There appears to be a concerted effort by the Centre to monitor and plug routes to move funds surreptitiously in and out of the country, including for laundering of money. . Two announcements this week — relating to crypto trading platforms and non-profit organisations — seek to increase scrutiny under the Prevention of Money Laundering Act. With conventional routes under close watch, cross-border funds movement is shifting to newer channels. The Centre appears determined to plug these channels both to curb money laundering and also to check funding of those non-profit organisations whose activities are seen as not being in the country’s interests.
Allowing illicit funds to be converted into legal money under the garb of donations to charitable institutions is especially objectionable. The Centre has been cracking down on this route for some time. In 2021, it was laid down that all foreign donations should be routed through a central SBI branch in Delhi. Banks and financial institutions dealing with these entities have to tighten the KYC compliance, maintain records of all transactions for five years, register the details of the NPO on the Darpan portal of NITI Aayog and aid the Enforcement Directorate or the Financial Intelligence Unit – India in their investigations.
The Centre is, however, trying to attain multiple objectives by bringing crypto trading platforms under PMLA. One, to check money laundering through crypto exchange transactions and to ensure that the exchanges maintain detailed records which can be shared with the ED. It was recently revealed in Parliament that assets worth ₹907 crore had been attached and three persons had been arrested for laundering money through crypto exchanges. These records can be shared with other jurisdictions once an international accord is signed on crypto trades on exchanges. Two, this could be yet another move to dissuade investors and traders from crypto assets. Bringing crypto transactions under PMLA will mean severe fines, imprisonment between three and seven years, seizure and attachment of assets, if money laundering is detected. This along with higher KYC scrutiny could be a deterrent to investors, especially given that crypto investors prefer lesser regulations and surveillance. Three, this could make functioning of crypto trading platforms unviable. The compliance burden on these trading platforms will get onerous, with a requirement to not only maintain detailed records, but also to track all transactions closely and report suspicious ones to the ED. Crypto trading volumes are already down over 90 per cent since the Centre imposed punitive taxes on crypto transactions and gains. With investors moving away due to the erosion of over 65 per cent in the value of crypto assets since 2021, these platforms could find it difficult to stay afloat.
The Centre’s strategy appears to be to continuously tighten regulation and monitoring of cryptos but stop short of a complete ban that could push trades under the carpet. But the use of crypto assets for illegal purposes certainly needs to be stopped; bringing them under PMLA could help.