The Finance Ministry’s March 7 notification bringing all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA) is a much-needed step, albeit belated. The government has been struggling to formulate an appropriate regulatory response to deal with the pandemic-era uptick in reported real investments as well as investments in virtual assets in recent years. For example, in a July 2021 online report by BrokerChooser.com, it was estimated that India is the country with the highest number of ‘crypto owners’ at 100.7 million, which is more than three times the number of crypto asset owners in other countries. was higher – even if it is discounted as speculative speculation, government measures and disclosures indicate that trading volumes in unregulated virtual assets have increased significantly in recent years. Last month, Minister of State for Finance Pankaj Chowdhary informed the Lok Sabha that the Enforcement Directorate was probing ‘several cases related to cryptocurrency frauds, in which some crypto exchanges were found to be involved in money laundering’. and that ₹ 936 crore had been attached or frozen till January 31, deemed to be the proceeds of crime. The decision to mandatorily bring all trade in virtual digital assets under the PMLA now places an obligation on individuals and businesses participating in or facilitating these transactions to trace the origin of all activities, including safekeeping in such assets.
The intergovernmental Financial Action Task Force (FATF) – the global money laundering and terrorist financing watchdog – is consistently flagging the potential of virtual digital assets for criminal abuse given the speed and anonymity with which trades can be made around the world. As it has been pointed out, the fact that some countries have taken steps to regulate virtual assets, and a few others have banned them outright, while the majority have taken no action, is an open source of information for criminals and terrorists. Has created a global system with loopholes for abuse. India, which holds the presidency of the G-20, has been repeatedly stressing the need for a globally coordinated regulatory response to deal with crypto assets. While the Centre’s decision to add PMLA monitoring requirements, following the introduction of a tax regime for virtual digital assets in last year’s budget, has been interpreted by the crypto asset sector as a move towards regulation, rather than limiting it. For one, the RBI’s persistent advocacy of a ban on virtual assets should be seriously weighed before any decision is taken on the fate of the long-delayed draft law.