The government’s recent move to bring virtual digital assets (broadly, cryptocurrencies) under the ambit of the Prevention of Money Laundering Act (PMLA) should help prevent the use of this route to hide the provenance of illicit cash. This was long needed; the government had told the Lok Sabha in February that the Enforcement Directorate is investigating “several cases” in which “a few crypto exchanges have also been found involved in money laundering.” As of January 31, `936 crore has been attached/seized/frozen, and five persons have been arrested. Thus, by bringing all aspects of trade in cryptocurrencies under the PMLA, the government has ensured that it is mandatory for individuals and businesses to establish that they have not facilitated, even in the role of safekeeping, any laundering through cryptocurrency trade.
This is in keeping with the recommendations of the Financial Action Task Force (FATF)—the global money-laundering and terrorist financing watchdog—which, in 2019, had issued “binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing”, with support from the G20. It had outlined the risk from cryptocurrencies, saying their speed, global reach and anonymity “attract those who want to escape authorities’ scrutiny.” FATF had called for countries to ensure that virtual asset service providers are subject to adequate regulation and supervision or monitoring. The imperative for India to catch up with the international standards had become even more urgent as the country is due for an FATF evaluation in November and currently holds the G20 presidency.
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Besides, India itself has been keen on international coordination for regulation of virtual digital assets. Finance minister Nirmala Sitharaman has maintained that “regulation using technology … is not possible if any one country thinks that it can handle it.” In other words, crypto assets are not confined by national boundaries and regulation will be effective only if there’s international collaboration on evolving a common regulatory framework. Having brought cryptocurrencies under the PMLA, it is now incumbent on India to use its G20 presidency to quickly arrive at a formula for global coordination on regulation of virtual digital assets. While the Reserve Bank of India favours prohibition of cryptocurrencies, India must work to preserve the gains from innovations in the space while minimising the potential for illicit use.
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The government has also amended the Prevention of Money Laundering (Maintenance of Records) Rules to expand the scope of “beneficial ownership”, in line with the Companies Act and Income Tax Act, bringing more individuals under the reporting ambit. This is also in keeping with the FATF’s standards on beneficial ownership to ensure authorities have access to adequate, accurate and up-to-date information about the true owners of companies. It had agreed in March last year to bring tougher norms under its Recommendation 24, and the last evaluation report for India (2013) had called for India to enhance requirements regarding beneficial ownership. The amended Maintenance of Record Rules also call upon reporting entities such as banks, financial institutions and intermediaries to upload details of their non-profit clients on the DARPAN portal of the NITI Aayog. There is a need to keep in mind the spirit of FATF’s Recommendation 8 that covers abuse of non-profits for laundering—the global watchdog makes it clear that “Recommendation 8 is intended to apply only to those NPOs that pose the greatest risk of terrorist financing abuse”.
