India Cracks Down on 25 Crypto Exchanges Over AML Compliance Failures

India has taken a firm stance against crypto exchanges, cracking down on 25 platforms for violating anti-money laundering (AML) compliance rules. The Financial Intelligence Unit-India (FIU-IND) issued notices to platforms such as Huione, BingX, Paxful, LBank, CoinW, and ProBit Global, ordering them to withdraw their apps and websites from public access in the country.

The affected exchanges collectively manage billions in user assets, with significant trading volumes. Despite India lacking a comprehensive digital asset framework, the finance ministry brought virtual asset service providers (VASPs) under the Prevention of Money Laundering Act (PMLA) in March 2023. This move mandated FIU registration and reporting requirements for VASPs.

While India has not introduced comprehensive crypto legislation, it has opted for partial oversight through heavy taxation and compliance requirements to regulate crypto activity. The country imposes a 30% tax on profits and a 1% tax deducted at source on transactions, which has reduced domestic trading volumes significantly.

Global exchanges can operate in India if registered with the Financial Intelligence Unit-India. Bybit, for instance, resumed services after paying a penalty for violating the PMLA. Over 50 crypto exchanges have registered with FIU-IND, indicating a rise in compliance.

Unregistered platforms face increasing scrutiny, following enforcement actions against major industry players like Binance, Coinbase, KuCoin, and OKX. OKX ultimately left India, while others registered with the FIU to restart operations. Exchanges faced URL blocks and app store removals until paying fines and registering locally. Binance and KuCoin resumed operations after meeting these requirements, though the regulatory environment remains strict.

Despite regulatory challenges, crypto adoption in India persists. Indians hold an estimated $4.5 billion in digital assets, with constrained adoption and tight regulations helping limit risks to the broader financial system. India continues to attract offshore crypto exchanges due to its high crypto adoption rates.

Furthermore, India plans to implement the OECD’s Crypto-Asset Reporting Framework (CARF) by April 2027, allowing automatic global reporting of crypto transactions for enhanced compliance and transparency. The country expects to sign the Multilateral Competent Authority Agreement (MCAA) to establish a legal framework for automatic tax information exchange.

The global crypto reporting system will track investors’ coins held on overseas exchanges and report offshore centralized exchange trades. Once live, the system will enable reporting not only for the current year but also for past years, allowing authorities to issue notices for previously undisclosed income.

In conclusion, India’s crackdown on crypto exchanges reflects its commitment to combating money laundering and ensuring regulatory compliance in the crypto industry. Despite challenges, the country’s evolving regulatory landscape aims to create a transparent and secure environment for crypto transactions.