In a significant escalation of regulatory oversight, the Financial Intelligence Unit-India (FIU-IND) under the Ministry of Finance has issued show-cause notices to 25 offshore virtual digital asset (VDA) service providers for failing to comply with the Prevention of Money Laundering Act (PMLA), 2002. Prominent among the targeted entities are global heavyweights like LBank and BingX, both based in the British Virgin Islands and ranked among the top 20 cryptocurrency exchanges worldwide. This action underscores India's commitment to curbing money laundering risks in the burgeoning crypto sector, which has seen explosive growth but remains fraught with vulnerabilities.
The notices stem from the government's 2023 decision to bring VDA service providers under the PMLA framework, mandating registration with FIU-IND as Reporting Entities regardless of their physical presence in India. These providers, involved in activities such as exchanging VDAs for fiat currencies, transferring digital assets, safekeeping, or enabling control over them, must adhere to stringent anti-money laundering (AML) and counter-financing of terrorism (CFT) obligations. This includes robust reporting, record-keeping, and due diligence protocols designed to prevent illicit financial flows. FIU-IND's proactive surveillance has identified these offshore operators catering to Indian users without registration, prompting swift enforcement to integrate them into the regulatory ecosystem.
In addition to the notices, the government has directed these 25 entities to immediately block access to their applications and websites for users in India, effectively restricting their operations within the country. This measure aims to protect Indian investors from unregulated platforms that could facilitate anonymous transactions vulnerable to exploitation by criminals. The finance ministry's statement on Wednesday emphasized that crypto products, including non-fungible tokens (NFTs), are entirely unregulated and pose substantial risks, with no recourse available for losses incurred. Investors are urged to exercise extreme caution, as the absence of oversight could lead to irreversible financial damage.
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The regulatory push reflects a broader global trend toward tightening controls on cryptocurrencies amid concerns over their potential misuse in money laundering and terror financing. By imposing activity-based obligations under PMLA, India is aligning its framework with international standards set by bodies like the Financial Action Task Force (FATF). Compliant entities, such as registered onshore exchanges, must demonstrate ongoing adherence to these norms, fostering a safer environment for legitimate innovation in blockchain and digital finance. Non-compliance, however, invites severe penalties, including fines and operational bans, signaling that the era of unchecked offshore crypto activities in India is over.
As the crypto landscape evolves, this crackdown serves as a wake-up call for both providers and users. While it may temporarily disrupt access to certain platforms, it paves the way for a more transparent and secure market. Indian authorities continue to monitor emerging threats, with FIU-IND playing a pivotal role in identifying and addressing gaps. For now, the message is clear: participation in the digital asset space demands full regulatory compliance, or face exclusion from one of the world's fastest-growing economies.
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