Crypto assets under PMLA
Source: By Soumyarendra Barik: The Indian Express
Bringing in virtual digital assets under money laundering provisions, the Finance Ministry has notified transactions involving the exchange, transfer and safekeeping of crypto assets under the Prevention of Money-laundering Act (PMLA). The PMLA coverage is set to widen the taxation and regulatory net, as it also covers the exchange between virtual digital assets and fiat currencies.
What does the notification say?
In the notification dated 7 March 2023, the central government has notified participation in and provision of financial services, which are related to an issuer’s offer and sale of a virtual digital asset, under PMLA. “…the central government hereby notifies that the following activities when carried out for or on behalf of another natural or legal person in the course of business as an activity for the purposes of said sub sub-clause, namely:- (i) exchange between virtual digital assets and fiat currencies; (ii) exchange between one or more forms of virtual digital assets; (iii) transfer of virtual digital assets; (iv) safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and (v) participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset,” it said listing out the nature of transactions to be covered under PMLA.
Why the move?
The measure is expected to aid investigative agencies in carrying out their actions against crypto companies, with the Enforcement Directorate and Income Tax Department already probing several such cases against companies running cryptocurrency exchanges and transactions.
While the cryptocurrency industry has largely welcomed the move, there are concerns about the wide ambit of the fresh notification and its enforcement in the absence of a direct regulator.
Has the Centre acted against crypto firms over money laundering concerns so far?
In August last year, ED had frozen bank balances of Rs 64.67 crore belonging to a company running a popular cryptocurrency exchange named WazirX. It also searched the premises of a director of the company Zanmai Labs, which was alleged to have created a web of agreements with Crowdfire Inc. USA, Binance (Cayman Islands) and Zettai Pte Ltd, Singapore, to obscure the ownership of the crypto exchange. Other companies and apps dealing with crypto, such as CoinSwitch and E-Nuggets, have also been probed by ED in similar cases last year.
Though the government brought in a tax for cryptocurrencies in the Union Budget last year, it did not proceed ahead with framing any further regulations for it. This was even as the Reserve Bank of India, having earlier proposed a ban on it, saw the restriction subsequently being set aside by a court order.
In July last year, underscoring that the RBI had expressed concerns over cryptocurrencies and sought a ban on them from the government, Finance Minister Nirmala Sitharaman said in Parliament that “international collaboration” would be needed for any effective regulation or ban on cryptocurrency as the digital currency is borderless in nature.
In April 2022, India introduced a 30 per cent income tax on gains made from cryptocurrencies. Then in July 2022, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.
How is the notification being viewed by the industry?
Publicly, the industry seems to have welcomed the decision. However, internally, they seem to be concerned that the notification does not offer entities any transition time to adhere to the fresh norms, and in the absence of a central regulator – like the Reserve Bank of India is for banks – crypto entities could end up dealing directly with enforcement agencies like the ED.
“Slowly but surely, we are moving towards a regulated crypto ecosystem,” Sumit Gupta, co-founder and CEO of cryptocurrency exchange CoinDCX. “Entities such as CoinDCX are now required by law to conduct due diligence and enhanced due diligence under the PMLA… We have been looking for a way to share data with the FIU-IND for sometime now, and are now delighted that this channel has been opened. My team and I are still looking at the fine print, such as the inclusion of the transfer of VDAs.”
