Explained: Why cryptocurrency transactions are under anti-money laundering law?

The Indian government has taken a significant step to tighten oversight of the digital asset sector by bringing crypto trading, safekeeping, and other financial services under the ambit of the Prevention of Money Laundering Act. The Union finance ministry issued a gazette notification on Tuesday, mandating that crypto exchanges and intermediaries dealing with virtual digital assets (VDA) must perform KYC of their clients and users of the platform. Additionally, they must report suspicious activity to the Financial Intelligence Unit India.

The notification classifies entities dealing in VDA as "reporting entities" under PMLA, which means that they will be required to maintain a record of all transactions, including cash transactions exceeding INR 10 lakh, for at least five years. Furthermore, they must maintain a record of all series of cash transactions integrally connected to each other, where such series of transactions have taken place within a month and the monthly aggregate exceeds INR 10 lakh.

This move by the Indian government aligns with the global trend of regulating digital-asset platforms to adhere to anti-money laundering standards similar to those followed by other regulated entities such as banks or stockbrokers. The gazette notification specifies that virtual digital assets exchanged with fiat currencies, exchange between one or more forms of virtual digital assets, transfer of virtual digital assets (VDA), safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, and participation in and provision of financial services related to an issuer's offer and sale of a virtual digital asset will now be covered under the Prevention of Money Laundering Act, 2002.

The Indian government aims to curb illegal activities such as money laundering and other financial crimes while ensuring transparency and accountability in the crypto sector. The inclusion of crypto exchanges and intermediaries as reporting entities under PMLA will require them to maintain records of all transactions and report any suspicious activities, thus enhancing the government's efforts to combat financial fraud and other illegal activities.

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