In a new regulatory move, the government has bought a range of virtual digital asset (VDA) transactions under the ambit of Prevention of Money Laundering Act(PMLA) 2002. 

The Finance Ministry in a gazette notification said the exchange between virtual digital assets and fiat currencies, exchange between one or more forms of virtual digital assets, and transfer of virtual digital assets, will fall under the purview of the PMLA Act. 

Safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets; and participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset, will also be covered under the Act, it said. 

The notification further said that ‘virtual digital asset’ shall have the same meaning assigned to it in Clause (47A) of Section 2 of the Income-Tax Act, 1961 (43 of 1961).

Explaining this, 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.” 

Though this is a step towards regulating the space, in absence of regulators, the enforcement agencies will directly take recourse of this amendment. Unlike banks, where there are regulators who have specified rules to comply to, for being compliant with PMLA requirements, the VDA exchanges have been relying on best practices to make sure these are taken care of, he added. 

Prior to this move, in another attempt at regulation, a month ago, the Finance Bill had introduced an amendment in the Income Tax Act under section 271C, which penalises non-payment of Tax Deducted at Source (TDS) on VDAs. In case of non-payment, fine equivalent to the unpaid TDS or jail sentence of up to six months would be imposed.

Industry lauds the move

Following the release of the notification, the crypto industry has lauded the move. Ashish Singhal, Co-founder of Coinswitch, in a tweet said, “the notification to bring VDA transactions under PMLA is a positive step in recognising the sector. This will strengthen our collective efforts to prevent VDAs from being misused by bad actors.” 

Similarly, Nischal Shetty, Founder of WazirX, in a tweet said that it is a good step towards regulating the crypto industry in India. “This also ensures all crypto businesses must perform necessary KYC, transaction monitoring, etc as a part of their process,” he added. 

“Indian law makers have had a chequered history of accepting the growing reality of crypto currencies. The move of bringing activities involved with cryptos within the scope of the anti-money laundering law (PMLA) shows the law maker’s willingness to regulate, as opposed to initial attempts to ban. The crypto exchanges will feel the full weight of compliance and record keeping requirements under the PMLA, if they don’t have internal compliance policies already. This move aligns with global standards of increased compliance expectations from crypto exchanges to add a layer of accountability and to prevent questionable transactions,” said Samudra Sarangi, Partner, Law Offices of Panag & Babu

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