Government Imposes Money Laundering Provisions On Virtual Assets

The Economic Survey of 2023 had stressed the requirement for a common approach to regulate the crypto ecosystem, given its rapid adoption. The gazette notification issued on 7 March by the Union Finance Ministry, cited by new agency Bloomberg, stated that digital assets, cryptos or virtual asset business will now come under the ambit of PMLA i.e., Prevention of Money Laundering Act 2002.

The notice further reportedly stated that the VDAs or virtual digital assets will now be considered 'reporting entities' under the PMLA. Also, cryptocurrency exchanges and intermediaries which deal in VDAs are mandated to perform KYC of their clients and users. Furthermore, crypto exchanges are required to report any suspicious transactions to FIU-IND, i.e., the Financial Intelligence Unit of India.

The above move has been taken to tighten the misuse of digital assets and is a step towards regulating this space. Here, it is pointed out that the Indian government is yet to finalise legislation and regulations regarding cryptocurrencies, though the RBI is of the opinion that cryptos are akin to a Ponzi scheme.

The move is in line with the 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, told Bloomberg.

As per earlier reports, in February 2023, finance minister Nirmala Sitharaman, in a bilateral discussion with her counterparts ahead of the G20 finance and central bank governors meet in Bengaluru had urged for a framework to regulate cryptocurrencies. The minister had also held a discussion with International Monetary Fund (IMF) managing director Kristalina Georgeiva in the same month and urged the multilateral funding agency to develop a globally coordinated approach to the regulation of crypto assets.