The latest notification issued on March 07, 2023, brought crypto exchanges under the purview of the Prevention of Money Laundering Act, of 2002 in India.
By virtue of this notification, the government included persons dealing in the following activities as persons carrying on a designated business or profession –
- the exchange between VDAs and fiat currencies;
- the exchange between one or more forms of VDAs;
- transfer of VDAs;
- safekeeping or administration of VDAs or instruments enabling control over VDAs; and
- participation in and provision of financial services related to an issuer’s offer and sale of a VDA.
In other words, cryptocurrency exchanges will now be covered under the definition of ‘reporting entity’ under the PMLA and will therefore be required to maintain such records and undertake such reporting obligations as laid down under the Act, and the rules made thereunder.
| S.No |
Compliance Checklist for Crypto Exchange |
| 1 | Proper policy framework as per Prevention of Money Laundering Act, 2002 |
| 2 | Approval of policy framework in the board meeting |
| 3 | Appointment of Principal Officer |
| Registration on FIU-IND Portal. Communicate the name, designation and address of the Principal Officer to FIU-IND. | |
| 4 | Registration on Central KYC Registry (Rule-9(I) (1) |
| 5 |
KYC documents Upload to the Central KYC Registry (As per Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2015, Rule 9 (I) (1A), every reporting entity shall within three days after the commencement of an account-based relationship with a client, file the electronic copy of the client´s KYC records with the Central KYC Registry.) |
| 6 | Robust documented process of client due-diligence
The reporting entity is required to (i) identify its clients, verify their identity, and obtain information on the purpose and intended nature of the business relationship; (ii) to determine whether a client is acting on behalf of a beneficial owner, and (iii) to identify the beneficial owner and take all steps to verify the identity of the beneficial owner. The client due diligence (CDD) has to be done at the time of opening of an account as well as periodically during the tenure of the business relationship. |
| 7 | Maintenance of records and furnishing of reports to FIU-IND-
Every reporting entity is required to furnish information about – (i) all cash transactions of the value of more than ten lakh rupees or its equivalent in foreign currency. (ii) all series of cash transactions integrally connected to each other which have been individually valued below rupees ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month, and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency. (iii) all transactions involving receipts by non-profit organizations of value more than rupees ten lakh, or its equivalent in foreign currency. (iv) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions; (v) all suspicious transactions* whether or not made in cash; (vi) all cross-border wire transfers of the value of more than five lakh rupees or its equivalent in foreign currency where either the origin or destination of fund is in India; (vii) all purchases and sales by any person of immovable property valued at fifty lakh rupees or more that are registered by the reporting entity, as the case may be The above information must be furnished to Director, FIU-IND, online in a standard format prescribed for the purpose.For this purpose, the reporting entity has to register itself with FIU-IND using the portal https://finnet.gov.in. |
| 8 | Internal Policy for proper maintenance and preservation of such records and information in a manner that allows easy and quick retrieval of data as and when requested by the competent authorities. |
| 9 | Training to staff on PMLA and clauses to be added in HR policies and appointment letters regarding PMLA |
| 10 | Periodic audit and maintenance of audit trail. |
| 11 | All the policies and documents should be approved and adopted by the board by means of board resolution, and the same should be recorded in the minutes of the meeting. |
| 12 | If the designated Director on the Board or any employee of reporting entity has not complied with the provision of the PMLA Act, then Director FIU may impose a penalty on reporting entity or its designated director on the Board or any of its employees of Rs 10000/- Minimum and maximum Rs 100000/-. |
*Suspicious transactions-
Suspicious Transaction means a transaction (including an attempted transaction), whether or not made in cash, which, to a person acting in good faith:
- a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
- b) appears to be made in circumstances of unusual or unjustified complexity; or
- c) appears to have no economic rationale or bona fide purpose; or
- d) gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism.
- The Suspicious Transaction Report should be furnished within seven working days of being satisfied that the transaction is suspicious.
- The information in respect of immovable property transactions referred to in (g) above should be furnished to FIU-IND every quarter by the 15th day of the month succeeding the quarter.
- All other reports need to be furnished on a monthly basis by the 15th day of the succeeding month.
The principal officer shall be responsible for furnishing these reports to the FIU-IND.
The amendment empowers the government to access the information maintained by cryptocurrency exchanges at any time and impose fine in case of non-compliance.
Hope this checklist will make it easy to be a compliant entity.
Happy Reading!
Shilpi Kulshrestha
