What's the article about?
- It talks about the recent decision of the Union Finance Ministry to bring in virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA).
- GS3: Indian Economy and related issues; Money-Laundering and its prevention;
- On March 7, the government issued a notification bringing transactions involving crypto assets under the Prevention of Money Laundering Act.
- It laid out the nature of transactions to be covered under PMLA.
- These are as follows:
- Exchange between virtual digital assets and fiat currencies;
- exchange between one or more forms of virtual digital assets;
- transfer of virtual digital assets;
- safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets;
- participation in and provision of financial services related to an issuer’s offer and
- sale of a virtual digital asset.
What are Virtual Digital Assets?
- In general terms it basically means cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs).
- Prima facie, it excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.
- According to the Finance Act, “virtual digital asset” means any information, code, number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and can be called by whatever name.
- Unregulated growth of virtual assets:
- The government has been struggling in recent years to formulate an appropriate regulatory response to deal with the pandemic-era upsurge in advertisements soliciting investment in virtual assets and reports of actual investment.
- Various reports had estimated India as being the country with the highest number of ‘crypto owners’, at 10.07 crore, which was more than threefold the number of owners of crypto assets in the second-ranked U.S.
- Rise in cryptocurrency frauds and money laundering:
- The decision to mandatorily bring all trade in virtual digital assets under the PMLA now lays the onus of ascertaining the provenance of all activity, including safekeeping, in such assets upon individuals and businesses participating in or facilitating these transactions.
- Steps taken at the global level:
- The intergovernmental Financial Action Task Force (FATF) has been continuously flagging the potential that virtual digital assets have for criminal misuse considering the speed and anonymity with which they can be traded worldwide.
- Few countries have moved to regulate virtual assets, and some others have banned them outright, while a majority have not taken any action has created a global system with loopholes for criminals and terrorists to abuse.
- India, which holds the presidency of the G-20, has been repeatedly stressing the need for a globally coordinated regulatory response to deal with crypto assets.
- While the Centre’s decision to add the PMLA monitoring requirements, following the introduction of a tax regime for virtual digital assets in last year’s Budget, has been interpreted by the crypto assets sector as moves towards regulating rather than proscribing it.