In the recent few years, the demand and use of digital currency have gained immense traction in India. People are more preferring digital currency as an alternative investment opportunity. Before stepping next, cryptocurrency is a secure nature based on blockchain technology to provide anonymity to users and renders the transaction immune to government intervention and scrutiny. The lack of regulation in cryptocurrency has created an open market for unscrupulous entities to trade freely and misuse the market while keeping themselves anonymous. The unauthorised flow of trade using cryptocurrency has created a concern about tracing anonymous transactions within and outside the country to prevent money laundering.
So, to investigate any cryptocurrency transaction suspected of being the proceeds of crime, the Ministry of Finance has brought the trading of cryptocurrency under the ambit of the Prevention of Money Laundering Act, 2002 (PMLA). However, there are various ways to detect the red flags for crypto money laundering including unusual transaction patterns, geographical risk, suspicious user profiles, anonymity, and source of funds. Now, the Indian government will be able to regulate and track cryptocurrency transactions and PMLA can be used to investigate transactions. The notifications have ensured that any crypto business including the exchanges, custodians, and wallet providers are under the eye of PMLA.
PMLA, Prevention of Money Laundering Act , 2002 has been introduced to put significant restrictions on any unauthorised transactions. Furthermore, the PMLA has been significantly updated to include the regulation of cryptocurrencies and digital assets. With this step, the Government of India has officially imposed anti-money laundering on the realm of cryptocurrencies. It affords authorities greater power to monitor encrypted crypto transactions including transfers outside of India. The issuance of notification shift focussed on the regulation of virtual and digital assets in India. Furthermore, cryptocurrency is being taxed @30% under income tax on any income generated from trading in assets effective Assessment Year 2023-24, and 1% TDS mandated since July 2022.
The notification appears to be in line with a range of transactions about virtual digital assets(VDA) under the ambit of PMLA. VDA holds the same meaning as defined under section 2 clause(47A) of the Income Tax Act, 1961, to include cryptocurrencies and non-fungible tokens. Moreover, no one can legally import cryptocurrencies through blockchain as it is neither a service nor a product that is defined under the Custom Act. Here are the details of the transactions that have been brought under the ambit of the PMLA.
● Exchange between various forms of VDAs.
● Transfer of VDAs
● Exchange between VDAs and Fiat currencies.
● Safeguarding of VDAs or instruments enabling control over VDAs.
The Anti-Money Laundering Act of 2002 (AMLA) has brought extensive reforms to anti-money laundering and counter-terrorism financing laws.
But in the crypto realm, it is very simple for the individual to open a crypto wallet without revealing their identity or meeting any KYC criteria.
Individuals can easily load funds in the form of cryptocurrencies without any transfer restrictions in cryptocurrency. Transacting cryptocurrencies
does not require the permission of an official body and can be delivered within a fraction of a second.
So, in light of the notification issued by the Ministry of Finance, if an individual transfers cryptocurrency with monetary value without disclosing it to the government and even if the receiver doesn’t declare it as income or payment. In such a scenario, both parties may be held accountable under the PMLA. The Indian government will now regulate and track all the cryptocurrency transactions that are subject to the PMLA. The law states that PMLA can investigate all cryptocurrency suspected transactions in any manner or relates to the “proceeds of crime”.
No doubt that the issuance of notification regarding the cryptocurrency under the Prevention of Money Laundering Act is a late but good initiative by the Ministry of Finance to intercept all suspicious cryptocurrency transactions. The law applies to all virtual digital assets engaging in or facilitating such transactions. The transactions involving cryptocurrency now need to verify the legitimacy of the assets involved and the conditions. However, it is a positive development under the purview of the PMLA in fighting against money laundering using cryptocurrencies. Furthermore, the steps may result in preventing individuals from using blockchains and VDAs which do not provide validators. To get detailed insights into the cryptocurrency under PMLA and all the related legal compliance, must consult CA Manoj K Pahwa, a top FEMA consultant who has immense years of experience in dealing with FEMA-related compliance.