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Crypto Trade Under India's Anti-Corruption Rules: What Does It Mean?

Money laundering provisions have been applied to digital assets in India but to what extent?

Photo by Ewan Kennedy / Unsplash / Blockhead

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India's finance ministry said that digital asset transactions will now come under the purview of the country's money laundering rules.

In a notice, the government said that the Prevention of Money Laundering Act (PMLA) will cover transactions involving "virtual digital assets."

Under the Income Tax Act, a "virtual digital asset" is any piece of information, code, number, or token (other than Indian cash or foreign currency) that was made using cryptography or any other method and given any name.

The action is the latest that the government has taken to improve the management of digital assets.

As India applies its rules against money laundering to digital currencies, the government will be able to keep a closer eye on the transfer of these assets outside of India.

The government agency also warned investors not to "participate in and provide financial services related to an issuer's offer and sale of a virtual digital asset"

What Does The New Law Mean?

Exchanges, custodians, wallet providers, and other businesses in India that deal with crypto/virtual assets are now considered "reporting companies" under the PMLA.

Crypto firms must stay on top of Know Your Customer/Know Your Customer Anti-Money Laundering and other criteria for reporting to third parties like banks, payment systems, and other middlemen.

Companies that deal in cryptocurrency can now legally tell the right Indian authorities about any suspicious activity.

This is great news for the future of crypto in India since it provides much-needed guidance on how the industry should be regulated.

It shows that India's government is trying to create a regulatory environment that is friendly to the ecosystem.

Read more: India, IMF to Take Lead on Global Crypto Rules

Sources within the ministry told Blockhead, "this new law is the first step toward accepting businesses dealing in cryptos as legal entities in India."

"While it may feel heavy-handed, it is only a guide and will help in identifying where the money is coming from and going to within the 'virtual digital assets' space," added the sources.

A leading crypto exchange firm, though, was sceptical, and in an interview with Blockhead said, "the money laundering plan for cryptos is to make sure the tax net is widened after India's steep tax on virtual assets transactions."

An advocate at the law firm Trilegal, Jaideep Reddy, said that the recent change in India is in line with a trend around the world to force digital-asset platforms "to follow anti-money laundering standards similar to those followed by other regulated entities like banks or stock brokers."

Despite repeated warnings from the country's central bank, India has not yet finalised cryptocurrency-related legislation and regulations.

As part of its G20 forum leadership, the Narendra Modi administration has been pressing for a more comprehensive international accord and a wider global agreement on addressing the risks of cryptocurrencies.

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