India’s Financial Intelligence Unit (FIU), a branch of the Ministry of Finance responsible for gathering financial intelligence related to offenses under the Prevention of Money Laundering Act, recently took action against several foreign cryptocurrency exchanges. These exchanges, including Binance, HTX, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex, were issued notices of noncompliance for illegally operating in India.
India’s FIU serves foreign exchanges with notices
The notice required them to comply with Indian Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations within 12 days. Shortly after the FIU notice, Apple’s App Store in India blocked access to these foreign exchanges, followed by similar actions by Google’s Play Store. Additionally, the URLs and alternate URLs of these platforms were banned.
This crackdown surprised many crypto traders who had turned to foreign exchanges to avoid the hefty 30% tax on cryptocurrency trading profits imposed by the government. Reports suggest that nearly $4 billion worth of crypto assets were stuck on offshore platforms, with Binance alone holding about 80% of this amount.
Research indicates that traders using foreign exchanges cost the government approximately 30 billion rupees ($361 million) in tax revenue annually. Despite calls for clear regulations, the government has yet to provide them. Siddharth Sogani, CEO of Crebaco Global, emphasized the need for the government to prioritize regulating domestic exchanges before targeting foreign ones.
He pointed out cases where Indian exchanges failed to allow users to withdraw funds, labeling the government’s actions as hypocritical. Rajagopal Menon, vice president of crypto exchange WazirX, supported the FIU’s actions, noting that foreign exchanges were taking advantage of regulatory and tax loopholes.
Challenges and expectations of the framework
WazirX vice president Rajagop Menon also stressed the inevitability of regulations, citing India’s commitment as a signatory to the Group of 20 (G20) Delhi declaration, which outlines a roadmap for crypto regulations by 2025. India’s uncertain regulatory environment has hindered the growth of crypto exchanges despite the country’s potential as a lucrative market.
During the 2021 bull cycle, the country witnessed significant growth in its crypto market, attracting interest from various exchanges and platforms. However, unclear regulations and high taxes discouraged both foreign and domestic players, pushing them to explore opportunities abroad. Sumit Gupta, CEO of CoinDCX, viewed the FIU’s ban as a step towards enforcing regulations. He advocated for a framework that allows offshore exchanges to register and serve Indian customers under FIU guidelines.
Gupta highlighted the importance of such actions in reassuring government stakeholders, protecting investors, and preparing the industry for forthcoming regulations. YouTuber SMC Kapil Dev mentioned OKX as one of the first foreign exchanges to comply with existing requirements and resume KYC for Indian customers.
Crypto influencer Aditya Singh reported that many exchanges were already working to resolve issues raised by the FIU notice. He speculated that registration for foreign exchanges might commence after the conclusion of India’s general elections in July 2024. The recent crackdown on foreign cryptocurrency exchanges by India’s FIU highlights the government’s efforts to enforce regulations in a rapidly evolving industry.
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