Government Brings Crypto Trading Under the Prevention of Money Laundering Act

The Government of India has brought cryptocurrency trading and other Virtual Digital Assets (VDAs) under the Prevention of Money Laundering Act (PMLA) through a notification on 7 March 2023.

From the date of the notification, the below crypto-related transactions are brought under the ambit of the PMLA:

• The exchange between VDAs and fiat currencies
• The transfer of VDAs
• The exchange between one or more forms of VDAs
• The administration or safekeeping of VDAs or instruments having control over VDAs
• The provision and participation of financial services related to an issuer’s sale and offer of a VDA

Thus, exchanging one crypto with another, trading crypto for fiat currencies and transferring VDAs between legal entities or two persons is to be considered under the PMLA provisions. Crypto exchanges must maintain records and present them before the government when required. They will have to store data so that they can reconstruct individual transactions. 

The crypto exchanges must also conduct enhanced due diligence, as prescribed under the PMLA. It includes verification of the client’s identity, additional steps to examine the financial position and ownership, including sources of the client’s funds, nature of the relationship between the parties and recording the reasons for conducting the transaction.

When the parties cannot provide transaction details, the crypto exchanges must stop the transaction. Crypto exchanges must store the information obtained from the transaction parties for at least five years after completing the transaction.

Entities dealing in VDA will be considered reporting entities under the PMLA. Every reporting entity should maintain the records of every transaction, including cash transactions of more than Rs.10 lakh. They should also keep a record of all series of cash transactions connected to each other, valued individually below Rs.10 lakh. Such a series of transactions should have occurred within a month, and the monthly aggregate should exceed Rs.10 lakh. The move empowers the government to access information stored by crypto exchanges at any time.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@clear.in