India's Law Enforcement Agency Probes Crypto Exchanges for Forex Violations

The investigation comes amid a slide in the rupee to a record low versus the greenback.

AccessTimeIconJul 8, 2022 at 12:06 p.m. UTC
Updated May 11, 2023 at 6:42 p.m. UTC

India's Directorate of Enforcement (ED) has issued notices to crypto exchanges seeking more information on supposed foreign exchange violations by those entities, according to the Economic Times.

At issue are possible violations of the Foreign Exchange Management Act 1999 (FEMA), which outlines formalities and procedures for all foreign exchange transactions in India. The law's main objective was to facilitate external trade and payments and ensure orderly development and maintenance of the Indian forex market. The ED is tasked with ensuring compliance with the law and probing violations under the FEMA act and the Prevention of Money Laundering Act 2002 (PLMA).

"Transaction history, relationship with foreign exchanges, how much money is going out of India – ED is examining every detail on offshore transactions," an ED official told the Economic Times.

The renewed focus on alleged FEMA violations comes amid the Indian rupee's (INR) continued slide against the U.S. dollar. The INR fell to a record low of 89.40 per dollar on Tuesday, bringing the year-to-date decline to 6%.

Cryptocurrencies allow a free movement of money across political boundaries, bypassing traditional banking channels. Increased outflows through the decentralized crypto setup could put downward pressure on national fiat currency. Further, the system can be used for money laundering and terror funding, as India Finance Minister Nirmala Sitharaman noted early this year.

Bangalore-based crypto exchange CoinSwitch Kuber confirmed receiving an ED notice: "We receive queries from various government agencies. Our approach has always been that of transparency. Crypto is an early-stage industry with a lot of potential and we continuously engage with all stakeholders," it wrote in an email to CoinDesk.

According to the Economic Times' sources, crypto exchange CoinDCX also received a notice, and the platform's CEO, Sumit Gupta, is cooperating with agency investigators. CoinDesk was awaiting a response from CoinDCX at the time of writing.

India's crypto ecosystem saw explosive growth after the Supreme Court set aside the Reserve Bank of India's banking ban on crypto exchanges in March 2020. That boom, however, attracted the attention of various government agencies. Last year, the ED issued a show-cause notice to Mumbai-based crypto exchange WazirX for transactions involving cryptocurrencies worth Rs 27.91 billion ($382 million).

The government recently introduced a controversial tax low, which is likely to amplify the problems faced by the Indian crypto community.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.