A critical move on crypto trade

Expanding ED’s scrutiny over crypto trade is a welcome measure against money laundering

India this week tweaked rules against money laundering to cover trade in cryptocurrencies, such as Bitcoin and Ethereum. The department of revenue issued a notification outlining new definitions to cover five specific scenarios: When cryptocurrency and fiat money is exchanged; when one form of crypto is exchanged with another; if such coins are transferred; the storing of virtual digital assets; and participation in financial services related to such digital money. In other words, individuals or groups making any trade in cryptocurrency as well as exchanges — these virtually act as banks where people store such “coins” in a “wallet” — can now be scrutinised under the Prevention of Money Laundering Act (PMLA) by the Enforcement Directorate (ED). The move comes days after India nudged the Group of 20 (G20) economies to develop a consensus on rules against crypto — the Centre and Reserve Bank of India have consistently opposed legalising cryptocurrencies since they are not backed by any sovereign and lack oversight mechanisms.

Expanding the financial crimes watchdog’s scrutiny over cryptocurrencies is welcome and long overdue. Over the past three years, crypto has dominated headlines for a boom-and-bust cycle, shooting to fame at first when a rising market created high yields for early investors before a collapse left millions of people losing billions of dollars. In India, financially unsophisticated customers have been lured to invest in them. But less obvious has been how crypto has emerged as one of the biggest conduits for money laundering. Never before could millions of dollars in funds be moved instantly and anonymously across borders. Today, ransomware operators routinely pull off sixdigit extortions through crypto payments, route them through multiple hops, and withdraw money in jurisdictions and locations hard to track — often within days. Similar use cases, theoretically, apply to terror funding as well.

The borderless reach of such digital currency is forcing countries and multilateral institutions such as Interpol to develop new tools, skills and knowledge to get ahead of them. The nature of most blockchains — the system on which cryptocurrencies are based — indeed also makes it possible to exactly pinpoint a money trail. But to do so requires sophisticated abilities and, most importantly, global collaboration. India’s new measure represents good progress in this direction.