Crypto transactions in India are now subject to AML laws

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(Kitco News) – As India works to gain control over its growing population of cryptocurrency users, the Indian government has officially notified all interested parties of their responsibility to comply with national anti-money laundering (AML) laws when it comes to their crypto . Business.

According to a finance ministry notice published in The Gazette of India on Tuesday, India has added digital asset-related activities to the list of behaviors that must comply with AML rules, meaning crypto exchanges, NFT marketplaces and custody service wallet providers are now legally liable to monitor suspicious financial activities.

Events specifically identified in the notice include, “exchange between virtual digital assets and fiat currencies; exchange between one or more forms of virtual digital assets; transfer of virtual digital assets; custody or administration of virtual digital assets or instruments enabling control of virtual digital assets assets; and participating in and providing financial services related to an issuer’s offering and sale of a virtual digital asset.”

All businesses facilitating digital asset transactions are required to register with the Financial Intelligence Unit (FIU) and comply with other mandatory processes under the Prevention of Money Laundering Act (PMLA).

As part of the requirements of the PMLA, financial institutions are obliged to keep a record of all transactions for the past ten years, provide these records to officials if required, and verify the identity of all clients.

This development puts a lot of power over the fate of cryptocurrencies in India in the hands of the FIU, which has become the de facto regulator overseeing the crypto industry in the absence of a dedicated regulatory body. Up until this point, crypto companies were not required by law to perform verification processes such as Know Your Customer (KYC).

Under the new regulatory regime, these companies must now report all suspicious activities to the FIU voluntarily and must appoint a Money Laundering Reporting Officer (MLRO) to ensure compliance with the law.

The government in India has been one of the strictest in regulating the crypto industry, and the 2023 budget kept in place the restrictive crypto tax rules originally established in 2022. Currently, there is a 30% tax on all crypto profits and a 1% tax deducted at source (TDS) on all crypto transactions.

In addition to maintaining the high crypto tax rules, the government also added provisions that could potentially lead to fines or imprisonment for non-compliance with the TDS provision. The fine will equal the tax liability for the transaction, while offenders also face the possibility of spending three to 84 months in prison for non-compliance.

India is also well on its way to creating a digital central bank currency (CBDC), with the digital rupee in its pilot testing phase. In February, the digital rupee received a boost in usage when Reliance Retail, India’s largest retailer and part of the country’s Reliance conglomerate, announced it would begin accepting payments via e-rupee in all 17,000 of its stores.

And in its role as president of the G-20, India is working with the International Monetary Fund (IMF) and the Financial Stability Board (FSB) to develop a regulatory approach for cryptocurrencies. During an interview in February, India’s Finance Minister Nirmala Sitharaman stated that the G-20 wants to establish a set of global standard operating procedures that can be agreed upon by member states for the regulation of crypto-assets.