MM TAX CLUB

Crypto Assets are borderless, require international collaboration to prevent regulatory arbitrage

Crypto Assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. This was stated by the Union Minister of State for Finance, Shri Pankaj Chaudhary, in a written reply to a question in Lok Sabha

Therefore, the Minister stated, any legislation for regulation or for banning can be effective only with significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.

The Minister stated that the Directorate of Enforcement is investigating several cases related to crypto currency frauds wherein a few crypto exchanges have also been found involved in money laundering. Necessary action as per provisions of Prevention of Monyt Laundering Act, 2002 (PMLA) has been taken by the Directorate of Enforcement. As on 31.01.2023, proceeds of crime amounting to Rs. 936 crore have been attached/seized/freezed, 05 persons have been arrested and 06 prosecution complaints (PCs) including 01 supplementary PC have been filed before the Special Court, PMLA in these cases.

Further, the Minister stated, under Foreign Exchange Management Act, 1999 (FEMA) assets amounting to Rs. 289.28 crore have been seized under section 37A of FEMA and 01 Show Cause Notice to cryptocurrency exchange Zanmai Labs Pvt Ltd, known as WazirX and its directors under FEMA for transactions involving cryptocurrencies work Rs. 2,790 crore has also been issued.

Giving more information, the Minister staetd that RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) vide public notices on December 24, 2013, February 01, 2017 and December 05, 2017 that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks. RBI, vide its circular dated May 31, 2021 has also advised its regulated entities to continue to carry out customer due diligence processes for transactions in VCs, in line with regulations governing standards for Know Your Customer (KYC), Anti- Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under Prevention of Money Laundering Act (PMLA), 2002, etc. in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.

Directorate General of GST Intelligence (DGGI) and the National Forensic Sciences University (NFSU) signed a Memorandum of Understanding (MoU) for setting up of digital forensic laboratories

The Directorate General of GST Intelligence (DGGI) and the National Forensic Sciences University (NFSU) today signed a Memorandum of Understanding (MoU) for setting up of digital forensic laboratories along with exchange of information and knowledge, technological advancement and skill development in the field of digital forensics. The MoU was signed by Shri Surjit Bhujabal, Pr. Director General, DGGI and Dr. J. M. Vyas, Vice Chancellor, NFSU, Gandhinagar.

DGGI is the apex intelligence organisation under Central Board of Indirect Taxes and Customs (CBIC) for collection and dissemination of information and for taking necessary measures to check evasion of GST. NFSU is an institution of national importance established by Parliament of India to promote studies and research in forensic sciences and related fields. NFSU is the first and only institute in the field of forensic sciences and has the state-of-the-art technology in the field of digital forensics and capabilities to study and analyse digital evidence. It has established cooperation in the field of digital forensics with various national agencies like Enforcement Directorate, DRDO and Central Bureau of Investigation etc. as well several countries and their institutions.

DGGI, being premier investigation wing of the CBIC, extensively uses data analytical tools and cutting edge technologies for detecting substantial tax evasion and busting huge fake invoice rackets and arrests many masterminds in these cases. This MoU will be a force multiplier for the DGGI in the field of investigation and digital forensics and will assist the agency for launching effective prosecutions and securing convictions of the guilty. Quick and effective convictions of the serious tax offenders not only secure the government revenues and plug leakages but also ensure trade facilitation by ensuring fair tax regime to the honest tax payer. This will be a significant step for DGGI towards having requisite physical infrastructure, skills sets and know how in the field digital forensic.

The MoU will facilitate DGGI and NFSU to establish digital forensic laboratories as well as collaborate in research and training programmes, and provide technical assistance to each other.

The Reserve Bank of India (RBI) has informed that Blockchain Technology (BCT) is one of many promising technologies and its usefulness will depend on how it is adopted and adapted to a wide array of uses. This was stated by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad in a written reply to a question in Rajya Sabha today.

Further, the Minister stated, RBI has informed that BCT has been listed as one of the innovative technologies, leveraging on which innovators can apply to test their products in RBI’s sandbox environment.

RBI has stated that their Regulatory Sandbox has not identified any specific areas as such for the use of BCT for Indian banks. However, under the Cross Border Payments theme of the Regulatory Sandbox of RBI, participating entities have tested certain blockchain based applications.

The Reserve Bank of India (RBI) has furnished the list of Digital Lending Apps (DLAs) being used by Regulated Entities (REs) of RBI to the Ministry of Electronics & Information Technology (MeitY), which in turn, has shared the list with respective intermediary (App Stores) and requested them to ensure that only the apps figuring in the list are hosted on their app stores. This was stated by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad in a written reply to a question in Rajya Sabha

Giving information on addressing the issue of money laundering through illegal loan apps, the Minister stated that the Directorate of Enforcement (ED) has been entrusted to curb money laundering under the provisions of PML Act, 2002. ED has initiated investigation under PMLA in several cases where the proceeds of crime has been generated and acquired by accused persons/entities through illegal loan apps, the Minister stated.

In these cases, the Minister stated that as on date, proceeds of crime of Rs. 2,116 crore (approx) has been identified, out of which proceeds of crime amounting to Rs. 859.15 crore have been attached / seized / freezed under the provisions of PMLA. Further, assets amounting to Rs. 289.28 crores have been seized under section 37A of Foreign Exchange Management Act, 1999.

Giving more information, the Minister stated that the RBI has issued master circular on Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating Financing of Terrorism (CFT)/Obligation of banks and financial institutions under Prevention of Money Laundering Act (PMLA), 2002. Under this circular, banks and financial institutions have been advised to follow certain customer identification procedure for opening of accounts and monitoring of transactions of suspicious nature to avoid its misuse for money laundering and reporting the same to appropriate authority, the Minister stated.

The Minister further stated that RBI has issued digital lending guidelines dated 2.9.2022 which advises measures including, inter alia, due diligence of Loan Service Providers (LSPs), direct disbursal of loan from bank account of lender to bank account of the borrower without any pass-through/pool or third-party account to avoid layering, publishing of the list of DLAs, LSPs engaged by REs and details of activities to avoid anonymity.

During 2021-22, India received foreign inward remittances of $89,127 million which was the highest ever inward remittances received in a single year. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in Rajya Sabha

The data for the past five years on inward remittances is as below.

Source: RBI

Giving out more information, the Minister stated that country-wise data on remittance are not compiled. However, the Minister stated, the share of major countries in inward remittances to India, based on survey conducted by the RBI for 2020-21 through Authorised Dealers (ADs) banks, is as below.

Source: RBI Remittance Survey, 2021 as published in RBI Bulletin article on remittances, “Headwinds of COVID-19 and India’s Inward Remittances”, July 2022.

The Minister further stated that the value of the Indian Rupee is market-determined and the RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.