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The Financial Intelligence Unit (FIU-IND), working under the Union Finance Ministry, has started a major campaign against foreign crypto exchanges doing business illegally and without registration in India. Show Cause Notice has been issued to 15 international Virtual Digital Asset Service Providers (VDASPs/Crypto Exchanges) under Section 13 of the Prevention of Money Laundering Act (PMLA), 2002 for flouting financial laws.
Along with this, in order to protect the interests of Indian investors and the financial integrity of the country, FIU has sent a formal recommendation to the Ministry of Electronics and Information Technology (MeitY) to block the official URLs (websites) and mobile applications of all these 15 platforms across the country.
In March 2023, the Central Government included Virtual Digital Asset (VDA) traders and crypto exchanges under the legal ambit of the Prevention of Money Laundering Act (PMLA). Under this, strict rules were set for every domestic and foreign platform providing services in India:
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Mandatory Registration: It was mandatory for each platform to be registered with FIU-IND as a ‘Reporting Entity’.
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Strict KYC Compliance: It was mandatory to verify the identity of every customer and keep detailed digital records of transactions.
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Suspicious Transaction Reporting (STR): It was required by law to immediately report to the FIU any suspicious transaction related to hawala, terror financing or black money.
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Tax and TDS Compliance: To ensure monitoring of 1% TDS (TDS under Section 194S) and 30% flat capital gains tax on crypto deals done by Indian users.
The investigation found that these 15 foreign companies were running large-scale operations in India and raising huge funds from Indian investors, but they neither registered with the FIU nor followed local laws.
After this strict action, concern has increased among millions of investors of the country who were trading on these platforms:
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App store and website access closed: Under Section 69A of the Information Technology Act, the Ministry of Electronics will block the websites of these companies through Indian Internet Service Providers (ISPs) and their apps will be removed from Google Play Store and Apple App Store.
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Hindrances in crypto withdrawal and transfer: If the URL is blocked, users may face technical difficulties in logging into their accounts. Although technically the crypto assets in the wallet are not confiscated, direct rupee (INR) withdrawals or fiat transactions into Indian bank accounts will be stopped immediately.
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Attitude towards domestic exchanges: The government and regulators recommend that investors trade only on Indian or foreign platforms that are registered with the FIU and comply with full KYC and tax regulations.
FIU-IND has clarified that any digital asset platform targeting clients located within India cannot be exempted from the laws of the country. If companies receiving notices fail to submit satisfactory responses and compliance plans, advance legal action such as punitive monetary fines and freezing of digital assets will be taken against them.
