India Targets Crypto Exchange Giants for Non-Compliance with Anti-Money Laundering Laws

Bits Logics Team . 29th Dec 2023
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  • FIU IND has issued compliance Show Cause Notices to nine industry giants, including Binance, Huobi, Kraken, and Kucoin.
  • The move comes as these entities were found operating illegally without adhering to the provisions of the Prevention of Money Laundering Act (PMLA) in India.
  • Till date, 31 VDA SPs have registered with FIU IND, demonstrating a willingness among some entities.

In a major crackdown on offshore Virtual Digital Assets Service Providers (VDA SPs), the Financial Intelligence Unit India (FIU IND) has issued compliance Show Cause Notices to nine industry giants, including Binance, Huobi, Kraken, Kucoin, Gate.io, Bittrex, and more. The move comes as these entities were found operating illegally without adhering to the provisions of the Prevention of Money Laundering Act (PMLA) in India.

The Virtual Digital Asset Service Providers were brought under the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework in March 2023, falling within the ambit of the PML Act, 2002. The compliance action against these offshore entities is a significant step in enforcing regulatory measures to curb money laundering and terrorist financing through virtual assets.

Under Section 13 of the PMLA, FIU IND has initiated proceedings against the non-compliant VDA SPs, directing them to explain their failure to register and comply with the obligations set forth in the legislation. 

The Director of FIU IND has escalated the matter further by writing to the Secretary of the Ministry of Electronics and Information Technology, urging the blocking of URLs associated with these entities that continue to operate without meeting regulatory standards.

The obligations imposed on Virtual Digital Asset Service Providers include reporting, record-keeping, and other regulatory compliance measures, irrespective of their physical presence in India. The actions by FIU IND highlight the need for global players in the cryptocurrency space to align with the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) frameworks.

In response to these developments, several industry leaders have expressed their commitment to cooperating with Indian authorities and ensuring compliance with the PMLA regulations. However, this move has also sparked a broader debate on the challenges of regulating a decentralized and borderless industry that often operates across jurisdictions.

Till date, 31 VDA SPs have registered with FIU IND, demonstrating a willingness among some entities to adhere to the regulatory framework. However, the recent crackdown reveals a gap in enforcement against offshore entities serving a substantial user base in India, highlighting the need for a more robust international regulatory framework for virtual assets. 

The unfolding situation emphasizes the evolving landscape of digital finance and the urgency for comprehensive regulatory measures to address potential risks associated with virtual assets.