The Indian finance ministry has taken action by issuing compliance show-cause notices to nine offshore cryptocurrency exchanges, including major players like Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex. The notices accuse these exchanges of operating illegally in India without adhering to local money laundering laws, specifically the Prevention of Money Laundering Act (PMLA), 2002.
In response to the alleged non-compliance, the finance ministry has requested explanations from the affected exchanges. Additionally, the ministry has urged the information technology ministry to block the URLs of these exchanges for operating illegally in the country.
Foreign Exchanges Asked to Register With FUI
In a recent statement, the finance ministry outlined that virtual digital asset (VDA) service providers engaged in activities such as the exchange between virtual digital assets and fiat currencies, as well as the transfer and administration of virtual digital assets, must register with the Financial Intelligence Unit-India (FIU-IND).
The FIU-IND, a national agency responsible for receiving, analyzing, and disseminating information related to suspect financial transactions to enforcement agencies and foreign counterparts, plays a crucial role in monitoring and regulating financial activities in the country.
The finance ministry emphasized that the obligation for registration and compliance is not contingent on physical presence in India, with the regulatory framework encompassing reporting, record-keeping, and other obligations under the Prevention of Money Laundering Act (PMLA).
Currently, 31 service providers of virtual digital assets have registered with the FIU-IND. However, the ministry pointed out that several offshore entities catering to a substantial portion of Indian users have failed to comply with the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework.
1% TDS Not Implemented on Foreign Exchanges
The implementation of a direct 1% tax on every cryptocurrency transaction in India on local exchanges has led to a significant shift of users to foreign exchanges. This tax measure has resulted in the loss of potential revenues amounting to approximately $420 million (Rs. 3,493 crores) for the Indian government. Between February 2022 and July 2022, it is reported that three to five million Indian users migrated to offshore platforms. Following the implementation of Tax Deducted at Source (TDS) in July 2022, a single offshore exchange witnessed a remarkable 450,000 sign-ups in the subsequent month.
