Anti-Money Laundering Rules For Indian Crypto Firms To Be Formalised Soon

Indian crypto exchanges are in talks with the government to formalise rules about reporting and monitoring illicit transactions, including money laundering, according to three executives at such platforms.

A set of suggested rules has been shared with Indian crypto exchanges by the Financial Intelligence Unit, a financial sector watchdog tasked with monitoring suspicious transactions related to money laundering and terror financing.

The extension of anti-money laundering rules is aimed at further tightening controls over crypto trading. Earlier, the government had imposed capital gains and transaction taxes on virtual digital assets in FY22.

The proposed rules were first shared with exchanges on March 10, following a March 8 gazette notification that brought virtual digital assets—or crypto assets—under the ambit of the Prevention of Money Laundering Act.

The rules are likely to be formalised by April 21, two of the three executives quoted earlier told BQ Prime on the condition of anonymity as details are not public yet.

The Economic Times first reported on Monday that that the FIU had suggested rules to track suspicious transactions involving crypto assets.

Crypto service providers should “examine, as far as reasonably possible, the background and purpose of all complex, unusually large transactions, and all unusual patterns of transactions, which have no apparent economic or lawful purpose", the Economic Times reported citing the draft document.

BQ Prime was unable to obtain a copy of the draft document. According to the three executives quoted above, the FIU's suggested rules cover:

• Proper know-your-customer or KYC checks for customers.

• Transaction monitoring.

• Staff training on money laundering prevention.

• Risk review of products.

• Compliance with Financial Action Task Force's travel rule,

First introduced in the United States, the travel rule requires financial intermediaries to share information with each for other for checks required during transfer of funds.

Storage in cold wallets—used to keep crypto assets offline—and donations made to non-governmental organisations using digital tokens are also being discussed under the rules, the second of three executives cited above said on the condition of anonymity.

While the rules would have covered all crypto activity by default, the large $1 billion—in meme token Shiba Inu—made by Vitalik Buterin to Covid relief in India brought special attention to the matter, the third executive said.

These rules will also cover asset tokenisation firms that operate in India, according to the first of the three executives. Such firms typically issue blockchain-based tokens that represent either digital or real-world assets such as tokenised land ownership.