India Cracks Down on Nine Offshore Crypto Exchanges

Quick Take

India’s FIU IND tightens the grip on offshore cryptocurrency exchanges, issuing compliance notices to nine major platforms, including Binance and Kraken, for alleged illegal operations. This crackdown underscores India’s commitment to regulating cryptocurrencies and combating financial crimes.

Indian Financial Watchdog Cracks Down on Unregistered Offshore Crypto Platforms

The Financial Intelligence Unit India (FIU IND) has taken a decisive step in tightening the regulatory noose around offshore crypto exchanges or Virtual Digital Assets Service Providers (VDA SPs) operating in the country. In a significant development, FIU IND has issued compliance Show Cause Notices to nine prominent offshore crypto exchanges for allegedly operating illegally without adhering to the provisions of the Prevention of Money Laundering Act (PMLA) 2002. These actions signal a growing commitment by Indian authorities to regulate the cryptocurrency space and safeguard against illicit financial activities.

Commenting on the regulatory action, Shivam Thakral, CEO of BuyUcoin, stated, “The latest action by FIU demonstrates the government’s commitment to creating a safe and regulated digital asset ecosystem in India. The main objective of this move is to protect investors and prevent illicit use of digital assets. The decision to include foreign crypto exchanges as reporting entities is a crucial step and was highly anticipated by the experts.”

The nine offshore crypto exchanges that have received compliance Show Cause Notices from FIU IND are Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex. According to the FIU IND, these platforms have failed to comply with the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework, which was extended to include VDA SPs under the provisions of the PML Act in March 2023.

The FIU IND’s decision to include offshore cryptocurrency exchanges within the regulatory framework has far-reaching implications, particularly for trading activities on these foreign platforms. Thakral added, “The major impact will be on the trading activities on the foreign crypto bourses, and we may see a significant shift of trading volume to Indian exchanges that are FIU compliant.”

One of the most significant moves in this regulatory crackdown is the Director of FIU IND’s decision to reach out to the Ministry of Electronics and Information Technology, urging them to block the URLs of these non-compliant entities. This step aims to disrupt the operations of these platforms in India, effectively curbing their access to the Indian market.

However, Thakral cautioned that the government should adopt a calculated approach when it comes to blocking the URLs of foreign crypto exchanges. He pointed out, “I think the government should take a calculated approach in blocking URLs of foreign crypto exchanges, as a lot of Indian traders might have stored their digital assets on such bourses.”

In light of these developments, Thakral emphasized the importance of users choosing regulated and FIU-compliant platforms for their digital asset transactions. “Users should keep their digital assets on a regulated and FIU-compliant platform for a stress-free digital asset journey,” he advised.

Notably, BuyUcoin recently achieved FIU-compliant status, further contributing to creating an environment of trust in the Indian digital asset ecosystem.

The crux of the issue lies in the requirement for crypto platforms, whether offshore or onshore, engaged in various cryptocurrency-related activities, to register with FIU IND as Reporting Entities and adhere to the obligations outlined in the PMLA 2002. This regulatory framework imposes stringent reporting, record-keeping, and compliance requirements on these service providers, irrespective of their physical presence in India. The intention behind these regulations is clear: to prevent money laundering and the financing of terrorism through virtual digital assets.

To date, 31 VDA SPs have dutifully registered with FIU IND, signaling their commitment to adhering to Indian regulatory standards. However, numerous offshore entities have thus far evaded registration, even while catering to a significant portion of the Indian cryptocurrency user base. This regulatory gap has raised concerns about the potential misuse of virtual digital assets for illegal financial activities.

FIU IND’s actions underscore India’s resolve to bring offshore crypto platforms under the ambit of AML-CFT regulations. By issuing Show Cause Notices and seeking the blocking of URLs, authorities are making it clear that compliance with Indian law is non-negotiable for entities seeking to operate in the Indian cryptocurrency market.

In response to these developments, several of the affected offshore crypto platforms have expressed their willingness to cooperate with Indian authorities and ensure compliance with the PMLA 2002. This willingness to engage with regulators indicates a growing recognition of the importance of adhering to global AML-CFT standards in the cryptocurrency industry.

Despite FIU IND’s communication with the Ministry of Electronics and Information Technology to block the URLs of these nine entities, their websites remained accessible from India at the time of writing.

The impact of FIU IND’s actions on the broader cryptocurrency market remains to be seen. However, this move is undoubtedly a significant step toward strengthening India’s cryptocurrency regulations and preventing the misuse of virtual digital assets for illicit purposes. It also sends a clear message to offshore crypto exchanges that compliance with Indian law is not optional, and regulatory oversight in the cryptocurrency sector is here to stay.

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