After 30% Tax, India's Finance Ministry Puts Cryptocurrency Trading Under Money Laundering Law

More than a year after introducing a hefty 30% tax along with 1% TDS on crypto, the Indian government has taken another decision amid the uncertain future of the cryptocurrency industry in India.

Money Laundering Laws To Apply To Crypto Trading

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India's money laundering laws will apply to trade in cryptocurrencies, the finance ministry said in a notification dated March 7.

The exchange between virtual digital assets and fiat currencies, the exchange between one or more forms of virtual digital assets and the transfer of digital assets will be covered under money laundering laws, the notification said.

The safekeeping or administration of virtual digital assets and the participation in financial services related to the offer and sale of virtual digital assets will also be covered, the notification added.

This measure is expected to aid investigative agencies in carrying out their actions against crypto companies, with the Enforcement Directorate (ED) and Income Tax Department already probing several such cases against companies running cryptocurrency exchanges and transactions.

Extending India's money laundering rules to cryptocurrencies will give authorities greater authority in monitoring the transfer of these assets beyond the country's borders, a Reuters report mentioned.

PM Narendra Modi-led administration, as part of its leadership of the G-20 forum, has been pushing for a wider global agreement on dealing with the risks brought on by cryptocurrencies.

Sharat Chandra, Co-Founder of India Blockchain Forum said "It mandates entities dealing in crypto to follow KYC, anti-money laundering regulations and due diligence as followed by banking and other financial entities which fall under the classification of reporting entities under PMLA," he said, as per Moneycontrol report.

Also Read: 5 Crypto Firms That Filed For Bankruptcy Besides FTX

ED's Crackdown On Crypto Exchanges

In August last year, ED had frozen bank balances of Rs 64.67 crore belonging to a company running a popular cryptocurrency exchange, WazirX along with searching premises of a director of the company Zanmai Labs, which was alleged to have created a web of agreements with Crowdfire Inc. USA, Binance (Cayman Islands) and Zettai Pte Ltd, Singapore, to obscure the ownership of the crypto exchange, as per Indian Express report.

Other companies and apps dealing with crypto, such as CoinSwitch, E-Nuggets have also been probed by ED in similar cases last year.

RBI's Repeated Insistence On Crypto Ban

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Over the last couple of years, India's central bank, the Reserve Bank of India (RBI) has repeatedly insisted on banning crypto. RBI has said that cryptocurrencies should be banned as they are akin to a Ponzi scheme.

After the 30% tax was announced last year, RBI governor Shaktikanta Das compared crypto to tulips, saying ¡°I think it is my duty to tell investors that what they are investing in cryptocurrencies, they should keep in mind that they are investing at their own risk." The governor further went on to say that crypto investors should keep in mind that these cryptocurrencies have no underlying (asset). Not even a tulip.

And as recently as just a few months ago, the RBI governor had said that the next financial crisis will come from private cryptocurrencies.

Crypto Industry¡¯s Reaction To The Decision

CoinSwitch co-founder Ashish Singhal tweeted that the notification to bring VDA transactions under PMLA (Prevention of Money-Laundering Act) is a positive step in recognizing the sector.

¡°Finance Ministry's notification to bring VDA transactions under PMLA is a positive step in recognizing the sector.

This will strengthen our collective efforts to prevent VDAs from being misused by bad actors. CoinSwitch has always prioritized KYC & responsible use of crypto.¡±

WazirX founder too welcomed the move. ¡°All crypto businesses in the country would come under the ambit of PMLA. This is a good step towards regulating the crypto industry in India. This also ensures all crypto businesses must perform necessary KYC, transaction monitoring etc as part of their process. Good progress¡± he tweeted.

The move by India aligns with a global trend of requiring digital-asset platforms ¡°to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers,¡± said Jaideep Reddy, counsel at law firm Trilegal, as per Bloomberg report.

Last year India applied more stringent tax rules on the crypto sector, including applying a levy on trading. Those moves, as well as a global rout in digital assets, caused a plunge in domestic trading volumes.

The latest anti-money laundering measure ¡°is concerning as implementing the requisite compliance measures is likely to require time and resources,¡± Reddy said.

Also Read: 'I Am Sorry': 27-YO Indian-origin Engineer At Bankrupt Crypto Exchange FTX

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