The government has imposed a ban on crypto-currencies by bringing them under the Money Laundering Act, which will trap those involved in horizontal transactions.

According to economics experts, the central government has indirectly banned cryptocurrencies. In addition to cryptocurrencies, non-fungible tokens (NFTs) and decentralized finance are also considered VDAs, but cryptocurrencies are more prevalent. All transactions involving VDA will be considered a violation of the Money Laundering Act, so cryptocurrencies will be affected the most.

Cryptocurrencies have gained a foothold in countries around the world including India. As the temptation to get rich quick by investing in cryptocurrencies is increasing among the youth, the Government of India has taken a major decision and issued a notification to bring all Virtual Digital Assets (VDAs) including all cryptocurrencies under the purview of Prevention of Money Laundering Act (PMLA).

The Modi government has brought all services related to cryptocurrencies under the PMLA by quietly issuing this notification on the day of Holi on September 7. According to economics experts, the central government has indirectly banned cryptocurrencies as all transactions involving VDA will be considered a violation of the Money Laundering Act.

In addition to cryptocurrencies, non-fungible tokens (NFTs) and decentralized finance are also considered VDAs, but cryptocurrencies are more prevalent. Tokens or other products offered in online games are also VADs. Similarly, digital art, texts, photos, movies, music or any other blockchain asset can be considered as VDA. If you look at it that way, the scope of this announcement is very large, but most of the financial transactions are done in cryptocurrencies, so the biggest impact will be on cryptocurrencies.

The most important provision in this notification is that transactions between VDA and fiat currency are covered under PMLA. Fiat in English means officially recognized.

That is why currency money officially issued by its central bank at the behest of any government is called fiat currency.

The Reserve Bank of India issues rupee notes on the orders of the Government of India and the US federal government issues dollar notes on the orders of the Government of India. Pounds in Britain or Riyals in Saudi Arabia come out in the same way. The official currency of that country is called fiat currency in the language of economics.

The notification issued by the central government means that even if you buy cryptocurrencies with Indian rupees or any other currency, you will be caught in the money laundering case. As youth interest in cryptocurrencies continues to grow, new crypto exchanges are opening up.

It goes without saying that crypto exchanges only issue crypto currencies in exchange for rupees or any other currency. If you buy crypto like that, it becomes a case of money laundering. The Government of India announcement has clearly stated that any provider of services related to VDA, including issuance or sale of VDA, will be prosecuted under the Money Laundering Act.

Transactions between one form of VDA and another are also covered by the PMLA. If any other cryptocurrency is given in exchange for Bitcoin, there will be a case of money laundering. Apart from this, transfer of VDA, service of arranging any arrangement for keeping or controlling VDA, etc. will also be termed as money laundering. The so-called crypto exchange offers all these services so indirectly the crypto exchange has also come under the purview of money laundering laws.

This announcement has lifted the veil of uncertainty around crypto traders. The Reserve Bank of India is apparently behind this announcement by the Ministry of Finance as the Reserve Bank has long been in favor of banning cryptocurrencies. The Reserve Bank of India issued a circular on April 6, 2018 and banned all virtual currencies. A ban on banks dealing in all virtual currencies was announced as illegal. The Internet and Mobile Association of India (IANAI) challenged this ban in the Supreme Court.

The Supreme Court upheld the plea and also termed the ban on virtual currency and the ban on banks dealing in it as unconstitutional. The ban was lifted due to the Supreme Court ruling.

Now, if the ban is to be imposed again, a law has to be passed in the parliament, but the Modi government is interested in the earnings of the deals made by Indians in foreign crypto exchanges, so it has not been completely banned, but the Indian companies have been indirectly banned.

When a case of money laundering occurs, it becomes difficult to escape. We must see the condition of those against whom cases have been filed under PML. Crypto exchanges will also come under the ambit of PML so their situation will be the same.

The boom in crypto exchanges in India has already started. In August last year, the Enforcement Directorate (ED) had frozen the bank account of cryptocurrency exchange WazirX after calling for a raid. WazirX has around 65 crore rupees in his account. The director of a company called Zanmai Labs entered into an agreement with some USA companies to purchase VazirX.

The ED swung into action when it was perceived that money laundering was being perpetrated through this agreement. Apart from WazirX, the ED is also investigating crypto exchanges like CoinSwitch, E-Nuggets etc. ED has been given more powers to act strictly against all these crypto exchanges and future disruptive exchanges. Hawala business has flourished in the name of crypto deals. Due to the powers given to the ED, these traders can also be brought under control.

Modi government's decision is good. Due to crypto-currency, a parallel economy has arisen in the country and if the spread of crypto-currency exceeds the official currency, the country will fall, it is necessary to control it.

Crypto poses a threat to the security, safety, unity and integrity of the country. From terrorists to drug dealers, everyone conducts financial transactions using crypto-currencies, so curbing them is imperative.

-Crypto exchange now courtesy of ED

Economic experts believe that the decision to cover Virtual Digital Assets (VDAs), including cryptocurrencies, under the PMLA will kill this market. Earlier, Nirmala Sitharaman announced a 30 percent tax on income from cryptocurrency transactions in last year's budget. After that, the rule of deducting 1% TDS for VDA transfer was also introduced. Now this third important decision has been taken.

The Reserve Bank is in favor of a total ban on cryptocurrencies, but it is clear from these decisions that the Modi government does not want to ban cryptocurrencies completely, but on the contrary, it is not creating any regulatory framework for VDAs, including cryptocurrencies.

For physical currency in India, the Reserve Bank of India sets the rules for currency notes. Common customers do financial transactions through banks.

If something illegal happens in these transactions, the agencies are informed immediately. This system works because hardly any money can be made using purely black money.

There is no such mechanism for digital currencies. Due to this there are no rules regarding VDA transactions. In these circumstances, the Enforcement Directorate (ED), whose responsibility it is to see whether there is a violation of the PMLA, will have full power. ED's interpretation will be valid.

Companies working in VDA will have to liaise directly with ED.

- Definition of VDA in India not clear

There is no clear definition of what is called Virtual Digital Asset (VDA) in India. According to the Income Tax Act, any information, code, number, token etc. generated in digital form by cryptographic means are called virtual digital assets. NFT is also VDA.

The definition of VDO under Clause 47A of Section 2 of the Income Tax Act, 1961 is very broad. Under this definition any activity conducted digitally can be covered under VDA.

People involved in the crypto currency business believe that this definition should be made more clear and rules should be made regarding VDA but the government has not taken any step in that direction.