India brings cryptocurrency under money laundering laws

The Indian government has recently made an announcement that cryptocurrencies will now be included in the Prevention of Money Laundering Act (PMLA). This means that the exchange of virtual digital assets with fiat currencies, the exchange between one or more forms of virtual digital assets, and the transfer of digital assets will now be covered under money laundering laws. As a result, any financial wrongdoing involving cryptocurrency assets can now be investigated by the Enforcement Directorate (ED).

The Prevention of Money Laundering Act, 2022 (PMLA) was introduced to prevent people from legalizing money earned from illegal sources. The law allows the government to confiscate property earned through illegal proceeds, and the ED is responsible for investigating these offenses. Additionally, the Financial Intelligence Unit - India (FIU-IND) is the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions. It is an independent body that reports directly to the Economic Intelligence Council (EIC) headed by the Finance Minister. If found guilty of money laundering, the perpetrator can be awarded rigorous imprisonment for a minimum of three years up to seven years, and an unlimited fine can also be imposed. Furthermore, their property can be seized and attached.

With the inclusion of cryptocurrencies in the PMLA, investors will now be subjected to greater scrutiny by agencies. Individuals who use virtual digital assets to earn money illegally will be subjected to the same punishments as other money laundering activities. Under anti-money laundering law, "reporting entities" are required to maintain the KYC (know your customer) details of their clients and beneficial owners. According to the notification, entities dealing in virtual digital assets will now be considered "reporting entities" under PMLA, and they will have to maintain all the records of their customers. The extension of the PMLA will also give authorities greater power to monitor the transfer of cryptocurrency outside India.

Overall, the inclusion of cryptocurrencies in the PMLA means that those using virtual digital assets to earn money illegally will be held accountable, and the government will be able to take appropriate action against them. The move will also help to promote transparency and accountability in the cryptocurrency market, which will ultimately benefit the industry and the investors involved. 

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently author is founder and managing partner at RRL Global services.