Crypto Players, Charities On PMLA's Radar

While regulating them is necessary, the need of the hour is a comprehensive legislation to govern virtual digital assets

- Dinesh Kanabar

WHILE WE AWAIT regulations specifically applicable to virtual digital assets (VDAs), there have been peripheral changes in the regulatory environment. First, there was a new regime to levy tax on income from VDAs; then came reporting requirements under the Companies Act; and now, VDAs have been brought under the ambit of the Prevention of Money Laundering Act (PMLA).

PMLA permits the government to prescribe measures to prevent money laundering. It provides for stringent measures including confiscation of property. The enforcement directorate (ED) frequently takes action under PMLA, including related to virtual asset service providers (VASPs).

The Ministry of Finance has issued a Notification No. 1072 (E) dated March 7, 2023, which prescribes various requirements including carrying out of due diligence, maintenance of records, etc. on VASPs that are now notified as Persons Carrying on Designated Business or Profession and are therefore under the ambit of a Reporting Entity (RE). VASPs typically include NFT platforms, cryptocurrency exchanges, crypto payment gateways, etc. Where VASPs carry on activities for or on behalf of another person, it shall be regarded as RE under PMLA. The activities covered under PMLA are: (i) exchange between VDAs and fiat currency; (ii) exchange between one or more forms of VDAs; (iii) transfer of VDAs; (iv) safekeeping or administration of VDAs or instruments enabling control over VDAs; and (v) participation in and provision of financial services related to an issuer’s offer and sale of a VDA.