Cryptocurrency exchange Binance has been in discussions with the government to restore access to its mobile app and website in India. While the platform is ready to pay the taxes and the penalties levied, it is not yet ready to comply with the PMLA (Prevention of Money Laundering Act) guidelines.
The government has therefore rejected Binance’s plea to be allowed to resume operations in India in the interim while they put in processes to comply with the country’s legislation including the Prevention of Money Laundering Act, sources added.
Meanwhile, the government is also working with banks to formulate action against traders who are using VPN (virtual private network) to access Binance’s website to circumvent the ban and continue crypto trades illegally.
According to data sourced nearly 4000 such traders, which are believed to be top tier investors, are using VPN to trade on Binance instead of shifting their assets to compliant Indian exchanges. Nearly $4billion cryptocurrency of Indian traders is estimated to be parked in offshore wallets, predominantly Binance.
Binance, sources said, was ready to pay taxes and any other penalties that it was liable for as of January 12 when the operations of the exchange were barred in India. The company, however, said that it would “take some time for it to set up the processes to follow the PMLA and FIU rules” and thus it should be allowed to operate in the interim.
The government has, however, told the cryptocurrency exchange platform that it could not “make exceptions” of these kinds for any firm and thus Binance must show complete compliance with the regulations before any further discussions on these issues, a senior official said.
“Compliance with PMLA is paramount. They have been explicitly told that any discussion on resumption of their services in India is only after the government is satisfied with their responses on the notices sent by the FIU (financial intelligence unit),” the official said.
Binance spokesperson said that the company has responded to the FIU.
"We remain committed to the adherence of local regulations and laws and we are dedicated to maintaining active communication with regulators to ensure user protection and the development of a healthy Web3 industry. Updates with relevant information will be promptly shared through our official channels,” the person said.
To avoid a repeat of situations where foreign cryptocurrency exchanges operate in India without adequate licensing, the government is also working with banks and other financial institutions to take action against traders who are using VPN (virtual private networks) to access Binance’s website to circumvent the ban.
Websites and mobile apps of nine offshore cryptocurrency platforms such as Binance, Kucoin, Huobi, OKX, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex were blocked by the government earlier this month as they failed to respond to show-cause notices sent by the FIU.
The FIU is an intelligence division of the finance ministry responsible for receiving, processing and analyzing suspicious financial transactions and reporting them to the enforcement agencies for action on the information.
For cryptocurrency exchanges, the FIU sets several disclosure requirements, such as reporting trades exceeding Rs 10 lakh, conducting thorough know-your-customer (KYC) of investors and detecting suspicious trade patterns.
Sources within the cryptocurrency industry said that Binance was reluctant to open its trades for scrutiny as this would take away big-ticket investments from the platform.
“There are temporary workarounds to establish this kind of arrangement, wherein, Binance registers an India entity which signs a Memorandum of Understanding with Binance International,” one crypto executive told ET.
“While this Indian entity functions as any other corporate, files annual returns and documentation, the trades are carried on the offshore platform. This way it may escape the FIU disclosure requirements of a cryptocurrency exchange platform. That said, given the aggressive scrutiny Binance is facing from the government, any such arrangements would be straightaway rejected.”
Legal experts also said Binance cannot expect exemption from India’s FIU requirements after it was nudged to comply with FIUs in UK, Thailand, Singapore and other countries lately.
“The statutory provisions for PMLA and FEMA are clear and the purview is wide enough to cover the agents or related companies irrespective of the geographic location,” said Abhishek A Rastogi, founder of Rastogi Chambers.
“While the companies can plead that there is no laundering and that the offences are not specified offences, it will not be feasible to submit that only few statutes will be followed and compliance under others would be ignored,” he added.
Offshore platforms must also worry about retrospective taxes of nearly Rs 3000 crore which may be slapped on them by the income tax department for trades which have occurred over their platforms in the past one-and-a-half year.
The Indian government introduced a 1% TDS on virtual digital asset transfers from July 1, 2022, along with a 30% capital gains tax on the profits earned from April 1, 2022.
