March 14, 2023
Good morning. In today’s either/view, we discuss whether including crypto under the money laundering laws is the right decision. We also look at the hike in salaries for the legislators in Delhi, among other news.
📰 FEATURE STORY
Money laundering provisions on crypto: Is it the right decision?
Depending on who you ask, crypto has set the world on fire – for better or worse. It certainly has changed how financial markets are looked at by investors, regulators, and policymakers. Countries are grappling with how to regulate it, whether to mainstream it or dissuade people from going anywhere near it.
India’s position on crypto is complicated. For a while, its prospects were murky. The Reserve Bank of India (RBI) isn’t necessarily a fan. The government might be more accepting, but not without some regulation. The government’s latest move includes crypto within money laundering provisions. It’s a way for the government to tighten its grip on crypto. Is this a step in the right direction, or is a lighter touch needed?
Context
Back in 2008, the big news was understandably the financial crash and its worldwide ripple effects. Amidst that, a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was published. A couple of years later, the first sale of an item using Bitcoin happened – swapping 10,000 for two pizzas. Other cryptocurrencies come to the fore, like Litecoin and Ethereum.
In 2013, the RBI had its first say on the rise of crypto as it picked up in India. It issued a circular warning users of the potential security risks of using virtual currencies. What’s interesting here is that the government’s demonetisation policy led to more digital payments and gave crypto a boost. Tech-savvy customers turned to crypto.
In 2017, the RBI reiterated its apprehensions about virtual coins. At the end of that year, the RBI finally clarified that virtual currencies aren’t legal tender. Shortly after, in March 2018, the Central Board of Digital Tax (CBDT) sent a draft scheme to ban virtual currencies to the finance ministry. The RBI doubled down on its opposition by restraining banks and payment providers from dealing with virtual currencies.
All this while, the government seemed on the fence. That changed a little in 2018. Rajya Sabha MP Rajeev Chandrashekhar responded positively to a campaign from WazirX founder Nischal Shetty on mainstreaming crypto. As the crypto Bill was announced, the #IndiaWantsCrypto campaign gained momentum.
When the government banned crypto, the exchanges went to the Supreme Court, which ruled in their favour. In 2021, the government announced a new sovereign digital currency and a ban on private cryptocurrencies. It did a u-turn of sorts after meeting with a group representing crypto exchanges. Regulate, not ban was the message.
Concerns about crypto being used for money laundering surfaced in 2021. Indian authorities discovered that $488 million were laundered via crypto transactions the previous year. Countries like Canada applied their money laundering and terror financing laws to crypto. South Korea is following suit.
Regulation is what crypto companies, exchanges, and traders want. The decision to apply money laundering laws on crypto has received mixed responses. In a March 7 notification, the government said that money laundering laws would cover all exchanges between virtual digital assets and fiat currencies, between one or more virtual digital assets, and the transfer of digital assets.
VIEW: It’s a step toward greater acceptance
Crypto has had to prove itself from the very beginning. Governments and regulators worldwide have been sceptical of crypto, wondering whether it’s the real deal or an elaborate ruse. One could argue that the Indian government has taken a cautious but somewhat open approach. By not wanting to ban it but instead regulating it, it’s good news.
Applying money laundering provisions to crypto will only legitimise it further. Anything to prevent people from looking down on crypto with suspicion is a step forward. That means keeping the sector clean. Agencies like the Enforcement Directorate can investigate any wrongdoing. Entities dealing with crypto will be required to perform KYC functions and report suspicious activities to the government.
One of the criticisms of crypto is a lack of transparency. With this move, the onus is on the exchanges and markets to be more open. The last thing crypto proponents want is to find out that exchanges are used to finance nefarious or terrorist activities. With governments and regulators paying more attention to this space, a compliant framework for investment and preventing money laundering show crypto is being taken seriously.
COUNTERVIEW: It’s not exactly good news
The government’s intent is good – to prevent money laundering in the crypto space. It’s something that both sides can agree on. However, the crypto space in India isn’t exactly welcoming. For example, 17 lakh Indian virtual digital asset users have switched to centralised foreign exchanges. The tax regime announced in the 2022 budget was off-putting to many and impacted trading volumes.
The RBI hasn’t changed its tune. Governor Shaktikanta Das made it clear when he said crypto should not be given underlying value in the market. It would be unwise to dismiss the word of the country’s top regulator. It’s unclear what money laundering provisions would change. The government is partly in line with the RBI’s thinking of not treating crypto as sovereign currencies. Plus, the RBI has already proposed the Central Bank Digital Currency (CBDC).
While the latest decision will usher in some consumer confidence, questions and concerns about data security and privacy measures remain. The laws on these are still up in the air. If money laundering laws are applied, the government has a lot of leeway in collecting people’s data. For a sector looking for mainstream acceptance, there’s a danger of overregulation, something exchanges and the market don’t want.
Reference Links:
- The Journey of Cryptocurrencies in India – Moneycontrol
- The evolution of cryptocurrencies in India and what the future looks like – Times of India
- A history of cryptocurrencies regulation in India – DailyO
- India’s money laundering rules to apply to crypto trade, states govt notification – Economic Times
- India’s anti-money laundering laws will now apply to crypto transactions – Quartz
- Why crypto has come under India’s anti-money laundering law – Times of India
What is your opinion on this?
(Only subscribers can participate in polls)
a) Including crypto under money laundering laws is the right decision.
b) Including crypto under money laundering laws is the wrong decision.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
New Changes to MPLADS Will Make it More Centralised and Less Inclusive
For the Left:
BBC’s neutrality is a farce: It hates India as much as Britain loves Pakistan
🇮🇳 STATE OF THE STATES
Salary hike for legislators (New Delhi) – The Government of National Capital Territory of Delhi’s Department of Law, Justice & Legislative Affairs announced a 66.67% salaries and allowances hike for Delhi’s legislators. The salary of the chief minister, speaker, deputy speaker, chief whip, and leader of the opposition will spike from ₹72,000 to ₹1,70,000 monthly. Lawmakers’ salary has risen from ₹12,000 monthly to ₹30,000. Ministers’ salaries have grown from ₹20,000 monthly to ₹60,000.
Why it matters: In 2015, the Union government rejected the Delhi government’s proposal for a ₹2.10 lakh monthly salary and allowance for MLAs. The recent salary hike was instituted after the President of India approved the move. The salaries and allowances of legislators hadn’t seen a change in 11 years. According to the incumbent Aam Aadmi Party (AAP)’s chief whip Dilip Kumar Pandey, Delhi has the lowest-paid legislators in the country even after the increment.
Brahmapuram fumes precipitate protests (Kerala) – Kochi’s distraught citizens protest as the city continues to be blanketed in toxic fumes from the fire at the Brahmapuram garbage dump that began 11 days ago. On Sunday, the city’s AQI was over 200 points. Officials from the Pollution Control Board expect it to rise to the ‘very poor’ category, above 300 points. Some residents have evacuated to their hometowns and other safer areas.
Why it matters: Civil society actors sharply criticised the Pinarayi Vijayan-led state government for failing to control the hazardous fire effectively. While the government has sought help from the New York fire department, the commercial capital’s residents’ health and livelihood remain affected. So far, 800 people have sought medical aid, while officials grow concerned about the long-term impact of inhaling the garbage smoke.
Notice to repair school kitchens (Jharkhand) – The Jharkhand Education Project Council (JPEC) directed 598 school management committees across Ranchi to fix their kitchens within two weeks. The formal deadline for management committees to complete the renovation is between March 22 and 25. After this, the junior engineer and the block elementary education officers will inspect the quality of work and report their findings to JPEC.
Why it matters: JPEC allotted over ₹5 crore to the renovation after schools submitted an application to the state’s Department of Education. In government schools, students avail of the midday meal scheme. Several schools across the district prepare these meals in dilapidated or temporary kitchens. While the renovation project effectively targets this, engineers and teachers’ associations argue that the deadline sets it up for failure.
MI-IMPACT for tribal livelihoods (Gujarat) – Four students from Ahmedabad’s MICA built a climate-resilient sustainable tribal livelihood model for Odisha’s Jampada village as part of their project called MI-IMPACT. The project was recognised for its positive impact on capacity building and for provoking a mindset transformation. The team conducted a digital ethnography to understand the village’s ecosystem. The people were trained in water conservation and harvesting techniques.
Why it matters: MI-IMPACT targets food security and malnutrition caused by deforestation and lack of livelihood opportunities in vulnerable tribal communities. The changing climatic conditions faced by the Santhals and the Particularly Vulnerable Tribal Group (PVTG), who depend on natural resources for their living, worsen the impact of these issues. The students chose Jampada because of its rich resources and the predicted impact of its deterioration on tribal communities.
Stricter norms for illegal mining (Meghalaya) – The Meghalaya High Court (HC) directed the state government to devise a blueprint for maintaining the condition of roads. It also called for enforcing a stricter set of norms to penalise and prevent the exploitation of the state’s natural resources. The HC said that illegal coal mining is rampant in Meghalaya and that the state is complicit in the sorry state of natural resources by tweaking the rules.
Why it matters: In 2014, the state government announced a blanket ban on illegal rat-hole coal mining in Meghalaya. In 2022, the open secret that mining continued unlawfully despite the government’s claims to the contrary became a fact. A court-appointed committee revealed statistics confirming the illegal practice’s prevalence and charged the government for its participation in the same.
🔢 KEY NUMBER
40% – The percentage of teacher shortage in Mumbai’s Brihanmumbai Municipal Corporation-run schools.