Daily Current Affairs : 3-January-2024
The Financial Intelligence Unit India (FIU IND) recently issued show-cause notices to nine offshore Virtual Digital Asset Service Providers (VDA SPs), including prominent names like Binance and Huobi. This action stems from their alleged illegal operations, failing to comply with anti-money laundering regulations specified under the Prevention of Money Laundering Act (PMLA), 2002.
Understanding VDA SPs:
Virtual Digital Asset Service Providers (VDA SPs) are entities, whether operating within or outside India, that provide digital asset services, primarily in the form of cryptocurrency exchanges.
Regulatory Framework for VDA SPs in India:
In March 2023, India introduced stringent regulations mandating VDA SPs to adhere to the Prevention of Money Laundering Act under the Anti-Money Laundering/Counter Financing of Terrorism (AML-CFT) framework. Key compliance requirements include client identity verification, recording financial transactions, and registration with FIU IND as a Reporting Entity. Currently, 31 VDA SPs have complied with these regulations.
Money Laundering Concerns Associated with VDAs:
Several concerns related to money laundering have been identified, including predicate crimes, placement, layering, integration, and hiding. These activities pose a significant risk to the financial ecosystem and demand robust regulatory measures.
Global Regulatory Landscape:
Regulations for VDAs vary globally. Dubai’s VARA employs a licensing framework, the EU’s MiCA focuses on market rules, while the U.S. lacks a comprehensive framework. The Bureau for International Settlements (BIS) suggests options such as an outright ban, containment, or regulation, emphasizing the importance of balancing benefits and costs, especially for emerging market economies.
About Financial Intelligence Unit – India:
Established in 2004 and headquartered in New Delhi, the FIU IND operates under the Department of Revenue, Government of India. It serves as an independent body reporting directly to the Economic Intelligence Council (EIC), headed by the Finance Minister, collecting financial intelligence about offenses under the Prevention of Money Laundering Act, 2002.
Important Points:
- Show-Cause Notices Issued: FIU IND issued show-cause notices to 9 offshore VDA SPs, including Binance and Huobi, for alleged illegal operations.
- VDA SP Definition: VDA SPs, or Virtual Digital Asset Service Providers, are entities offering digital asset services, including cryptocurrency exchanges, operating within or outside India.
- Regulatory Mandate (March 2023):
- Compliance with PMLA: VDA SPs mandated to adhere to the Prevention of Money Laundering Act.
- AML-CFT Framework: Required to follow Anti-Money Laundering/Counter Financing of Terrorism framework.
- Client Identity Verification: VDA SPs must verify client identities.
- Financial Transaction Recording: Obligation to record financial transactions.
- Registration with FIU IND: VDA SPs must register with FIU IND as a Reporting Entity.
- Notices and URL Blocking: Non-compliance results in notices and requests to block URLs.
- Money Laundering Concerns:
- Predicate Crime: Raising funds through illegal activities using virtual assets.
- Placement: Converting ill-gotten virtual assets into traditional fiat currencies.
- Layering: Complex processes involving conversion between fiat and virtual assets.
- Integration: Establishing online companies to legitimize income through crypto payments.
- Hiding: Use of anonymizing services like mixers and tumblers to obscure crypto transactions.
- Global Regulatory Variation:
- Dubai’s VARA: Implements a licensing framework for VDA regulation.
- EU’s MiCA: Focuses on market rules for VDAs.
- U.S. Framework Gap: Lacks a comprehensive regulatory framework for VDAs.
- BIS Recommendations: Suggests options like outright ban, containment, or regulation, emphasizing the need to balance benefits and costs.
- About FIU IND:
- Formation: Established in 2004.
- Headquarters: New Delhi.
- Reporting Structure: Operates under the Department of Revenue, Government of India.
- Independence: An independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
- Function: Collects financial intelligence about offenses under the Prevention of Money Laundering Act, 2002.
Why In News
The Financial Intelligence Unit India (FIU IND) issued show-cause notices to 9 offshore virtual digital asset service providers (VDA SPs), including Binance and Huobi, for operating illegally without complying with anti-money laundering regulations (under the Prevention of Money Laundering Act (PMLA), 2002), underscoring the government’s commitment to ensuring a robust regulatory framework in the rapidly evolving cryptocurrency landscape.
MCQs about India’s VDA SP Regulations
-
What action did the Financial Intelligence Unit India (FIU IND) take against offshore Virtual Digital Asset Service Providers (VDA SPs)?
A. Issued licenses
B. Issued show-cause notices
C. Provided financial assistance
D. Ignored the operations
-
What is the primary focus of the Anti-Money Laundering/Counter Financing of Terrorism (AML-CFT) framework for VDA SPs in India?
A. Client entertainment
B. Market speculation
C. Identity verification
D. Tax evasion
-
What are the key concerns associated with money laundering through Virtual Digital Assets (VDAs)?
A. Efficient transactions
B. Predicament crimes, placement, layering, integration, and hiding
C. Transparency and accountability
D. Legal compliance
-
what regulatory options does the Bureau for International Settlements (BIS) suggest for VDAs globally?
A. Ban, containment, or regulation
B. Strict prohibition only
C. Unlimited freedom
D. Limited oversight
Boost up your confidence by appearing our Weekly Current Affairs Multiple Choice Questions
