India’s anti-money laundering laws will now apply to crypto

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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 Department of Finance issued a notice on Tuesday, March 7, 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, every reporting entity must keep a record of all transactions over approximately $12,200 for at least five years.

The move is in line with global efforts to limit the use of digital assets for money laundering, similar to rules applied to other regulated entities such as banks and securities brokers. As early as 2014, Canada made entities trading in virtual currencies subject to its law on money laundering and the financing of terrorism. Similarly, South Korea is working to regulate its crypto industry through anti-money laundering policies.

In India, concerns over the use of cryptocurrencies to launder illegal cash came to the fore in 2021. In June, Indian authorities discovered that nearly $488 million had been laundered through transactions crypto in the past year alone.

Indian authorities have taken a tough stance on cryptos

Even though VDAs and non-fungible tokens have been gaining popularity in India over the past few years, the government had no clear policy or regulation until last year. The government budget, in 2022, imposed a 30% tax on income from crypto transactions. and introduces a 1% tax, deducted at source, on income above a certain threshold. Donations of crypto and digital assets are also taxed.

These rules led to a sharp drop in trading volumes within 10 days, and ultimately a 90% drop over the next three months. Several crypto entities have shut down in India, moving their operations and exchanges to more crypto-friendly countries like Dubai or El Salvador.

According to a recent report, Dubai Free Zone DMCC said 16% of new business registrations registered in the first quarter of 2022 were crypto and blockchain companies, said Pushpendra Singh, the founder of the media platform from crypto SmartView AI to Cointelegraph last year. Millions of talented young Indians from various disciplines have left Indian soil in search of better opportunities.

After banning rampant crypto advertising last year, Indian authorities introduced a precautionary ban on crypto advertising and sponsorships at a national women’s cricket league last month. In recent months, the government has also pushed for collective efforts to regulate crypto assets globally, to control terrorist financing. At a G20 meeting last month, Nirmala Sitharaman, India’s finance minister, urged international authorities to work together to regulate crypto assets 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 gaining recognition for the industry, Ashish Singhal, co-founder and CEO of Indian crypto exchange CoinSwitch, said in an email. This will strengthen our collective efforts to prevent VDAs from being misused by bad actors.

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