VDA SPs to follow the PMLA provisions and ensure compliance with the anti-money laundering law. The FIU-IND has warned that any VDA SP that fails to comply with the PMLA will face legal action and may be banned from operating in India.
The move by the Finance Ministry is part of the Indian government’s efforts to regulate the cryptocurrency sector and protect the interests of investors. The government has also proposed a bill to ban all private cryptocurrencies and create a framework for an official digital currency issued by the Reserve Bank of India. The bill is expected to be tabled in the next session of the Parliament.