As virtual digital assets continue to gain popularity, regulators worldwide are taking steps to ensure that they are regulated and not used for illegal activities such as money laundering and terrorism financing. In India, the Ministry of Finance, Department of Revenue, Government of India, issued a gazette notification on March 7, 2023, with reference to the Prevention of Money-laundering Act, 2002. 

The Prevention of Money-laundering Act, 2002 is an Act of the Parliament of India enacted by the Government to prevent money laundering and to provide for the confiscation of property derived through money laundering. This law is crucial for the country’s financial system’s safety, integrity, and security. Intermediaries conducting businesses related to virtual digital assets must follow these guidelines to ensure that their business is compliant, and they also play a role in preventing money laundering. The Indian Government’s aim to regulate virtual digital assets is essential for the safety and security of the country’s financial system. More regulations may be introduced in the future by the Government.

This notification brings the activities of various intermediaries operating in the virtual digital assets industry under the ambit of PMLA. This clarity will help intermediaries that deal in virtual digital assets to comply with the Prevention of Money-laundering Act, 2002 and conduct their businesses in a more compliant manner, thus mitigating regulatory risks.

According to the aforementioned notification, the following activities, when carried out for or on behalf of another natural or legal person in the course of the company, would be governed as a designated business/ profession under the PMLA. :

• Exchange between virtual digital assets and fiat currencies;
• Exchange between one or more forms of virtual digital assets;
• Transfer of virtual digital assets;
• Safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets;
• Partaking in and provision of financial services related to an issuer’s offer and sale of the virtual digital asset.

For the purpose of this notification, the term “virtual digital asset” has the same meaning as assigned to it in clause (47A) of section 2 of the Income-tax Act, 1961 (43 of 1961). As per this section, VDAs means any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically. It also includes a non-fungible token or any other token of similar nature, by whatever name called; and any other digital asset, as the Central Government may, by notification in the Official Gazette specify. However, by notification in the Official Gazette, the Central Government may exclude any digital asset from the definition of the virtual digital asset subject to such conditions as may be specified therein.

The Indian Government has been taking steps towards regulating virtual digital assets and ensuring they are not used for illegal activities such as money laundering and terrorist financing. The notification issued by the Ministry of Finance will ensure that virtual digital assets are regulated in India and the companies dealing with them comply with the regulations. More clarity and regulations are expected to be introduced in the future to ensure the safe and legal use of virtual digital assets in India. Also, the users will be required to declare all their crypto assets to prevent any legal actions against them.

Rajagopal Menon, Vice President at WazirX, said, “WazirX expresses its appreciation for the new notification that mandates the reporting of Anti-Money Laundering (AML) to FIU for cryptocurrency assets, as it coincides with our existing policies and practices. This marks the initial move towards regulation, and we are fully committed to adhering to all applicable regulations and guidelines. As one of India’s leading cryptocurrency exchanges, we have consistently taken a proactive approach to AML and KYC compliance, and we will continue to collaborate closely with regulators and law enforcement agencies. Our dedication to providing a secure, transparent, and user-friendly platform for trading and investing in cryptocurrency assets remains unwavering.”