NEW DELHI: The Union Finance Ministry’s move to bring in virtual digital assets under the money laundering law is aimed at widening the taxation and regulatory net and giving teeth to agencies. But there are concerns over the lack of a central regulator Early this year, the Government brought a notification bringing transactions involving crypto assets under the Prevention of Money Laundering Act. It laid out the nature of transactions to be covered under PMLA. These are as follows:
Cases under probe
The measure is expected to aid investigative agencies in carrying out action against crypto firms. The Enforcement Directorate and Income Tax Department have either probed or are probing several cases against companies running cryptocurrency exchanges and transactions. ED, for instance, froze the bank balances of the popular WazirX exchange last year.
In the Union Budget last year, even though the Government brought in a tax for cryptocurrencies, it did not proceed with framing regulations. Earlier, the Reserve Bank of India had proposed a ban that was set aside by a court order. In July last year, flagging the RBI’s concerns, Finance Minister Nirmala Sitharaman told Parliament that “international collaboration” would be needed for any effective regulation or ban on cryptocurrency.
From April 2022, India introduced a 30 per cent income tax on gains made from cryptocurrencies. In July 2022, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.
Internal concerns
Publicly, the cryptocurrency industry has largely welcomed the move. Internally, however, there are concerns that the notification does not offer entities time to adhere to the fresh norms. The industry is also concerned that in the absence of a central regulator, crypto entities could end up dealing directly with enforcement agencies like the ED.
“Slowly but surely, we are moving towards a regulated crypto ecosystem,” said 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.”
Mohnish Wadhwa, CEO of a business consulting firm CapDeck Advisors, said, “With this, VDA entities now covered as a reporting entity, which means exchanges, custodians or administrators of VDAs handling customer funds will have to take care of PMLA laws as much as banks do and report suspicious transactions.” However, he added that in the absence of regulators, enforcement agencies could directly take recourse of this amendment.
The Modi Government has introduced changes to rules on money laundering which significantly widen the net under which the ED can access the financial history of individuals and organisations. This has implications on all those the powerful central agency can now act against.
