On March 7, 2023, the Ministry of Finance declared that all virtual digital assets would become subject to the Prevention of Money Laundering Act 2002 (PMLA) in order to regulate the loosely regulated crypto market.
Understanding the Prevention of Money Laundering Act 2002 (PMLA)
It was in 2002 when the National Democratic Alliance government approved anti-money laundering legislation. The legislation came into force on July 1, 2005. The Prevention of Money Laundering Law was seen as the country’s commitment to the Vienna Convention on money laundering, combating the financing of terrorism (CFT) and drug traffic. The law was intended to curb the conversion of illegally earned money into legal cash. Through the law, the Enforcement Directorate (ED) was empowered to monitor and combat money laundering, which also gave it the right to confiscate properties and punish money launderers.
In July last year, returning to a query on cases recorded by the ED, Union Minister of State for Finance Pankaj Chaudhary informed the Lok Sabha that “till March 31, 2022, the ED recorded around 5,422 cases, income attached to the to the tune of Rs 1,04,702 crore (approx.), filed a judicial complaint in 992 cases resulting in confiscation of Rs 869.31 crore and convicted 23 accused under of the PMLA”.
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What changes will the measure bring?
The Finance Ministry notification aims to bring cryptocurrency transactions within the scope of the PMLA. This implies that Indian crypto exchanges will have to disclose any suspicious activity related to the purchase or sale of cryptocurrencies to the Financial Intelligence Unit of India (FIU-IND). The Financial Intelligence Unit of India (FIU-IND), as a nodal agency, is responsible for receiving, processing, analyzing and disseminating information on suspicious financial transactions to law enforcement agencies. The FIU-IND performs analysis and if it discovers something incorrect, it notifies the Emergency Department.
Under Sections 5 and 8(4) of the Act, the ED has discretionary powers to recover and seize suspicious properties without any judicial permission.
The need to strengthen control of digital commerce
Meanwhile, there have been hardly any regulations on digital assets, including cryptocurrencies and non-fungible tokens (NFTs). However, in recent years, regulators have taken an aggressive tone and the use of digital assets has become widespread. As of January 3, 2023, the value of all existing cryptocurrencies is around $804 billion. This is approximately double the GDP of Singapore in the year 2021. Talking about India, around 10 crore Indians have trusted and invested in cryptocurrencies.
Now, according to a report, illegal cryptocurrency use has reached a record high of $20.1 billion in the previous year. Transactions linked to sanctioned entities multiplied by 100,000, representing around 44% of illegal actions from the previous year.
Can money laundering be traced through crypto transactions?
Yes, money laundering can be traced through crypto transactions; however, this would require novel approaches and tools. This is because such transfers are very different from traditional banking channels. While the FIU may be familiar with Know Your Customer (KYC) and Customer Due Diligence (CDD) regulations, the technological essence of VDAs poses a huge challenge in collecting the necessary data. In such a case, what is most needed is an expanded intelligence framework of the intelligence unit.
According to the Egmont Group recommendation, a good analysis of crypto wallets, associated addresses, blockchain records, hardware identifiers such as IMEI, IMSI or SEID numbers and MAC addresses is essential.
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Source: ptivs2.edu.vn