India's Clampdown on Privacy Cryptos
India has imposed restrictions on privacy cryptocurrencies, often associated with money laundering due to their ability to obscure transaction details and user identities. The Financial Intelligence Unit (FIU) has instructed cryptocurrency exchanges and platforms to cease transactions involving these virtual digital assets (VDAs).
FIU Guidelines
- Reporting Entities: Exchanges and intermediaries must stop permitting deposits or withdrawals of anonymity-enhancing crypto tokens (ACEs) designed to conceal transaction origins and ownership.
- Risk Mitigation: Deals involving ACEs should be viewed as non-permissible as part of risk-reduction strategies.
Privacy Coins
- Coins like Monero (XMR), Zcash (ZEC), and Dash (DASH) use cryptography to hide transaction details.
- These coins use stealth addresses to shield the identity of recipients.
Regulatory Consensus
Globally, the regulatory trend is to ban privacy coins due to their lack of traceability. The FIU's instructions reflect this approach, aiming to mitigate the risks associated with these tokens.
Challenges with Privacy Coins
- Despite restrictions, coins can be acquired for rupees or swapped for other VDAs on certain platforms.
- Tools like tumblers and mixers further obscure transactions by mixing multiple users' cryptocurrencies.
- Unregulated exchanges complicate tracking of coins once they exit regulated platforms.
International Perspectives
- Countries like Russia and Japan have implemented measures to protect less informed investors and ensure transparency.
- Japan requires client fund segregation, proof-of-reserves, and investor protection measures.
Offshore Crypto Profits
Banks face challenges in handling funds from overseas crypto profits due to unclear regulations. The lack of a specific crypto framework under Foreign Exchange Management Act, 1999 (FEMA) leads to cautious scrutiny of such transactions, potentially leading to them being withheld or reported as suspicious.
