The Indian government will apply anti-money laundering provisions to transactions related to cryptocurrencies or virtual tokens, in a bid to strengthen its oversight of digital assets.
The Ministry of Finance published on Tuesday March 7 a notice stating that local crypto exchanges and entities dealing with virtual digital assets (VDAs) will now be required to perform know-your-customer due diligence on their users. By law, each reporting entity duty keep a record of all transactions over approximately $12,200 for at least five years.
This movement is synchronized with global efforts to curb the use of digital assets for money laundering purposes, similar to the rules applied to other regulated entities such as banks and securities brokers. From 2014, Canada has brought entities dealing with virtual currencies under his money-law on money laundering and the financing of terrorism. In the same way, South Korea works towards the regulation of its crypto industry by anti-money laundering policies.
In India, concerns over the use of cryptocurrencies for illegal money laundering came to the fore in 2021. This June, Indian authorities discovered that nearly $488 million had been washed via crypto transactions in the past year alone.
Indian authorities have taken a tough stance on cryptos
Even though VDAs and non-fungible tokens have gained popularity in India over the past few yearsthe government had no a clear policy or regulation until last year. The government budget, in 2022, imposed a 30% tax on income from crypto transactions and introduced a 1% tax, levied at source, on income above a certain threshold. Donations of crypto and digital assets are also taxed.
These rules have led to a sharp decline in trading volumes within 10 days, and eventually a 90% drop over the next three months. Several crypto entities have shut down in India, move their operations and trade to more crypto-friendly countries like Dubai or El Salvador.
“According to a recent report, Dubai Free Zone DMCC said that 16% of new business registrations registered in the first quarter of 2022 were crypto and blockchain companies,” Pushpendra Singh, the founder of the SmartView AI cryptographic media platform says Cointelegraph Last year. “Millions of talented young Indians from various disciplines have left Indian soil in search of better opportunities.
After banning creepy crypto advertising last year, Indian authorities have introduced a preventive ban on crypto advertising and sponsorships at a national women’s cricket league last month. In recent months, the government has also called for collective efforts to regulate globally cryptographic assets, as a means of verifying terrorist financing. AT G20 meeting last month, Nirmala Sitharaman, India’s finance minister, urged international authorities to work together to regulate crypto active more effectively.
The crypto industry hailed India’s move
The inclusion of crypto transactions as part of money laundering laws has legitimized the industry, amid concerns over a possible crypto ban.
The move “is a positive step in industry recognition,” Ashish Singhal, co-founder and CEO of Indian crypto exchange CoinSwitch, said in an email. “This will strengthen our collecefforts to prevent VDAs from being misused by bad actors.