In a significant regulatory move, India's Financial Intelligence Unit (FIU) has registered a total of 49 cryptocurrency exchanges as reporting entities in the fiscal year 2024-25. The majority of these platforms, 45 to be precise, are based within India, while four operate from offshore locations. This registration is a core part of the nation's intensified efforts to combat money laundering and prevent the risks of terrorist financing within the rapidly growing digital currency sector.
The Regulatory Framework and Key Findings
The action stems from a strategic analysis of suspicious transaction reports (STRs) submitted by these exchanges. The analysis uncovered the "exploitation" of crypto funds for serious criminal activities. These activities included hawala transactions, gambling, various scams and frauds, and even an instance linked to an illegal adult content website. In India, cryptocurrency is legally classified as a Virtual Digital Asset (VDA), and the trading platforms are termed VDA Service Providers (VDA SPs).
These entities were brought under the ambit of India's anti-money laundering law, the Prevention of Money Laundering Act (PMLA), via a linked reporting system in 2023. As reporting entities, they are mandated to file STRs with the FIU, the federal agency responsible for safeguarding the integrity of India's financial system. The FIU's report for 2024-25, accessed by PTI, notes that the crypto ecosystem in India is evolving "rapidly" but carries inherent risks due to its global reach, potential for anonymity, and capacity for swift peer-to-peer settlements.
Enforcement Actions and Compliance Mandates
The regulatory oversight has been backed by strict enforcement. During the last fiscal year, the FIU imposed penalties totalling Rs 28 crore on certain non-compliant crypto exchanges. The geographic analysis of STRs revealed a significant regional concentration of suspicious activities and identified the digital assets most commonly used for these illegal purposes. Some reports also raised red flags connected to child sexual abuse material (CSAM), terror financing, dark net services, and proceeds of crime.
Post-registration, exchanges must adhere to a stringent set of compliance rules. They are required to disclose their bank accounts, appoint a designated director and principal officer, and provide full platform contact details to the FIU. Furthermore, they must conduct internal audits, perform risk-based customer due diligence, screen for sanctions, and share periodic risk assessments with the agency. They also have to monitor activities like initial coin offerings and track transfers between different types of wallets.
India's Holistic Approach to Crypto Risks
Unlike several nations where multiple bodies oversee the sector, India has designated the FIU under the Union Finance Ministry as the single-point authority for registering and monitoring VDA SPs for financial crimes. The report underscores that India has addressed risks from cryptocurrencies through legislative measures, including the introduction of taxation on crypto income and withholding taxes under the Income-Tax Act. This multi-pronged strategy of registration, monitoring, penalization, and taxation reflects a comprehensive governmental effort to regulate the virtual digital asset space while mitigating its potential for misuse.
