Financial Intelligence Unit - India issues Show-Notice to Offshore Crypto Platforms for Non-Compliance

The Government of India has issued a press release mentioning that the Financial Intelligence Unit - India has issued show-cause notices to 9 offshore crypto platforms and has also asked the Ministry of Electronics and Information Technology (MeitY) to block the URLs of these online platforms. The notice has been issued owing to alleged non-compliance by the offshore crypto platforms with the requirements laid down under the Prevention of Money Laundering Act,2002 (and the rules made thereunder) as well as for lack of registration with the Financial Intelligence Unit - India.

The background to this action by Financial Intelligence Unit - India is pursuant to a notification by the Finance Ministry in March 2023 notifying that virtual digital asset (VDA) service providers will be regarded as ‘reporting entities’ and will be required to observe the relevant compliances under the PMLA. The Government had declared the following activities would fall under the category of ‘designated business’ and would accordingly have to comply with the relevant statutory requirements under the Prevention of Money Laundering Act, 2022.

• 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; and
• Participation in and provision of financial services related to an issuer’s offer and sale of a virtual digital asset.

Further, the Financial  Intelligence Unit -India also published a notice in July 2023 requiring all VDA service providers to register with the Financial Intelligence Unit - India (by providing some listed documents and information). The issuance of these notices by Financial Intelligence Unit - India is a clear indication that despite the challenges in enforceability of the penal provisions, the Indian Government intends to ensure that the offshore crypto platforms which are offering services to Indian users are compliant with the Indian legislative requirements.