Financial Intelligence Unit Issues Show Cause Notices, Citing Violations of Anti-Money Laundering Regulations and Tax Evasion Concerns
In a significant move, the Financial Intelligence Unit (FIU), a government agency responsible for overseeing financial transactions in India, has declared that nine global cryptocurrency exchanges, including prominent names like Binance, Kraken, Kucoin, and Mexc, are operating "illegally" in the country. The FIU accuses these platforms of failing to comply with India's anti-money laundering (AML) regulations, prompting the agency to issue show cause notices and recommend the blocking of their websites.
Compliance Concerns:
The FIU emphasizes that global crypto exchanges are obligated to adhere to India's AML rules, regardless of whether they have a physical presence in the country. Despite catering to a significant portion of Indian users, several offshore entities have neglected to register and comply with the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework, raising serious concerns for the regulatory authorities.
Legal Framework for Cryptocurrencies:
Cryptocurrencies were brought under the ambit of India's anti-money laundering and counter financing of terrorism framework in March of the current year. The FIU reveals that only 31 out of numerous crypto firms have registered with them, indicating a widespread non-compliance issue within the sector.
Tax Evasion and Global Platforms:
The FIU points out that many Indian traders have migrated to global cryptocurrency platforms in recent quarters, potentially to evade taxes. India initiated the taxation of virtual currencies last year, imposing a 30% tax on gains and a 1% deduction on each crypto transaction. The move to international platforms is evident in the drastic 97% decline in trading volume on WazirX, a prominent India-based exchange, over the past two years.
Violating Exchanges:
Apart from Binance and Kraken, other exchanges found to be in violation of India's laws include Huobi, Gate. io, Bittrex, Bitstamp, and Bitfinex. Notably, Coinbase ceased consumer sign-ups in India several months ago, possibly due to regulatory uncertainties.
Reaction from Industry Players:
Sumit Gupta, co-founder and CEO of CoinDCX, one of the compliant Indian exchanges, responded to the FIU's directive, stating that most Indian crypto exchanges are registered with the FIU and adhere to the Prevention of Money Laundering Act. He believes that the FIU's directive to offshore Virtual Digital Assets Service Providers (VDA SPs) will mitigate risks and contribute to creating a secure VDA ecosystem.
Binance's Stance:
Binance founder Changpeng "CZ" Zhao expressed last year that the firm was not enthusiastic about expanding in India due to the perceived lack of a crypto-friendly environment in the South Asian market.
Conclusion:
As India takes a stringent stance against non-compliant global crypto exchanges, the regulatory landscape for cryptocurrencies in the country appears to be evolving. This development underscores the growing importance of adherence to anti-money laundering regulations and the need for a secure and compliant virtual asset ecosystem. The coming months will likely witness further developments as these exchanges respond to the show cause notices and regulatory authorities assess the overall impact on the cryptocurrency landscape in India.