Indian crypto exchanges are now required to report any suspicious activity related to buying or selling of cryptocurrency to the Financial Intelligence Unit – India (FIU-IND). file | Photo Credit: Reuters
the story So Far: On March 7, to further tighten the loosely regulated crypto market, Finance Ministry said All Virtual Digital Assets (VDA) will come under its ambit Prevention of Money Laundering Act, 2002 (PMLA),
What is PMLA?
The anti-money-laundering law was passed by the National Democratic Alliance government in 2002, and came into force on July 1, 2005. PMLA was showcased as India’s commitment Vienna Convention on Combating Money Laundering, Drug Trafficking and the Financing of Terrorism (CFT). The purpose of the law was to curb the process of converting illegally acquired money into legal cash. Act Enforcement Directorate (ED) empowered To control money laundering, confiscate assets and punish offenders.
Editorial | Late, but necessary: on bringing all trade in virtual digital assets under the PMLA
In July 2022, Union Minister of State for Finance Pankaj Chowdhary told the Lok Sabha, in response to a question on the cases registered by the ED, that “up to March 31, 2022, the ED registered around 5,422 cases involving an income of ₹1, 04,702 crore (approx), filed prosecution complaints in 992 cases, resulting in seizure of ₹869.31 crore and conviction of 23 accused under PMLA.
What does this move mean for crypto?
The gazette notification by the ministry brings cryptocurrency transactions under the purview of the PMLA. This means that Indian crypto exchanges will have to report any suspicious activity related to the purchase or sale of cryptocurrencies to the Financial Intelligence Unit-India (FIU-IND). This central agency is responsible for receiving, processing, analyzing and disseminating information relating to suspicious financial transactions to law enforcement agencies and foreign FIUs. If FIU-IND finds any discrepancy in its analysis, it will alert the ED. Under Section 5 and 8(4) of the Act, the ED has discretionary powers to search and seize suspected property without judicial permission.
Why is the government tightening its legislative grip on digital business?
For a little over a decade, cryptocurrencies, non-fungible tokens (NFTs) and other digital assets enjoyed a regulation-free environment. But, over the past few years, as the use of digital assets has gone mainstream, regulators have become aggressive. According to cryptocurrency price-tracking site CoinMarketCap.com, the value of all existing cryptocurrencies as of January 3, 2023 is approximately $804 billion. This is almost double the GDP of Singapore in 2021. In India, according to a survey conducted by crypto exchange KuCoin, over 100 million Indians have invested in cryptocurrencies.
Separately, according to a report by blockchain analytics firm Chainalysis, illicit use of cryptocurrencies hit a record $20.1 billion last year. Transactions involving approved entities jumped more than 100,000 times, accounting for 44% of last year’s illegal activity.
What tools can be used to track money laundering through crypto transactions?
Tracing the money trail in cryptocurrency transactions may require new tools and approaches because such transfers are fundamentally different from traditional banking channels. FIU may be familiar with Know Your Customer (KYC) or Customer Due Diligence (CDD) norms. But the technical nature of VDAs presents a new challenge in gathering information. For this the intelligence unit needs to broaden its intelligence infrastructure.
Egmont Group crypto wallet facilitating cooperation between FIU to prevent money laundering, addresses and blockchain records associated with it, and hardware such as IMEI (International Mobile Equipment Identity), IMSI (International Mobile Subscriber Identity) or SEID (Secure Element) Recommends analysis of identifiers. identifier) number, as well as MAC address.
What about regulation in other countries?
According to PwC’s ‘Global Crypto Regulation Report 2023’, a vast majority of countries are in various stages of drafting regulations around crypto. Most countries have already brought digital assets under anti-money laundering laws. Singapore, Japan, Switzerland and Malaysia have laws on the regulatory framework. The US, UK, Australia and Canada have launched plans on regulation. So far, China, Qatar and Saudi Arabia have banned cryptocurrencies outright. The EU is also building a cross-jurisdictional regulatory and supervisory framework for crypto-assets. The framework seeks to provide legal clarity, consumer and investor protection, and market integrity, while fostering innovation in digital assets.