India's inclusion of crypto businesses under money laundering rules has given teeth to the regulators overseeing the industry for the first time, lawyers and industry participants said.
On Tuesday, the Finance Ministry added the industry to anti-money laundering (AML) rules, requiring crypto-related businesses to register with its Financial Intelligence Unit (FIU) and comply with other mandatory processes under the Prevention of Money Laundering Act (PMLA). These include performing verification processes such as Know Your Customer (KYC) and reporting suspicious activities.
Penalties range to as high as $1,220 for each failure.
“This move is an ask with teeth because if entities fail to report regularly and on a near real-time basis, they can be penalized,” said Vijayendra Pratap Singh, a senior partner at law firm AZB & Partners. “But this can also be seen as the next big further restriction on crypto in India after the tax regime” that saw crypto volumes in the country plummet.
Bringing the industry into the AML regulatory framework follows the Financial Action Task Force's (FATF) June 2022 call for nations to fast-track checks on crypto users’ identities. At the time, the global money laundering and terrorist financing watchdog said only 11 of 98 surveyed jurisdictions had enforced and supervised the measure known as the “travel rule.”
"The move is a step towards implementing the FATF recommendation on virtual assets," said Jaideep Reddy, counsel at law firm Trilegal, who has advised various crypto businesses in India. "The decision on a licensing regime (global regulatory framework) appears to be separately evolving based on discussions at the G-20 and international level."
The move comes months after several of India's crypto exchanges were investigated by law enforcement agencies. Several executives said the industry was already complying with such requirements, including KYC.
The Bharat Web3 Association, the body representing the crypto industry, said it had asked the Ministry of Finance for this step, and the move was welcomed by industry leaders, including Ashish Singhal, co-founder of of crypto exchange CoinSwitch Kuber, Sumit Gupta co-founder of its rival CoinDCX, who both tweeted their support.
This gives crypto in India "more legitimacy" and will help in "curbing the activities of bad actors," said Punit Agarwal, founder of crypto taxation platform KoinX.
Some in the industry were more guarded.
The new regime "will create a negative impact on centralized crypto entities in India," said Dileep Seinberg, founder and CEO of MuffinPay, a crypto neobank. It will "reduce massive transactions and business will move to decentralized exchanges and companies."
"It is a reasonably fair step," Trilegal lawyer Reddy said. "The only downside to this is it has come in overnight and appears to become effective immediately, whereas there should have been a window of compliance to put processes in place."
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