Crypto Transactions Come Under Money Laundering Act

The Indian government has brought crypto transactions under money laundering law by imposing PMLA provisions against cryptocurrency & crypto assets.

The Finance Ministry has informed transactions involving the exchange, transfer, and safekeeping of cryptocurrency assets under the Prevention of Money-laundering Act, bringing virtual digital assets under money laundering provisions. 

The PMLA’s coverage of exchange between virtual digital assets and fiat currencies is expected to broaden the taxation and regulatory net.

The Enforcement Directorate and Income Tax Department are already looking into several such cases against businesses that conduct cryptocurrency exchanges and transactions, so it is anticipated that this measure will help them in their efforts to take legal action against crypto companies.

In August of last year, the ED searched the offices of a director of the company Zanmai Labs and froze bank balances totaling Rs. 64.67 crore that belonged to a business operating the well-known cryptocurrency exchange WazirX. 

Zanmai Labs was accused of entering into a web of agreements with Crowdfire Inc. in the USA, Binance in the Cayman Islands, and Zettai Pte Ltd. in Singapore to conceal the ownership of the cryptocurrency exchange. 

The ED looked into similar cases involving other cryptocurrency-related businesses and applications last year, including CoinSwitch and E-Nuggets.

Even though the Reserve Bank of India had previously proposed a ban on cryptocurrencies, which was later overturned by a court order, the government did not move forward with framing any additional regulations for it in the Union Budget last year. 

From April 2022, gains from cryptocurrency transactions will be subject to a 30% income tax in India. Then, in July 2022, regulations governing the 1% source-deducted tax on cryptocurrency became effective.

Any code, number, or token created using cryptographic techniques with the pledge or illustration of having inherent value were defined as virtual digital assets.

“It mandates entities dealing in cryptocurrency to follow KYC, anti-money laundering regulations, and proper research as followed by banking and other financial organizations which come under the categorization of reporting entities under PMLA,” said Sharat Chandra, co-founder of the India Blockchain Forum.

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