The nine offshore Virtual Digital Assets Service Providers (VDA SPs) have received compliance Show Cause Notices from the Indian Financial Intelligence Unit India (FIU IND) as per Section 13 of the Prevention of Money Laundering Act, 2002 (PMLA).
Following the Virtual Digital Assets Service Providers (VDA SPs) being placed under the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework in March 2023, the notification was made under the Prevention of Money Laundering Act (PML) Act, 2002.
Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex are among the nine offshore VDA service providers who received show-cause notices. In the cryptocurrency market, Binance is among the largest multinational corporations. It was established in 2017 by Changpeng Zhao, a software engineer.
What does the press release says?
“Director FIU IND has written to the Secretary of the Ministry of Electronics and Information Technology to block the URLs of said entities that are operating illegally without complying with the provisions of the PML Act in India,” according to the press release of 28 Dec.
The Prevention of Money Laundering Act (PMLA) 2002 mandates that VDA SPs operating in India (both offshore and onshore) who engage in activities such as exchanging virtual digital assets for fiat currencies, transferring virtual digital assets, safekeeping or administering virtual digital assets or instruments enabling control over virtual digital assets, etc., should register as reporting entities with FIU IND and adhere to a set of requirements, according to the statement.
The URLs of the above mentioned organizations, which are operating unlawfully and in violation of the PML Act in India, have been requested to be banned by the Secretary of the Ministry of Electronics and Information Technology in a letter from Director FIU IND.
VDA SPs as of December 31 have registered with FIU IND. Still, many offshore businesses catering to a significant number of Indian customers were not registered and hence subject to the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) laws.
What cryptocurrency Platforms say?
In recent quarters, many Indian dealers have shifted to global cryptocurrency platforms, ostensibly to avoid taxes. Last year, India began taxing virtual currencies, imposing a 30% tax on profits and a 1% deduction on each crypto transaction.
While India-based crypto exchanges such as a16z-backed CoinSwitch Kuber, B Capital-backed CoinDCX, and former Binance partner WazirX continue to conduct strict know-your-customer verifications before enrolling new customers, many worldwide platforms have not.
“Most Indian cryptocurrency exchanges are FIU-registered entities that follow the Prevention of Money Laundering Act.” “The recent directive from FIU IND to offshore Virtual Digital Assets Service Providers (VDA SPs) will help mitigate risks and create a secure VDA ecosystem,” said Sumit Gupta, co-founder and CEO of CoinDCX, in a statement.
Last year, Binance founder Changpeng “CZ” Zhao told TechCrunch that the company was not interested in expanding into India since the South Asian economy has not developed a crypto-friendly atmosphere.
India’s active stand on cryptocurrency regulation
Indian Finance Minister Nirmala Sitharaman recommended a single framework for G20 countries to govern the cryptocurrency sector in April. However, with India now holding the G20 chair, cryptocurrencies have been a focal point of ongoing debates.
Meanwhile, the statement emphasises that crypto exchanges in India are not complying with registration rules.
The document, however, stipulates that these exchanges must be registered with FIU IND as a Reporting Entity. Furthermore, they must “comply with the set of obligations as mandated under the Prevention of Money Laundering Act (PMLA) 2002.”
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