India's money laundering rules to apply to Crypto Trade - Gov't notification

[newIndia]

Report: https://www.reuters.com/world/india/indias-money-laundering-rules-apply-crypto-trade-govt-notification-2023-03-08/

Legal explanation by tech lawyer Jaideep Reddy...

Crypto & NFT businesses are now 'reporting entities' under India’s Prevention of Money-Laundering Act (PMLA). Contrary to some Whatsapp chatter, this does not mean that they are charged under the PMLA for any offence! The implication is that such businesses need to follow similar reporting standards and KYC/AML norms to other reporting entities like banks, securities intermediaries, payment system operators, etc. In other words, KYC norms are no longer a best practice but a legal obligation.

Also, such businesses now have the legal status to report suspicious transactions to the Financial Intelligence Unit (FIU).

Happy to say we had made this recommendation as far back as Dec 2018, and the notification has come exactly under the suggested provision.

An AML regime is the first step towards effective regulation of intermediaries.

It would have been ideal though to have an explicit transitory provision so that covered entities had more time and certainly while getting their compliance processes in place.

Source: https://twitter.com/jrtechlaw/status/1633338812242731009

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[TigerMart]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right?

[Hispo]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right?

I am not from India, but it is possible that the use of decentralized exchanges or P2P applications to swap crypto/crypto or crypto/fiat might become illegal in India. Since, Bisq is open source and P2P, as far as I know it would not make sense it can comply with the AML rules imposed by the Indian government.

Still, I would like to know the opinion of anyone living in India about the implication of this official Notification. 

[pixie85]

This is a strange thing because they don't seem to understand the range of the Internet.

The way I understand they want a business that allows for trading, exchange, etc. to report such activities and follow AML laws so they have to ask you for your ID and hold that in case the government want to see who traded what.

The business is responsible for that, not the individual.

So if an individual uses a business that isn't registered in India and doesn't report to Indian authorities, what happens?

Are they going to start blocking IP addresses the way China does? There's no other way to stop people from exchanging cryptocurrencies on platforms they cannot control, the way you can't demand a torrent site to delete files. All you can do is block that sites IP so that people in your country cannot use it, but that's a long and costly fight.

[PrivacyG]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right?

To me it seems that they do not have a negative effect on users but on legal businesses residing in India.  I would suppose non Indian businesses are not affected by their decision.  If they are, I assume they are going to shut down their activity in India and stop accepting registrations and logins from over there.  Because if I was a Belgian Exchange, I would see it pointless to now start focusing partially on reporting to Indian authorities unless a vast majority of my clients were from there.

Just my assumptions however.

-
Regards,
PrivacyG

[coolcoinz]

^
That's what I think too.

What if an Indian individual exchanges crypto for crypto using a business not registered in India?
What happens if the same Indian citizen exchanges crypto in the Internet for currencies not legally accepted in India?

The Indian government cannot ask an exchange in Japan to send them their AML report for someone who was trading in Japanese Yen, therefore I believe this is only for local businesses, located in India and trading in Rupees.
If citizens of India trade crypto and exchanges back and forth between stable coins, I believe they're also out of the country's jurisdiction and outside of their AML laws.

[stompix]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right?

As long as you're not making any of the four things mentioned on behalf of another person or while you're running your own business this law is not affecting you, the moment you act like a broker or trader and play with user funds over these platforms it's getting complicated, normally you would have to keep track of the payments this way also, with full details of the recipient.

What if an Indian individual exchanges crypto for crypto using a business not registered in India?
What happens if the same Indian citizen exchanges crypto in the Internet for currencies not legally accepted in India?

The law is not aimed at individuals, as long as you report your income and pay your taxes it doesn't really matter where that exchange is registered.

The Indian government cannot ask an exchange in Japan to send them their AML report for someone who was trading in Japanese Yen, therefore I believe this is only for local businesses, located in India and trading in Rupees.

If India and Japan have an agreement on mutual assistance over FATF then it's more complicated, without one such request could go unanswered but if a protocol is in place the Japanese branch could determine it's their job to choose to assist the Indian one and the exchange will then be forced to provide all the data for Indian customers, no matter what they are trading on that platform.
Besides a lot of exchanges have a LERS system or equivalent in place, designed especially to take requests from government agencies.

[SeeBiscuit]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right? :’(

As long as you’re not making any of the four things mentioned on behalf of another person or while you’re running your own business this law is not affecting you, the moment you act like a broker or trader and play with user funds over these platforms it’s getting complicated, normally you would have to keep track of the payments this way also, with full details of the recipient.

What if an Indian individual exchanges crypto for crypto using a business not registered in India?
What happens if the same Indian citizen exchanges crypto in the Internet for currencies not legally accepted in India?

The law is not aimed at individuals, as long as you report your income and pay your taxes it doesn’t really matter where that exchange is registered.

The Indian government cannot ask an exchange in Japan to send them their AML report for someone who was trading in Japanese Yen, therefore I believe this is only for local businesses, located in India and trading in Rupees.

If India and Japan have an agreement on mutual assistance over FATF then it’s more complicated, without one such request could go unanswered but if a protocol is in place the Japanese branch could determine it’s their job to choose to assist the Indian one and the exchange will then be forced to provide all the data for Indian customers, no matter what they are trading on that platform.
Besides a lot of exchanges have a LERS system or equivalent in place, designed especially to take requests from government agencies.

Stompix basically summed it all up. The law is for the average human that holds crypto, as long as you are a law-abiding human and responsibly report your income and pay your dues it doesn’t really matter where that platform is registered under. It could be offshore or here in the states (If the united states follows suit with India’s legislation as presented in the OP), but as long as you the human aren’t trying to run your own crypto business.

I personally think platforms such as Bisq won’t be criminal to use, and even if it is criminal to use, we have the power of virtual machines and VPNs. I know those aren’t the end-all-be all. There are other tools to remain anonymous such as XMR. The SEC is cracking down the hardest on “crypto advisors” for the year 2023. That should tell you everything you need to know about what the state of crypto will look like in the next year or so. They don’t want any new shitfluencers, and I don’t blame ‘em.

Fuck every single bad actor out there.

[SquirrelJulietGarden]

The Ministry of Finance India f*** it up by using a phrase "virtual digital assets". Virtual is used when people especially governments want to build up something really vague around cryptocurrencies. They use this term to prevent their citizens to start off their interest in cryptocurrency as well as actually try to experience and use it.

How will government (Ministry of Finance India) know that two people are exchanging their bitcoin or other cryptocurrency at Bisq (no KYC)?
I doubt that they will be able to build up technical tools to find those trades.

This news is not strange with India that is one of the most fluctuating and chaotic countries in their regulations on cryptocurrencies. Two other nations are China and Russia.

[avikz]

F**ck man. It means, use of BISQ/HodlHodl/LocalCoinSwap or any other non-KYC P2P platform is now criminalized. Right?

That could be the case! But it's not clear yet as the gazette notification doesn't explicitly speak about this regime. But brace yourself for such legislation to be put in place. As of now, it should be OK if you are reporting your crypto income in your income tax return and pay 30% tax on it. In that case, you will be saved from future hassles because then you will be able to prove your good intention.

What I foresee, is an effective death of crypto market in India. Firstly, the government discouraged crypto to fiat transactions by imposing 30% tax and now its regulation under PMLA act. Probably that's what the government wants!

[tjtonmoy]

This will totally destroy the true nature of cryptocurrency. It is meant to be free and should bring freedom. By implementing this, they will ruin people's privacy and what cryptocurrency means to people. If you are obliged to share your all transaction to the government, then where's the freedom. Using of centralized exchanges will also hand over the power of individuals to control their own assets to the government. What are they trying to do?

[Darker45]

I understand these new rules. Indeed, if the government is waging war against money launderers, it should include cryptocurrency trades. However, the world of crypto is not as if transactions could only be done through third parties like centralized exchanges which can strictly impose AML measures to everybody.

If a user on this forum trades with another user through non-custodial wallets, how could the Indian government detect it? To a certain extent, the crypto technology has made government rules helpless.

[yhiaali3]

An AML regime is the first step towards effective regulation of intermediaries.

Most governments use this clause to control their citizens. Yes, everyone is against money laundering, but this does not mean confiscating the freedom of all people.

The government will not be able to prevent people from using Crypto in any way, the use of such strict laws is what prompts people to always find ways to overcome this ban or circumvent these strict laws.

Such things are rare in countries with more open crypto regulation.

[Husires]

I can understand that the local Crypto and NFT companies have become legal entities, and the anti-money laundering system must include a reserve in case the platforms go bankrupt, so I hope that the Indian law will be good to protect the money of investors, especially with the confusion that has been over the past years between prohibition and permission.

[pakhitheboss]

I am so frustrated that I cannot tell you. Indian government is trying to choke crypto development and earnings. Since they have nothing to track crypto transaction they are creating such laws.

One day you will hear someone question this law as the person questioning would never had made any crypto transaction. How the government would know about it is still questionable?

[teosanru]

There is no ban. No money laundering if you merely have crypto assets. The media frames the headlines in such a way that it looks as if you are going to go to jail just for holding cryptos.

So what has happened here is government has added some extra definitions in clause (sa) of Section 2(1). What has changed is nothing but the definition of the word in the act "Person carrying on Designated Profession". Now let's see where is this word being used in the act:

1.  Definition of Reporting Entity. So the words "Person carrying on Designated Profession" are being used in definition of Reporting Entity therefore it makes any person holding cryptos as a reporting entity.

2. Tasks/ Duties of Reporting entities. In plain terms,
 

• To take UIDAI/ Adhaar of the person whom you are dealing with or a passport in any other case. -ID of someone you deal with offline
• Maintain Records of all the transactions evidencing Identity and Business Correspondence for 5 years-All details of your holdings/ Trades
• Additional Due Diligence- Taking extra precautions when dealing with regards to the sources of funds which you are receiving from that person etc.-Practically slightly difficult to do for any individual

3. Obviously failure to do above tasks will make you vulnerable to Penalties from the Director.

So, the recent change has brought this above ammendment so just make sure to keep the records and identity of any person you deal with and enjoy trading and Crypto. There is no outright ban and if you follow the above Tasks there is no violation of Prevention of Money Laundering Act, 2003.

[allahabadi]

There is no ban. No money laundering if you merely have crypto assets. The media frames the headlines in such a way that it looks as if you are going to go to jail just for holding cryptos.

So what has happened here is government has added some extra definitions in clause (sa) of Section 2(1). What has changed is nothing but the definition of the word in the act "Person carrying on Designated Profession". Now let's see where is this word being used in the act:

1.  Definition of Reporting Entity. So the words "Person carrying on Designated Profession" are being used in definition of Reporting Entity therefore it makes any person holding cryptos as a reporting entity.

2. Tasks/ Duties of Reporting entities. In plain terms,
 

• To take UIDAI/ Adhaar of the person whom you are dealing with or a passport in any other case. -ID of someone you deal with offline
• Maintain Records of all the transactions evidencing Identity and Business Correspondence for 5 years-All details of your holdings/ Trades
• Additional Due Diligence- Taking extra precautions when dealing with regards to the sources of funds which you are receiving from that person etc.-Practically slightly difficult to do for any individual

3. Obviously failure to do above tasks will make you vulnerable to Penalties from the Director.

So, the recent change has brought this above ammendment so just make sure to keep the records and identity of any person you deal with and enjoy trading and Crypto. There is no outright ban and if you follow the above Tasks there is no violation of Prevention of Money Laundering Act, 2003.

For just to clear the air on the practical side... PMLA is usually handled by ED, so they won't come after some small change transactions as such... So unless u are actually being shady and just a normal trader paying ur taxes... Carry on without any issues...