Shalini Nagarajan

India&#8217;s finance ministry announced Tuesday that it has applied money laundering provisions on crypto companies, forcing them to immediately align with the general finance sector.



A notification from the ministry was light on details, but showed the legislation has been applied to crypto trading, transfers of crypto, safekeeping or administration of crypto and provision of crypto. 



Essentially, from now, crypto businesses will be required to supply know-your-customer (KYC) details in case officials ask for this information.



All crypto businesses will now be reporting entities to the Indian government, meaning businesses will be legally required to report suspicious transactions to the Financial Intelligence Unit.&nbsp;



The directive follows <a href="https://www.businesstoday.in/crypto/story/crypto-exchanges-need-to-store-kyc-and-transaction-records-for-5-years-it-ministry-332047-2022-05-02" target="_blank" rel="noreferrer noopener">calls</a> from India’s IT ministry last year, encouraging crypto companies to keep five years worth of user data, including personal “Know-Your-Customer” information, to stay on regulators&#8217; good sides.



Jaideep Reddy, counsel at Trilegal, broke down what the most recent move means for crypto businesses: “Technically the notification appears to come into effect immediately,” Reddy told Blockworks, and pointed out a shortcoming with the sudden announcement.



“A transition provision specifying a period within which compliance was to be achieved would have been ideal. However, one would expect that enforcement authorities would provide reasonable time to covered entities to become compliant.”



Reddy separately elaborated in a <a href="https://twitter.com/jrtechlaw/status/1633338806047834112" target="_blank" rel="noreferrer noopener">Twitter thread</a> that crypto businesses will now be required to maintain reporting standards and KYC/AML norms to sync with other entities like banks, securities intermediaries and payment system operators. 



“In other words, KYC norms are no longer a best practice but a legal obligation,” he tweeted.



The <a href="https://egazette.nic.in/WriteReadData/2023/244184.pdf" target="_blank" rel="noreferrer noopener">move</a> has been welcomed by some parts of the industry, which say it gives businesses some level of clarity as to what types of checks the government wants.



Reports emerged last year that crypto exchanges in India were being <a href="https://inc42.com/features/inside-eds-probe-into-crypto-fintech-startups/#:~:text=The%20News%3A%20Almost%20all%20the,Money%20Laundering%20Act%20(PMLA)." target="_blank" rel="noreferrer noopener">investigated</a> by the Enforcement Directorate, which is responsible for fighting economic crime. WazirX, Coinswitch Kuber, CoinDCX and Zebpay were among exchanges approached by the directorate.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">such businesses need to follow similar reporting standards and KYC/AML norms to other reporting entities like banks, securities intermediaries, payment system operators, etc. In other words, KYC norms are no longer a best practice but a legal obligation. 2/4&mdash; Jaideep Reddy (@jrtechlaw) <a href="https://twitter.com/jrtechlaw/status/1633338808144912384?ref_src=twsrc%5Etfw">March 8, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The crypto landscape in India hasn’t been totally friendly. The government decided to <a href="https://blockworks.co/news/india-introduces-penalty-on-exchanges-individuals-not-complying-with-crypto-tax" target="_blank" rel="noreferrer noopener">retain the 30% tax</a> imposed on crypto profits, on top of a 1% tax deducted at source (TDS), in its latest budget.



Offenders or platforms that don’t adhere to the TDS will be penalized under an amendment to Section 271C of the Income Tax Act. They could either be fined or jailed for terms lasting between 3 months to 7 years.



In October, the Financial Action Task Force (FATF) pushed for member nations to implement a “<a href="https://ciphertrace.com/wp-content/uploads/2022/10/CipherTrace_Travel-Rule-Guide_FINAL.pdf" target="_blank" rel="noreferrer noopener">travel rule</a>” that would track crypto transactions in order to block terrorist financing and other illegal activities. It isn’t clear yet whether India intends to enforce the travel rule.



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All Crypto Companies in India Must Now KYC Users

Sebastian Sinclair

FinCEN, the US Treasury Department&#8217;s financial crimes unit, is zeroing in on DeFi regulation as government agencies scramble for greater industry oversight following the ratification of an executive order on digital assets earlier this year.



Slotted in between remarks on combating fraud and anti-corruption generally, Himamauli Das, the acting director of the Financial Crimes Enforcement Network, said in a <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-acting-director-himamauli-das-during-abaaba-financial-crimes" target="_blank" rel="noreferrer noopener">speech</a> Tuesday his agency was looking at DeFi’s “potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT [anti-money laundering/combating the financing of terrorism] efforts.”



The removal of intermediaries is seen by crypto natives as a <a href="https://blockworks.co/news/the-investors-guide-to-defi" target="_blank" rel="noreferrer noopener">major advantage</a> of DeFi, rendering it more efficient and removing counterparty risks, but FinCEN’s financial surveillance focus positions the existence of intermediaries as a strength of status quo. The unit did not immediately return a request for comment.



“We are engaging with relevant US government stakeholders in this effort, and we welcome engagement with industry — including the banking community — to better understand your assessment of the vulnerabilities and risks,” Das said.



The director was speaking during the American Bankers Association ABA Financial Crimes Enforcement Conference in Maryland, which concluded on Wednesday.



As part of the US Treasury Department, the FinCEN is tasked with combating money laundering and terrorism financing by leveraging the financial intelligence it gathers.



In line with ongoing efforts expected to carry over to the new year, Das said his agency would continue to evaluate the evolution of digital assets to try to discover any gaps in the current AML/CFT framework.



To that end, FinCEN will analyze whether further regulations are needed. Its efforts form part of the <a href="https://blockworks.co/news/biden-signs-crypto-executive-order-promoting-responsible-innovation" target="_blank" rel="noreferrer noopener">executive order</a> on digital assets, which was signed by President Joe Biden in March.



Multiple government agencies have since been exploring ways to ratchet <a href="https://blockworks.co/category/regulation" target="_blank" rel="noreferrer noopener">regulatory oversight</a> of cryptoassets, including the SEC and the CFTC which continue to <a href="https://blockworks.co/news/crypto-regulation-cftc-sec-tag-team" target="_blank" rel="noreferrer noopener">jostle for control</a>.



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FinCEN Invites Bankers To Assess DeFi Risk

<div id="highlights-block_62fc9c81313ea" class="highlights">
 <ul>
 <li>European institutions still have a long way to negotiate details before the new rules take effect</li>
 <li>The EU has already approved Markets in Crypto Assets (MiCA),and Transfer of Funds Regulations</li>
 </ul>
 
</div>



Sooner or later, a new regulator will emerge in the European Union (EU) to oversee anti-money laundering rules, including crypto assets as well. The 27 Member-States agreed to a “partial position” this Summer to create a new EU authority for anti-money laundering that would oversee crypto transactions. 



The body will not only help fight money laundering in the European financial markets, but also be given new powers to directly supervise certain types of credit and financial institutions — including crypto asset service providers — if they are considered too risky.



The position is “partial” because EU countries have not yet agreed on the location at which the new authority will have its seat. If they follow the same procedures as other EU regulators, countries and European cities will have to compete with each other to get the new headquarters on their territory.&nbsp;



The so-called Anti-money laundering Authority (AMLA) will “boost the efficient functioning of the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CTF) framework of the Union,” <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/06/29/new-eu-authority-for-anti-money-laundering-council-agrees-its-partial-position/" target="_blank" rel="noreferrer noopener">according to the Council of the EU</a>, the governing body’s legislative branch. A European-wide regulator could “make a strong and useful contribution” in fighting money laundering and the financing of terrorism, given that this is usually a cross-border crime. 



Besides that, AMLA will “contribute to the harmonization and coordination of supervisory practices in the financial and non-financial sectors, the direct supervision of high-risk and cross-border financial entities, and the coordination of financial intelligence units.” Though, this may take several years to be in place.



<h3>A long political road for AMLA</h3>



This legislation, which is the sixth update of AML rules, was first introduced by the European Commission last year. Members of the European Parliament, who have typically taken a hard stance towards crypto regulation, still have to give their green light before this new regulator can see the light of the day. But there seems to be little disagreement about its existence, including the authority over digital assets, <a href="https://www.theblock.co/post/163556/the-eu-is-on-the-verge-of-creating-a-new-aml-regulator-that-will-oversee-crypto">The Block reported</a>.



This has been a very busy year for EU institutions regarding crypto regulation. Early this Summer there was an agreement on the <a href="https://cms.blockworks.co/tag/MiCA/" target="_blank" rel="noreferrer noopener">Markets in Crypto Assets</a> (MiCA), as well as in the <a href="https://cms.blockworks.co/tag/transfer-of-funds-regulation/" target="_blank" rel="noreferrer noopener">Transfer of Funds Regulations</a>. These two are the pillars of the future crypto regulation in the European single market.



Arguing that the EU is working to stop criminals from circumventing anti-money laundering rules via cryptocurrencies, the Council of the EU and the Parliament announced in June a provisional agreement to extend the scope of the rules to transfers of crypto assets, “making it more difficult for them to be misused for criminal purposes.”&nbsp;



“The aim of this recast is to introduce an obligation for crypto asset service providers to collect and make accessible certain information about the senders and beneficiaries of the transfers,” <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/06/29/anti-money-laundering-provisional-agreement-reached-on-transparency-of-crypto-asset-transfers/" target="_blank" rel="noreferrer noopener">the Council explained at the time</a>, guaranteeing that this would ensure “traceability of crypto-asset transfers in order to be able to better identify possible suspicious transactions and block them.”



<a href="https://www.europarl.europa.eu/news/pt/press-room/20220627IPR33919/crypto-assets-deal-on-new-rules-to-stop-illicit-flows-in-the-eu" target="_blank" rel="noreferrer noopener">According to the EU Parliament</a>, this agreement also covers transactions from so-called unhosted wallets, which are in the custody of a private user, when they interact with hosted wallets managed by crypto-assets service providers. Right now, the Parliament, Council, and Commission are working on the technical aspects of these legislative texts. They have to be approved by the plenary before entering into force.



Absent better privacy tools, <a href="https://www.ledger.com/blog-why-the-eus-transfer-of-funds-tfr-regulation-is-a-threat-to-financial-freedom" target="_blank" rel="noreferrer noopener">critics warn</a> that overzealous regulation of public blockchains could open the door to a regime of financial surveillance, adversely affecting citizen’s freedom.



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EU Considers New ‘Anti-money Laundering Authority’

<div id="highlights-block_62a9dc972ed91" class="highlights">
 <ul>
 <li>Policymakers are optimistic about a deal in late June, but some areas of the bill are still being debated</li>
 <li>Environmental impact and anti-money laundering rules have been a source of contention</li>
 </ul>
 
</div>



European Union policymakers held another meeting yesterday in an attempt to reach an agreement on the Markets in Crypto-Assets (MiCA) bill that will shape crypto development in the European common market.



France, which currently holds the EU presidency, aims to close a deal by the end of this month, <a href="https://www.bloomberg.com/news/articles/2022-06-10/eu-aims-to-clinch-deal-on-landmark-crypto-law-this-month?utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_content=crypto&amp;utm_medium=social" target="_blank" rel="noreferrer noopener">Bloomberg</a> reported last Friday. MiCA has been an ongoing discussion since the European Commission first presented a proposal to the European Parliament in 2020.



The rise of crypto markets&#8217; relevance in 2021 accelerated this discussion, and France wants to achieve this milestone while they hold the presidency, which ends this month — the Czech Republic will take over the role in July.



After today’s meeting, another “trilogue” — EU’s last mile with members of the Parliament (MEPs), EU’s presidency and European Commission officials — will happen on June 30. 



The rush is real in Brussels, according to Mairead McGuinness, European commissioner for financial services and financial stability. 



“I really would like to see a political compromise on our MiCA…under the French presidency”, she told MEPs in a hearing this Tuesday, later adding that the legislation is “so urgent, given recent developments.”



The euro’s stability and investor protection were the main priorities for EU policymakers in the aftermath of problems such as the <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">TerraUSD stablecoin collapse</a>, which, McGuinness said, “has certainly raised a lot of questions and concerns at many levels.” She also mentioned Celsius&#8217; <a href="https://cms.blockworks.co/celsius-withdrawal-halt-reveals-run-risks-on-other-crypto-banks/">pausing all transfers and withdrawals</a> earlier this week. 



MiCA will set common rules for cryptocurrency regulation in all 27 EU member states, putting European regulators at the helm of digital assets supervision across the union with the help of national authorities.



However, some issues in the legislative package have yet to be settled. According to Bloomberg, EU countries and the EU Parliament still disagree on whether to include non-fungible tokens (NFTs) in MiCA, how to regulate big stablecoins, the division of supervisory responsibilities, and the introduction of a ceiling to limit stablecoins usage as a payment method to prevent currency substitution.



Crypto’s environmental impact is yet another issue to be agreed upon. Blockchain for Europe, which represents international industry players at the EU level, claimed today that the Greens and the Socialists, two of the biggest Parliament groups, are trying to introduce amendments that will oblige all cryptoasset service providers (CASPs) to publicly disclose “info on adverse environmental impact of consensus mechanism used to issue each cryptoasset.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Update on <a href="https://twitter.com/hashtag/MiCA?src=hash&amp;ref_src=twsrc%5Etfw">#MiCA</a> ❗️ Hours before the 3rd trilogue, the Greens and Socialists are trying to introduce amendments that resemble the &quot;<a href="https://twitter.com/hashtag/PoW?src=hash&amp;ref_src=twsrc%5Etfw">#PoW</a> ban&quot; that was already voted down by the <a href="https://twitter.com/Europarl_EN?ref_src=twsrc%5Etfw">@Europarl_EN</a> Details in the 🧵below:&mdash; Blockchain for Europe (@BlockchainforEU) <a href="https://twitter.com/BlockchainforEU/status/1536693911112011783?ref_src=twsrc%5Etfw">June 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“These proposed amendments do not answer the question of what happens if either a CASP or a token issuer cannot deliver on the ask. Further, it seems likely that a non-compliant actor would be banned at EU level,” the organization said.&nbsp;



Another remaining question is whether anti-money laundering rules will be included in the MiCA package or if this will be addressed in other legislation.



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EU Negotiators Want To Hammer Out Crypto Bill This Month

Ben Strack

<div id="highlights-block_6245ad3087822" class="highlights">
 <ul>
 <li>The proposal called for crypto firms to reveal info about the sender and receiver of crypto transfers</li>
 <li>Coinbase executive said the measures would unleash a surveillance regime on exchanges, stifle innovation and undermine self-hosted wallets</li>
 </ul>
 
</div>



Two European Parliament committees have voted in favor of measures requiring crypto companies to collect and share data on certain transactions.



The Committee on Economic and Monetary Affairs and the Committee on Civil Liberties, Justice and Home Affairs <a href="https://www.europarl.europa.eu/cmsdata/246608/ECON-LIBE%20Voting%20Session%20-%2031%20March%20(amendments)%20RESULTS.pdf" target="_blank" rel="noreferrer noopener">voted</a> to expand anti-money laundering requirements in the crypto space.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">BREAKING: The ECON &amp; LIBE committees of the EU Parliament voted in favor of the FTR compromises D &amp; E that crack down on “unhosted” wallets. Entire regulation draft to be voted on later today, but will certainly go through. Breakdown of the vote &amp; more updates in this thread.&mdash; Patrick Hansen (@paddi_hansen) <a href="https://twitter.com/paddi_hansen/status/1509536318585454597?ref_src=twsrc%5Etfw">March 31, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Spokespeople for the committees did not immediately return a request for comment.



European Union ambassadors <a href="https://www.consilium.europa.eu/en/press/press-releases/2021/12/01/anti-money-laundering-council-agrees-its-negotiating-mandate-on-transparency-of-crypto-asset-transfers/" target="_blank" rel="noreferrer noopener">agreed on a mandate</a> in December to negotiate with the European Parliament on a proposal to extend the scope of fund transfer rules to include certain cryptoassets.&nbsp;



The proposal aimed to require crypto service providers, such as exchanges, to collect and share information about the sender and beneficiary of these asset transfers — a practice that payment service providers currently do for wire transfers.



Legislators hoped to ensure traceability of transfers between crypto service providers and so-called “unhosted wallets” so as to be able to better identify possible suspicious transactions and potentially block them.



An unhosted wallet is a term used by the <a href="https://www.fatf-gafi.org/" target="_blank" rel="noreferrer noopener">Financial Action Task Force</a> and <a href="https://www.fincen.gov/" target="_blank" rel="noreferrer noopener">Financial Crimes Enforcement Network</a> and adopted by other government and regulatory bodies. It means that an individual maintains their own private keys — known in the crypto industry as a “wallet” or “self-hosted wallet” to delineate between assets controlled by a financial institution acting as a custodian and an individual.



Requirements to check if the information on the payer or payee is accurate is to be imposed on crypto transfers that exceed 1,000 euros, according to <a href="https://www.europarl.europa.eu/doceo/document/CJ12-PR-704888_EN.pdf" target="_blank" rel="noreferrer noopener">a draft report</a>.



Slovenian Finance Minister Andrej Šircelj said in December that the proposal was an important step toward “closing the gaps in our financial systems that are malevolently used by criminals to launder unlawful gains or finance terrorist activities.”



Markus Ferber, who has served in the European Parliament since 1994 and is a member of the European People’s Party (EPP), took to Twitter Thursday to share his opposition to the proposal.



“We need to take AML risks in crypto seriously, but should not ban unhosted wallets,” Ferber tweeted. “This would be the equivalent of banning cash — unnecessary and disproportionate!”



Fellow European Parliament member Paul Tang responded to Ferber’s tweet, noting that passing the proposal would not ban anything.&nbsp;



“Instead we oblige verification to prevent crime and corruption through unhosted wallets,” Tang wrote. “Crime and corruption aren&#8217;t innovation, I&#8217;m sure a law-and-order party like the German EPP would agree?”



Paul Grewal, chief legal officer at crypto exchange Coinbase, wrote in <a href="https://blog.coinbase.com/making-your-voice-heard-ahead-of-thursdays-critical-eu-vote-f03730e83e5c" target="_blank" rel="noreferrer noopener">a March 27 blog</a> that “bad facts make bad law,” noting the EU’s upcoming vote.



“If adopted,” he wrote, “this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”



Patrick Hansen, head of strategy and business development at Unstoppable Finance, said in a Twitter post that formal meetings about these measures, known as “trilogue,” could take a couple of months.&nbsp;



“We have lost a battle, but this is far from over,” he said.



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