India issues compliance notices to nine offshore exchanges including Binance

India issues show-cause notices to Binance, Kucoin, and others for PMLA violations.
Finance Ministry urges blocking URLs of offshore exchanges operating illegally in India.
1% tax on local exchanges prompts 3-5 million Indian users to shift to offshore platforms.

In a decisive move, India’s Finance Ministry has issued compliance show-cause notices to nine major offshore cryptocurrency exchanges, including industry giants like Binance, Huobi, and Kucoin. The government accuses these platforms of operating illegally within the country’s borders without adhering to local money laundering laws.

This development marks a significant step in India’s efforts to regulate the crypto industry, with a focus on enforcing compliance with the Prevention of Money Laundering Act (PMLA), 2002.

Compliance show-cause notices and URL blocking

The Finance Ministry of India served compliance show-cause notices to nine major players namely Binance, Kucoin, Huobi, Kraken, Bittrex, Gate.io, Bitstamp, MEXC Global, and Bitfinex. The nine were accused of allegedly violating the Prevention of Money Laundering Act (PMLA).

The notices demand an explanation for their non-compliance with the established regulations. Simultaneously, the ministry has urged the Information Technology Ministry to block the URLs of these exchanges, citing their illegal operations within the country.

This move underscores India’s commitment to bringing offshore crypto exchanges under regulatory oversight, signalling a significant shift in the country’s approach toward monitoring and controlling digital asset transactions. The lack of a specified timeframe or consequences in the issued notices leaves the crypto community and the exchanges in question in suspense, with potentially far-reaching implications for their operations in the Indian market.

Financial Intelligence Unit-India (FIU-IND)

India’s Finance Ministry emphasizes the necessity for virtual digital asset (VDA) service providers to register with the Financial Intelligence Unit-India (FIU-IND). This includes activities such as the exchange between virtual digital assets and fiat currencies, with obligations extending beyond physical presence in India.

While 31 service providers have registered with the FIU-IND, the ministry points out that several offshore entities serving a substantial Indian user base have failed to comply with the Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) frameworks.

The implementation of a 1% tax on crypto transactions in India on local exchanges has led to a notable migration of users to foreign platforms. Between February and July 2022, three to five million Indian users shifted to offshore exchanges, causing potential revenue loss for the government. A single offshore exchange reported a surge in sign-ups following the tax implementation, highlighting the impact of regulatory measures on user behaviour.