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Financial Intelligence Unit India (FIU IND)

By Amigos IAS

Why is it in the news?

  • FIU IND has issued compliance show cause notices to nine offshore Virtual Digital Asset Service Providers (VDA SPs).
About Financial Intelligence Unit – India (FIU-IND)

·       FIU-IND was set up by the Government of India in 2004 as the central national agency responsible for receiving, processing, analyzing, and disseminating information related to suspect financial transactions.

·       It operates as an independent body, reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.

·       FIU-IND is a multi-disciplinary body with a sanctioned strength of 75 personnel, drawn from various organizations, including Central Board of Direct Taxes (CBDT), Central Board of Excise and Customs (CBEC), Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), Department of Legal Affairs, and intelligence agencies.

·       It is not a law enforcement agency and does not maintain any regional office or employees outside its office at New Delhi, India.

 More about the news

  • The compliance action is taken against these offshore entities for allegedly operating illegally without adhering to the provisions of the Prevention of Money Laundering Act, 2002 (PMLA).
  • In an effort to curtail the operations of these offshore entities, FIU IND has written to the Secretary of the Ministry of Electronics and Information Technology, urging the blocking of Uniform Resource Locator (URLs) associated with them.
  • The objective is to prevent these entities from continuing their operations in India without complying with the regulatory obligations outlined in the PMLA.
  • In March 2023, Virtual Digital Asset Service Providers (VDA SPs) in India were brought under anti-money laundering/counter-financing of terrorism regulations.
  • VDA SPs are mandated to comply with the Prevention of Money Laundering Act, 2002 (PMLA), including verifying the identities of onboarded clients and maintaining records of financial positions and potentially suspicious transactions.
  • VDA SPs engaging in activities like exchange between virtual digital assets and fiat currencies, transfer of virtual digital assets, safekeeping or administration of virtual digital assets, or instruments enabling control over virtual digital assets are required to be registered with FIU IND as Reporting Entities.
  • The objective of the PMLA and its reporting obligations is to enable the monitoring and tracking of financial transactions to curb money laundering and terror financing. The recent move is part of broader efforts to bring Virtual Digital Asset Service Providers under the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework.
  • As of now, 31 VDA SPs have registered with FIU IND. However, several offshore entities, despite serving a substantial part of Indian users, were not getting registered and coming under the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework.

 

Other Regulatory Steps and Global Perspectives

  • The Bureau for International Settlements (BIS) highlighted three high-level policy options in a report about financial stability from crypto assets in emerging economies (August 2023): outright ban, containment, and regulation.
  • BIS argued that an outright ban may not be enforceable due to the pseudo-anonymous nature of crypto markets, potentially leading to a loss of market transparency.
  • Containment, or controlling the flows between crypto markets and traditional financial systems, might not address vulnerabilities in crypto markets and could pose financial stability risks.

 

Conclusion

  • As the cryptocurrency landscape evolves globally, regulatory interventions are imperative to protect investors and prevent illicit financial activities.
  • The actions taken by the Indian government signal a proactive stance in addressing potential risks associated with the use of virtual digital assets.

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