Indian Cryptocurrency Exchange Negotiates with Government for Rules Against Illicit Transactions

According to reports, three executives from the Indian government department stated that the Indian Cryptocurrency Exchange is in negotiations with the government to formally establish rules for reporting and monitoring illegal transactions, including money laundering. The Financial Intelligence Unit has shared a set of proposed rules with the Indian Cryptocurrency Exchange, and the government has levied capital gains tax and transaction tax on virtual digital assets in FY22. According to three executives, the rules recommended by financial intelligence agencies include: appropriate KYC checks on customers, transaction monitoring, training for employees to prevent money laundering, product risk review, and compliance with the travel rules of the Financial Action Task Force. Travel rules were first introduced in the United States, requiring financial intermediary to share information with each other in the process of capital transfer for inspection.

Insider: The anti money laundering rules of Indian encryption companies are about to be formalized

India has taken another step forward in regulating the cryptocurrency industry. According to reports, the Indian Cryptocurrency Exchange is in negotiations with the government to establish formal rules for reporting and monitoring illegal transactions, including money laundering.

Introduction

Cryptocurrencies — particularly Bitcoin — have been popular in India since the country’s demonetization in 2016. Even in the face of regulatory uncertainty and government clampdowns, Indian investors and entrepreneurs have continued to explore ways of using cryptocurrencies to their advantage. However, for too long, cryptocurrencies have been seen as ideal vehicles for illicit activities, including money laundering, terrorist financing, and drug trafficking. The Indian government has recognized these challenges and has been working to tighten regulatory oversight over cryptocurrencies. The latest step comes as reports suggest that the Indian Cryptocurrency Exchange is in talks with the government to formalize rules for reporting and monitoring illegal transactions.

Capital Gains Tax and Transaction Tax on Virtual Assets

To date, the Indian government has not recognized cryptocurrencies as legal tender or a currency. However, cryptocurrencies have been taxed as assets since 2018. During the Financial Year of 2021-2022, the Indian government has levied a capital gains tax and transaction tax on virtual digital assets. These taxes have been levied on gains arising out of the sale of cryptocurrencies or other digital assets.

Fighting Illicit Transactions

Illicit transactions have been a nightmare for governments all around the world. It is also a challenge for the cryptocurrency industry. To tackle this issue, the Indian government has turned to financial intelligence agencies to provide recommended rules.

Rules and Recommendations for Cryptocurrency Transactions

According to three executives from the Indian government department, the Financial Intelligence Unit has shared a set of proposed rules with the Indian Cryptocurrency Exchange to monitor and report on illicit transactions. The proposed rules include:

KYC Checks on Customers

The first recommendation is that the Indian Cryptocurrency Exchange must conduct Know-Your-Customer (KYC) checks to prevent anonymous transactions. This is a standard requirement in most countries’ anti-money laundering regimes.

Transaction Monitoring

The second recommendation is that the Indian Cryptocurrency Exchange must monitor transactions to flag any suspicious transactions. This, again, is standard practice in the financial industry to catch any unusual transactions that may indicate money laundering or other illegal activities.

Training for Employees to Prevent Money Laundering

The third recommendation is that the employees of the Indian Cryptocurrency Exchange must be trained to identify and prevent money laundering. This training should be imparted regularly to keep them abreast of the latest techniques used by money launderers.

Product Risk Review

The fourth recommendation is that the Indian Cryptocurrency Exchange must undertake a risk assessment of its products to identify areas where risk mitigation measures are required. Different cryptocurrencies and different exchanges have different levels of risk, and it is essential to identify and manage those risks.

Compliance with FATF Travel Rules

The fifth recommendation is that the Indian Cryptocurrency Exchange must comply with the Travel Rules of the Financial Action Task Force (FATF). Travel Rules are a set of recommendations by the FATF that require financial intermediaries to share information with each other during the process of capital transfer for inspection. It is an extension of existing regulations that require banks to report any cross-border transactions above certain thresholds.

The Way Forward

The recommendations mentioned above are yet to be finalized, and negotiations are reportedly ongoing. However, these steps by the Indian government indicate that the country is serious about regulating the cryptocurrency industry. With the rise in cryptocurrencies’ popularity, it is essential to ensure that the technology is not being used to facilitate illegal activities. This move by the Indian government can be seen as a step in the right direction.

Conclusion

Cryptocurrencies are here to stay and will continue to evolve. However, the industry needs to ensure that it is not being used to facilitate illegal activities. The Indian government’s move to regulate the industry can be seen as a positive step towards crypto adoption. While the negotiations are ongoing, the cryptocurrency industry can expect more regulatory oversight in the days to come.

FAQs

1. Are cryptocurrencies legal in India?

Cryptocurrencies are not recognized as legal tender or a currency in India. Cryptocurrencies are treated as assets and are taxable. The Indian government has levied capital gains tax and transaction tax on virtual digital assets during the Financial Year 2021-2022.

2. What are the proposed rules for cryptocurrency transactions in India?

According to reports, the Financial Intelligence Unit has shared a set of proposed rules with the Indian Cryptocurrency Exchange to monitor and report on illicit transactions. The proposed rules include KYC checks on customers, transaction monitoring, training for employees to prevent money laundering, product risk review, and compliance with the travel rules of the Financial Action Task Force.

3. What is the purpose of the FATF travel rules?

The Travel Rules of the Financial Action Task Force (FATF) require financial intermediaries to share information with each other during the process of capital transfer for inspection. It is an extension of existing regulations that require banks to report any cross-border transactions above certain thresholds.