India’s crypto landscape: offshore blocks and regulatory realities

FIU-IND enforcement and the ban myth

The Financial Intelligence Unit of India (FIU-IND) issued compliance show cause notices to 25 offshore virtual digital asset service providers under Section 13 of the Prevention of Money Laundering Act. This section allows authorities to investigate, check company records, and demand reports on suspicious transactions. The accused companies, including Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, LBank, PrimeXBT, Coinex, Remitano, Poloniex, BitMex, and LCX, allegedly failed to follow anti-money laundering and counter-financing of terrorism frameworks. The FIU-IND, which launched in 2004, collects and analyzes information about suspicious financial transactions. The FIU-IND also issued notices under the Information Technology Act, 2000, to remove apps and websites operating without proper registration. Authorities requested that the Secretary of MeitY block the URLs of these entities to ensure financial integrity. While media reports suggest a total crypto ban, the government has made no official announcement regarding such a prohibition. You likely already know that the Finance Minister attended a G20 meeting in Japan where leaders noted that crypto-assets do not currently pose a threat to global financial stability. The Financial Intelligence Unit of India issued compliance show cause notices to 25 offshore virtual digital asset service providers including Binance and Kucoin for allegedly failing to follow India’s anti-money laundering laws under the Prevention of Money Laundering Act.

Market shifts and WazirX setbacks

CoinDCX reached a $1.1 billion valuation after raising 6.70 billion rupees from investors. Coinbase subsequently invested in the Indian exchange at a $2.45 billion valuation to target the massive user base in emerging markets. This expansion contrasts with the struggles of WazirX, which lost $230 million in a cyberattack on July 18. This breach caused WazirX reserves to plummet by 45%. WazirX froze all trading and withdrawals on the platform following the attack. The company proposed a plan to "socialise" the impact among customers, a move Sumit Gupta called "utter nonsense" because the poll options protected the business instead of the users. To attract users from blocked offshore platforms, CoinDCX provides a 1% bonus for transfers. WazirX also offers a 1% bonus to users moving their crypto holdings to its platform. WazirX also manages thousands of accounts and blocked 14,469 accounts after receiving requests from law enforcement agencies. Nischal Shetty stated that WazirX follows rigorous KYC and AML policies and works with TRM Labs for transaction monitoring.

G20 frameworks and taxation

The G20 nations adopted a roadmap for crypto regulation based on a synthesis paper from the IMF and FSB during the meeting in Marrakesh. This roadmap, prepared at the request of the Indian G20 Presidency, seeks to address risks to macroeconomic stability through coordinated global implementation and information sharing. The G20 leaders welcomed the work of the FSB and IOSCO on crypto-asset trading platforms to ensure market integrity. India maintains a strict tax regime where users pay a 30% flat tax and a 1% tax deducted at source on transactions exceeding 10,000 rupees. These regulations caused WazirX trading volumes to drop by 90% between April 1 and November 30. The Reserve Bank of India continues to warn that virtual digital assets jeopardize financial stability because they function outside the established banking system. The central bank also cautioned that many trading platforms operate abroad and can help with illegal activities like money laundering, narcotics trafficking, and financing terrorism. The Institute of Chartered Accountants of India (ICAI) instead advocates for a thorough legal framework for virtual digital assets rather than a complete prohibition. The ICAI stated it could assist in the development of accounting standards, financial reporting principles, and compliance guidelines to increase transparency. Will the government eventually provide clearer classification for these assets to help the industry stabilize?