India Enforces Stricter Crypto Laws to Prevent terrorism and money laundering

India's financial intelligence agency has declared enhanced identity verification protocols for cryptocurrency exchanges to combat money laundering and terrorist financing.

Press Trust of India reports that to prevent money laundering and the funding of terrorism, India's financial intelligence agency has proposed more stringent identity checks for cryptocurrency exchanges.

The Financial Intelligence Unit (FIU) revised its regulations on January 8th, requiring exchanges to precisely log users' IP addresses, dates, times, and geographic coordinates in addition to verifying users with a live selfie that shows them blinking to demonstrate liveliness and authenticity.

Indian exchanges rules

Indian exchanges must obtain additional documents in addition to the required Permanent Account Number (PAN), such as a passport, driver's license, voter ID, Aadhaar card (a local term for a central government-issued ID), and mobile numbers and email addresses that are verified using one-time passwords (OTPs).

The “penny-drop” method, which involves a small, refundable 1 rupee (INR) fee, is used to authenticate the user's bank account ownership. Every six months, high-risk clients those associated with tax havens, FATF-linked jurisdictions, potentially exposed individuals, or non-profit organizations are subject to enhanced due diligence checks.

Exchanges are prohibited from employing tools like tumblers/mixers that conceal transaction trails to make cryptocurrency untraceable, as well as from supporting initial coin offerings (ICOs), which are token sales akin to mini-initial public offerings (IPOs). Every platform is required to report suspicious trades, register with the FIU, and retain user data for a period of five years.

According to the guidelines, initial token offerings (ITOs) and ICOs present “heightened and complex” risks of money laundering and terrorism funding and lack a sound economic justification.
The Income Tax Act of 1961 defines cryptocurrencies as virtual digital assets (VDAs), and India continues to take a cautious approach to them. These VDAs can be purchased and sold by Indian nationals using platforms registered with the FUI; however, they cannot be used as legal tender to pay for goods and services.