The Indian finance ministry has issued compliance show-cause notices to nine offshore cryptocurrency exchanges, including major players like Binance, Kucoin, Huobi, and others, accusing them of operating illegally in India without adhering to local money laundering laws.
The affected exchanges, namely Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex, have been served notices to explain their non-compliance with the Prevention of Money Laundering Act (PMLA), 2002.
The ministry has also asked the information technology ministry to block their URLs for operating illegally in the country.
Foreign Exchanges Asked to Register With FUI
The finance ministry, in a statement released today, 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 PMLA.
As of now, 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
Currently, there is direct 1% tax on every crypto transaction in India on local exchanges, which has shifted most users to foreign exchanges. As reported earlier, the implementation of 1% tax has resulted in the loss of potential revenues of approximately $420 million (Rs. 3,493 crores) to the Indian government. Between February 2022 and July 2022, three to five million Indian users shifted to offshore platforms, with a single offshore exchange reporting a staggering 450,000 sign-ups in the month following the TDS implementation in July 2022.