25 Offshore Crypto Exchanges Stare At Ban Over PMLA Non-Compliance

The finance ministry’s Financial Intelligence Unit (FIU-IND) has issued notices to 25 offshore crypto platforms for non-compliance with anti-money laundering regulations.

The notices have been issued to crypto platforms such as Paxful, CEX.IO, LBank, BingX, Coinex, AscendEx, BTCC and CoinW. The registered addresses of many of these platforms, as per a government statement, were traced back to the US, UK, Hong Kong, Singapore as well as tax havens like Saint Lucia, Seychelles, British Virgin Islands and others.

In a statement, the FIU said that directions have also been issued to the 25 platforms to take down their apps and websites for “operating illegally” in India.

“… The Director FIU IND, in exercise of powers under Section 79(3)(b) of the Information Technology Act, 2000, has also issued notices to the aforesaid entities with respect to takedown of the application/URLs for public access which have been found to be operating illegally without complying with the relevant provisions of the PML Act, 2002 in India.

For context, Section 79(3)(b) of the IT Act, 2000, which effectively deals with safe harbour protection for digital intermediaries. With the protection now gone, the FIU is likely to approach the IT ministry to enforce the ban on access to these crypto exchanges. 

Notably, in March 2023, the Indian government brought crypto businesses under the provisions of the anti-money laundering norms. As part of this, crypto exchanges are mandated to report suspicious transactions, conduct customer due diligence, keep records, among other obligations.

Later that year, all virtual digital asset service providers were asked to register as reporting entities with the FIU. Subsequently, many platforms, including Binance and Bybit, were delisted from app stores and barred from operating in the country for not complying with the new rules.

However, many of them resumed operations after paying heavy penalties and registering with Indian authorities. 

Nevertheless, the Centre has continued its crackdown on offshore crypto exchanges. In June, the Central Board of Direct Taxes (CBDT) was probing alleged tax evasion and laundering of unaccounted funds by high risk persons via crypto investments.

Then, last month, the FIU also directed all virtual digital asset service providers (VDA SPs) to submit a cyber security audit certificate from auditors empanelled by Indian Computer Emergency Response Team (CERT-In).

That said, India has taken a strict regulatory stance on cryptocurrencies despite their growing adoption. While cryptocurrencies are not banned, they are not treated as legal tenders either. 

To implicitly dissuade VDA usage, the government charges a 30% tax on profits from sale of cryptocurrencies and an additional 1% levy on transactions exceeding INR 10,000 in a financial year. This has led to many crypto platforms shutting shop or moving their business outside India.

Making the Centre’s stance even clearer, RBI governor Sanjay Malhotra, earlier this year, said that cryptocurrencies could affect the country’s financial stability.