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Cryptocurrency under PMLA: What changes for those investing in VDAs now?

The Centre on Tuesday brought cryptocurrencies under the ambit of the Prevention of Money Laundering Act (PMLA). According to the government notification, the exchange between virtual digital assets and fiat currencies, the exchange between one or more forms of virtual digital assets and the transfer of digital assets will be covered under money laundering laws.

The definition of “virtual assets” would include cryptocurrencies and non-fungible tokens.

Broadly, this means that any financial wrongdoing involving cryptocurrency assets can now be investigated by the Enforcement Directorate (ED).

What is India’s money laundering law, PMLA?

The Prevention of Money Laundering Act, 2022 (PMLA) allows the Centre to confiscate property earned through illegal proceeds. It was framed to prevent people from legalising the money earned from illegal sources.

The ED is responsible for investigating the offences. Additionally, the Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue, Ministry of Finance is the central national agency responsible for receiving, processing, analysing, and disseminating the information relating to suspect financial transactions.

It is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

If found guilty, the person who committed money laundering can be awarded rigorous imprisonment for a minimum of three years up to seven years. A fine, without any limit, can also be imposed. Also, their property can be seized and attached.

What will change for cryptocurrency after inclusion in PMLA?

Now, the investors will be subjected to greater scrutiny by agencies. Those found using VDAs to earn money illegally would be subjected to the same punishments as other money laundering activities.

Under anti-money laundering law, “reporting entities” are required to maintain the KYC details of their clients and beneficial owners. According to the notification, entities dealing in VDAs will now be considered “reporting entities” under PMLA. They will have to maintain all the records of the customers.

Also, the extension of PMLA will give authorities greater power to monitor the transfer of cryptocurrency outside India.

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