India to include anti-money laundering provisions in the crypto sector

by Arthur · March 8, 2023

According to a report by Reuters, the government of India has decided to introduce anti-money laundering regulations in the crypto sector. The Ministry of Finance issued a notice on Tuesday that the anti-money laundering legislation will be applied to crypto trading, storage and other financial services.

The message released by the government lacked details. Nevertheless, the law on the prevention of money laundering mandated that financial institutions should keep an overview of all transactions over the last ten years.

The financial institution must provide these records to the regulators if necessary. These records must be verified and the financial institutions must identify all customers.

This marks India’s latest step towards ensuring strict oversight of digital assets. This step is taken to align with a global practice that requires crypto platforms to “follow anti-money laundering standards like those followed by other regulated entities such as banks or stockbrokers,” as noted by Jaideep Reddy, attorney at law firm Trilegal.

India’s concern regarding crypto resulted in strict tax regulations imposed on the crypto sector, including heavy taxation on crypto trading.

India’s move to impose such draconian policies on the industry is also partially responsible for the significant drop in trade volume in the country. The anti-money laundering step may be difficult to implement as the necessary compliance measure will most likely need more time and resources, as mentioned by Reddy.

Crypto-related scams are on the rise in India

This move to introduce anti-money laundering (AML) regulation comes after India witnessed several cases of crypto-related scandals in the country. Late last year, hackers had taken down the All India Institute of Medical Sciences (AIIMS) Internet server and demanded a ransom of over $24 million in crypto.

In November, India’s Enforcement Directorate (ED) seized nearly $2.5 million worth of Bitcoin from an illegal gaming platform called E-nuggets. ED had broken into the wallet of a Binance user, connected to the mobile gaming app and frozen 150.22 Bitcoin.

Earlier, the ED had suspended the account balances of many Chinese-operated entities in connection and investigated the app-based token HPZ. The regulator froze the amount worth Rs 9.82 crores, approximately $1,218,500.

India pushed for a blanket ban

In February, the Reserve Bank of India (RBI), the Central Bank of India, expressed concern about crypto and called for a ban. Indian authorities wanted a pre-emptive ban on cryptocurrency advertising and sponsorship in the women’s cricket league.

However, India’s finance minister, Nirmala Sitharaman, did not advocate a blanket ban on digital assets. While celebrating India’s first presidency of the G20 summit, Sitharaman advocated international efforts to regulate the industry as a whole.

She intended to have a coordinated effort “to build and understand the macroeconomic implications”, as she has believed that with just regulation itself, the industry can reform itself globally.