Crypto Assets under Prevention of Money Laundering Act

What’s in today’s article?

• Why in news?
• Cryptocurrencies 
• What are cryptocurrencies?
• What are the opportunities presented by the growth of crypto ecosystem?
• What are the challenges posed by crypto assets?
• What is the legal status of crypto in India?
• News summary: Crypto assets under Prevention of Money Laundering Act
• What does this move mean for crypto?
• Why is the government tightening the legislative grip on digital trade?

 

Why in News?

• Recently, the government issued a notification bringing transactions involving crypto assets under the Prevention of Money Laundering Act (PMLA).
• The Finance Ministry 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.

 

Cryptocurrencies 

What are cryptocurrencies?

• Cryptocurrencies are digital or virtual currencies in which encryption techniques are used. 
  • to regulate the generation of their units and 
  • verify the transfer of funds, 
• These currencies operate independently of a central bank.

 

What are the opportunities presented by the growth of crypto ecosystem?

• Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible.
  • It allows these services to flow across borders swiftly.
• Bank deposits can be transformed to stable coins that allow instant access to a vast array of financial products and allow instant currency conversion.
• Decentralised finance could become a platform for more innovative, inclusive, and transparent financial services.

 

What are the challenges posed by crypto assets?

• The rapid growth and increasing adoption of crypto assets also pose financial stability challenges as these are extremely volatile. 
  • These are much more volatile than equities or commodities or even exchange rates. This volatility is introducing instability in the ecosystem. 
• Challenges posed by the crypto ecosystem include 
  • operational and financial integrity risks from crypto asset providers, 
  • investor protection risks for crypto-assets, 
  • inadequate reserves and disclosure for some stable coins.

 

What is the legal status of crypto in India?

• In the Union Budget last year, even though the government brought in a tax for cryptocurrencies, it did not proceed with framing regulations.
  • From April 2022, India introduced a 30 per cent income tax on gains made from cryptocurrencies. 
  • In July 2022, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.
• Earlier, the Reserve Bank of India had proposed a ban that was set aside by the Supreme Court.
• In July 2022, flagging the RBI’s concerns, Finance Minister told Parliament that international collaboration would be needed for any effective regulation or ban on cryptocurrency.

 

News summary: Crypto assets under Prevention of Money Laundering Act

• The gazette notification by the Finance Ministry brings cryptocurrency transactions within the ambit of PMLA.

 

What does this move mean for crypto?

• This means that Indian crypto exchanges will have to report any suspicious activity related to buying or selling of cryptocurrency to the Financial Intelligence Unit – India (FIU-IND). 
  • FIU-IND is responsible for receiving, processing, analysing, and disseminating information related to suspicious financial transactions to law enforcement agencies and overseas FIUs.
• In its analysis, if the FIU-IND finds wrongdoing, it will alert the ED. 
• Under the PMLA, the ED has discretionary powers to search and seize suspected property without any judicial permission.
• The measure is expected to aid investigative agencies in carrying out action against crypto firms.

 

Why is the government tightening the legislative grip on digital trade?

• Vast unregulated space
  • The value of all existing cryptocurrency is about $804 billion as of January 3, 2023, according to cryptocurrency price-tracking site CoinMarketCap.com.
  • In India, according to a survey conducted by crypto exchange KuCoin, over 10 crore Indians have invested in cryptocurrencies.
• Illegal use of cryptos
  • Gradual regulations are being introduced to prevent misuse of crypto, such as money laundering.
  • Enforcement Directorate and Income Tax Department are already probing several such money laundering cases against companies running cryptocurrency exchanges.
  • Nearly Rs 936 crore related to crypto currency has been attached or seized under PMLA, so far.

 

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Q1) What is PMLA?

PMLA stands for the Prevention of Money Laundering Act, which is an Indian law that was enacted in 2002 to combat money laundering in the country. The act was passed by the Indian Parliament to prevent and control money laundering, as well as to confiscate and seize property that has been derived from illegal activities.
 

Q2) What is Financial Intelligence Unit – India (FIU-IND)?

The Financial Intelligence Unit - India (FIU-IND) is an independent government agency established under the Ministry of Finance in India. It was set up in 2004, under the provisions of the Prevention of Money Laundering Act (PMLA) 2002, to receive, process, analyze and disseminate information related to suspicious financial transactions.

 

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Source: Explained | Why is crypto trade within PMLA ambit? | Times of India | Indian Express