In a significant move, the Indian government has taken strict action against nine offshore cryptocurrency exchanges, including major players like Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex. The crackdown comes after the issuance of compliance show cause notices under the Prevention of Money Laundering Act (PMLA) by India's Financial Intelligence Unit (FIU), operating under the nation's Finance Ministry.
The government has initiated steps to block the URLs of these exchanges, citing their alleged illegal operations without compliance with PMLA provisions in India. While the specific consequences and the timeframe for adherence were not detailed, this marks a significant development in the regulatory landscape of the country, particularly in the cryptocurrency sector.
This move follows the government's earlier declaration that 28 domestic crypto service providers had registered with the FIU, a number that has now risen to 31. In March of the same year, the Finance Ministry mandated that crypto businesses must register with the FIU, India's anti-money laundering unit, and adhere to PMLA processes. This obligation extends to activities based on virtual presence, emphasizing the importance of Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) frameworks.
The notices issued to these offshore entities fall under a section of the Prevention of Money Laundering Act, giving the government authority to impose penalties on the entities, their directors, or employees, or issue warnings and instructions. The finance ministry's late-night statement accused these virtual digit asset (VDA) service providers of non-compliance with anti-money laundering laws, raising concerns about dubious financial transactions.
Queries directed to Binance, KuCoin, and Huobi regarding the notices remained unanswered at the time of reporting. The offshore entities were brought under the AML-
CFT framework in March 2023, reinforcing the legal obligations of these crypto businesses to undergo processes such as Know Your Customer (KYC).
India is currently undergoing a peer review of its anti-money laundering and counter-financing of terrorism framework by the Financial Action Task Force (FATF), a United Nations body. This review assesses both technical compliance with recommendations and the effectiveness of India's anti-money laundering and anti-terror financing framework.
The Director of FIU IND has written to the Ministry of Electronics and Information Technology, urging the blocking of URLs for these entities allegedly operating illegally without complying with the provisions of the PML Act in India. The ministry emphasized that crypto platforms must register with FIU IND as reporting entities and adhere to mandated obligations, including reporting and record-keeping, to ensure regulatory compliance.
As the regulatory landscape for cryptocurrencies continues to evolve globally, India's decisive actions underscore the growing importance of compliance in the crypto sector and highlight the need for offshore exchanges to adhere to local regulations to avoid legal repercussions.
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