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

The Indian government will apply anti-money laundering regulations to transactions related to cryptocurrencies or virtual tokens, in an effort to tighten oversight of digital assets.

The Ministry of Finance issued on Tuesday (March 7). a warning which states that local crypto exchanges and entities dealing with virtual digital assets (VDA) will now be required to perform know-your-client due diligence on their users. Pursuant to the Act, each reporting entity must maintain a record of all transactions of more than about $12,200 for a minimum of five years.

This move is synchronized with global effort to curb the use of digital assets for money laundering, similar to the rules that apply to other regulated entities such as banks and stockbrokers. As early as 2014, Canada brought units trade in virtual currencies under their money-money laundering and terrorist financing. Similarly, South Korea works towards regulating its crypto industry through anti-money laundering policy.

In India, concerns about the use of cryptocurrencies to launder illegal cash came to the fore in 2021. June, Indian authorities discovered that nearly $488 million had been washed via crypto transactions only the previous year.

Indian authorities have taken a tough stance on crypto

Although VDAs and non-fungible tokens have gained popularity in India in recent yearsdidn’t have the government a clear policy or regulation until last year. The government’s budget, in 2022, introduced a 30% tax on income from crypto transactions and introduced a 1% tax, deducted at source, on income above a certain threshold. Gifts of crypto and digital assets are also taxed.

These rules led to a sharp drop in trade volume within 10 days, and finally a 90% drop over the next three months. Several crypto entities closed shop in India, move their business and trade to more crypto-friendly countries like Dubai or El Salvador.

“According to a recent report, the Dubai DMCC Free Zone has said that 16% of new company registrations registered in Q1 of 2022 were crypto and blockchain companies,” Pushpendra Singh, the founder of crypto media platform SmartView AI told Cointelegraph last year. “Millions of young talented Indians from various disciplines have left Indian soil in search of better opportunities.”

After banning widespread crypto advertising last year, Indian authorities introduced a preventive ban on crypto advertising and sponsorship during a domestic women’s cricket league last month. In recent months, the government has also pushed for a collective effort for global regulation crypto-assets, as a means of checking terrorist financing. On a G20 meeting last month, Nirmala Sitharaman, India’s finance minister, called on international authorities to work together to regulate crypto assets more efficiently.

The crypto industry has welcomed India’s move

The inclusion of crypto transactions under anti-money laundering laws has legitimized the sector, amid concerns about a possible ban on crypto.

The move “is a positive step in recognizing the sector,” Ashish Singhal, co-founder and CEO of Indian crypto exchange CoinSwitch, said in an email. “This will strengthen our collectiontive efforts to prevent VDAs from being misused by bad actors.”