Crypto truth | Financial Express

The government’s recent move to bring virtual digital assets (roughly cryptocurrencies) under the Prevention of Money Laundering Act (PMLA) should help prevent the use of this route to hide the origin of illicit cash. This was long necessary; The government had told the Lok Sabha in February that the Enforcement Directorate is investigating “several cases” where “a few crypto exchanges have also been found involved in money laundering”. As of January 31, 936 crore has been attached/seized/frozen and five persons have been arrested. Thus, by bringing all aspects of cryptocurrency trading under the PMLA, the authorities have made it mandatory for individuals and businesses to establish that they have not facilitated, even in the role of custodian, any form of money laundering through cryptocurrency trading.

This is in line with the recommendations of the Financial Action Task Force (FATF) – the global money laundering and terrorist financing watchdog – which in 2019 had issued “binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing” ”, with support from the G20. It had outlined the risks posed by cryptocurrencies, saying their speed, global reach and anonymity “attract those who wish to escape government scrutiny.” The FATF had asked countries to ensure that providers of virtual asset services are subject to adequate regulation and supervision or monitoring. The imperative for India to catch up with international standards had become even more urgent as the country is due for a FATF review in November and currently holds the G20 presidency.

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Moreover, India itself has been concerned with international coordination for the regulation of virtual digital assets. Finance Minister Nirmala Sitharaman has argued that “regulation using technology … is not possible if a country thinks it can handle it.” In other words, crypto-assets are not limited by national borders, and regulation will only be effective if there is international cooperation in developing a common regulatory framework. After bringing cryptocurrencies under the PMLA, India is now required to use its G20 presidency to quickly arrive at a formula for global coordination of regulation of virtual digital assets. While the Reserve Bank of India favors banning cryptocurrencies, India needs to work to preserve the gains from innovations in the space while minimizing the potential for illicit use.

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The Government has also amended the Prevention of Money Laundering (Maintenance of Records) rules to widen the scope of “beneficial ownership”, in line with the Companies Act and the Income Tax Act, and bring more individuals under the reporting scope. This is also in line with the FATF’s standards for beneficial ownership to ensure that authorities have access to sufficient, accurate and up-to-date information about the true owners of companies. It had agreed in March last year to introduce tougher norms under its Recommendation 24, and the latest India Assessment Report (2013) had called on India to increase beneficial ownership requirements. The amended Maintenance of Record rules also encourage reporting entities such as banks, financial institutions and intermediaries to upload details of their not-for-profit clients on the DARPAN portal of NITI Aayog. There is a need to keep in mind the spirit of FATF’s Recommendation 8 covering the misuse of non-profit organizations for money laundering – the global watchdog makes it clear that “Recommendation 8 is intended to apply only to those NGOs that pose the greatest risk of terrorist financing abuse”.