India Targets Global Crypto Exchanges for AML Violations

31 VDA SPs are registered with FIU IND, but some offshore businesses serving Indian consumers have not complied with AML and CFT frameworks.

India Targets Global Crypto Exchanges for AML Violations
India Targets Global Crypto Exchanges for AML Violations

The Financial Intelligence Unit of India issued compliance letters to nine international virtual digital asset service providers. The Financial Intelligence Unit of India accused these providers of operating unlawfully and breaking regulations regarding anti-money laundering.

The list of service providers for cryptocurrencies includes global cryptocurrency exchanges such as Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.

As stated in a news release issued on December 28th, the unit requested the Ministry of Electronics and Information Technology ban the URLs of the companies, most likely to prevent access to their websites within the geographical boundaries of the country.

As of this moment, 31 VDA SPs have registered with the FIU IND. However, although they served a sizeable portion of Indian consumers, several offshore businesses did not register themselves and fell within the purview of the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework, as stated in the document.

India Targets Global Crypto Exchanges for AML Violations

FIU’s compliance Show Cause Notices Alert. Source: PIB Government of India

Digital asset providers that operate in the country are subject to particular regulatory requirements, such as registration with the Financial Intelligence Unit as a “Reporting Entity.” These rules apply to providers regardless of their location, whether within India or overseas.

Providers must adhere to the restrictions described in the Prevention of Money Laundering Act (PMLA) 2002 to maintain their registration. This legislation mandates the Know Your Customer (KYC) standards for onboarding customers as one of the sets of requirements.

These recommendations aim to prevent money laundering activities. India ranked second in terms of raw estimated transaction volume worldwide in Chainalysis’ global crypto adoption index of 2022, with the United States ranking higher as the only country.

Regulators in India have taken action in response to the growing popularity of cryptocurrencies. The nation is currently developing a regulatory framework for cryptocurrencies, based on the joint proposals made by the International Monetary Fund and the Financial Stability Board.

The framework, expected to be released in 2024, is likely to include advanced Know Your Customer (KYC) standards for cryptocurrency enterprises. Additionally, the framework will mandate the delivery of real-time proof-of-reserve audits.

Moreover, it is anticipated that it will propose a tax policy that is consistent across all nations and that it will bring cryptocurrency exchanges to the same status as authorised dealers (which is comparable to banks) following the standards established by the Reserve Bank of India.