Govt brings crypto trading under India’s money laundering laws


    In Context

    • The government has recently imposed money laundering provisions on cryptocurrencies.


    • The Finance Ministry said the anti-money laundering legislation has been applied to crypto trading, safekeeping and related financial services.
    • The notification said, 
      • Exchange between virtual digital assets and fiat currencies
      • Exchange between one or more forms of virtual digital assets, 
      • Transfer of virtual digital assets, safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, and participation in and 
      • Provision of financial services related to an issuer’s offer and sale of a virtual digital asset”
    • All of the above will now be covered by the Prevention of Money-laundering Act, 2002.
    • Virtual digital assets: Virtual digital assets were defined as any code or number or token generated through cryptographic means with the promise or representation of having inherent value.
    • Role of FIU-IND: After this, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND).


    • In line with the global trend: The move is in line with the global trend of requiring digital-asset platforms to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers.
    • Filling the policy vacuum: Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years. 
      • Trading in these assets has increased manifold with cryptocurrency exchanges being launched. 
      • However, India, till last year, did not have a clear policy on either regulating or taxing such asset classes.

    What is Cryptocurrency?

    •  It is a digital currency that can be used in place of conventional money.
      • In cryptocurrencies, cryptography is used to secure and verify transactions. It is also used to control the supply of cryptocurrencies.
      • It is supported by a decentralized peer-to-peer network called the blockchain.
      • The first cryptocurrency: Bitcoin, was launched in 2009 by Satoshi Nakamoto.

    Features of Cryptocurrency

    • Cheaper to transfer: 
      • Some coins are used to transfer value (measured in a currency like dollars) cheaper and faster than using credit or conventional means. 
      • Meaning the cost to send someone crypto, which can be converted into regular currency, is cheaper than something like a check or wire transfer.
    • No physical form: 
      • Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. 
      • However, it can be and many governments are working to create a crypto coin version of its respective fiat currency.
    • Decentralised: 
      • Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency. 
      • When created with decentralized control, each cryptocurrency works through what is called distributed ledger technology, which is typically a blockchain, that serves as a public financial transaction database.


    • While the supposed potential benefits from crypto assets have yet to materialize, significant risks have emerged. 
    • Undermining the monetary policy & international monetary system: The widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks. 
      • Widespread adoption could also have significant implications for the international monetary system in the longer term.
    • Security Risks: Cyberattacks on wallets, exchange mechanism (Cryptojacking). 
      • They are prone to issues like Hijacking, Routing Attacks, Distributed Denial of Service (DDoS) attacks.
    • Shield to Crime: Used for illicit trading, criminal activities and organised crimes. 
    • Lack of Liquidity and Lower Acceptability: Outside the traditional banking systems.
    • Price Volatility: Prone to price fluctuations and waste of computing power.
    • Threat to the Indian rupee: If a large number of investors invest in digital coins rather than rupee-based savings like provident funds, the demand of the latter will fall.
    • Consumer protection and enforcement: Due to the decentralised nature of digital instruments of bitcoins, any regulatory regime over crypto assets is challenging.
      • There is a great likelihood of execution of unauthorised trades not in consonance with any regulatory framework.

    Indian Government’s stand on Cryptocurrency

    • The Reserve Bank of India (RBI), has long recommended a complete ban on all crypto, warning that it has the potential to destabilize the country’s monetary and fiscal stability.
    • Despite having no regulatory framework for crypto, the Indian government had introduced a new tax regime last year, taxing crypto income at 30% and a 1% tax deducted at source (TDS) on crypto transactions.

    Prevention of Money Laundering Act (PMLA) 2002 

    • About:
      • It was enacted in January 2003 and the Act along with the Rules framed thereunder has come into force with effect from 1st July 2005. 
      • The Parliament enacted the PMLA as a result of international commitment to sternly deal with the menace of money laundering of proceeds of a crime having transnational consequences and on the financial systems of the countries.
    • Objectives:
      • The PML Act seeks to combat money laundering in India and has three main objectives:
        • To prevent and control money laundering
        • To confiscate and seize the property obtained from the laundered money; and
        • To deal with any other issue connected with money laundering in India.
      • The Act also proposes punishment under section 4.
    • Definition of money laundering:
      • Sec. 3 of PMLA defines offence of money laundering as whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering.

    Source: TH