Indian Enforcement Agencies Seek Trading Ban On Virtual Currencies
India’s enforcement agencies are seeking a trading ban on bitcoin after the Reserve Bank of India recently barred banks and other payment service providers from dealing in virtual currencies.
The Central Board of Direct Taxes and the Enforcement Directorate have recommended that trading of virtual currencies like bitcoin be banned in India, an official aware of the development told BloombergQuint on the condition of anonymity. That’s because virtual currencies may be used for money laundering or financing terror activities since such transactions cannot be traced, the official said.
Representatives of the two agencies had raised these concerns at a recent meeting of the committee tasked with developing a framework for regulation of cryptocurrencies. The committee, headed by Economic Affairs Secretary Subhash Garg, also includes Securities and Exchange Board of India Chairman Ajay Tyagi, Reserve Bank of India Deputy Governor BP Kanungo, and representatives from CBDT and ED.
The central bank, on April 5, barred regulated entities from providing services to any individual or business dealing in virtual currencies. While the move makes it extremely difficult for virtual currency exchanges to function in the country, it is still not a complete trading ban.
Volatility in prices of such currencies may have prompted the RBI and government look at these currencies with a strict lens, said Harshal Kamdar, partner at PwC India. If virtual currencies are not banned, it would be important to ensure that the transactions are KYC (know your customer) and AML (anti-money laundering) compliant, he added.
The policy view on virtual currencies has been evolving over the last couple of years.
The first panel constituted in April 2017 to work on a framework for regulating these tokens had also recommended a ban, another official familiar with the matter told BloombergQuint on condition of anonymity. At the time, the recommendation was not acted upon. That committee was headed by former Special Secretary of Economic Affairs division Dinesh Sharma. The committee had suggested the government bring in a draft legislation to ban the use of virtual currencies, if it finds that investors continue to hold these assets even after a pre-set window to exit expires, the same official said.
The report prepared by the panel was not made public.
However, the Department of Economic Affairs now wants virtual currencies to be regulated and not banned, the first official quoted above said. The Economic Affairs division feels that people would find a way around the ban, making it even tougher to track transactions in virtual currencies.
The industry, too, believes that regulation is a better way forward than attempting to ban virtual currencies. You will only push the market underground and make it tougher to track transactions, Navin Surya, chairman of the Payments Council of India told BloombergQuint in an interview on April 6.