Financial Intelligence Unit Issues Show Cause Notices to Offshore Crypto Operators

In a significant move, India’s Financial Intelligence Unit (FIU) has issued compliance show cause notices to nine offshore Virtual Digital Assets Service Providers (VDA SPs), including major players like Binance, Kucoin, Huobi, and Kraken. The notices were issued for non-compliance with the anti-money laundering provisions of the Prevention of Money Laundering Act (PMLA) in India. The government has taken this step as part of its efforts to bring offshore crypto operators under the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework.

The nine entities that have received show cause notices are Binance, Kucoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex. The FIU has also requested the Ministry of Electronics and Information Technology to block the URLs of these offshore entities, citing their alleged illegal operations without complying with the provisions of the PMLA Act in India.

The move follows the inclusion of Virtual Digital Assets Service Providers (VDA SPs) under the AML-CFT framework in March 2023. Virtual Digital Asset Service Providers operating in India, both offshore and onshore, engaged in activities such as the exchange between virtual digital assets and fiat currencies, transfer of virtual digital assets, and safekeeping or administration of virtual digital assets, are required to be registered with the FIU as Reporting Entities. They are also mandated to comply with a set of obligations under the Prevention of Money Laundering Act (PMLA) 2002.

The obligation to comply with laws for such entities is based on their activity, not their physical presence in India. The regulation imposes reporting, record-keeping, and other obligations on VDA SPs under the PMLA, including registration with the FIU. As per the release from the FIU, 31 such entities are currently registered, but several offshore entities serving a substantial number of Indian users were found to be operating without registration and compliance with the AML-CFT framework.

Also Read: RBI report flags elevated pressures in NBFC sector

Binance, one of the entities issued a show cause notice, is a major player in the global cryptocurrency space. Founded in 2017 by software developer Changpeng Zhao, Binance has grown to become one of the largest cryptocurrency exchanges worldwide. The show cause notice raises questions about Binance’s operations in India and highlights the government’s determination to ensure compliance with anti-money laundering regulations in the crypto sector.

The FIU’s action is part of a broader effort by Indian authorities to regulate and bring transparency to the cryptocurrency market. The crypto industry has witnessed increased scrutiny globally, with regulators and governments working to establish frameworks that address concerns related to money laundering, terrorist financing, and other illicit activities.