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Digital asset exchange Binance has been charged by India’s Financial Intelligence Unit (FIU) a penalty of $2.2 million for non-compliance with local regulations. The country’s anti-money laundering agency said that the charges against Binance were “substantiated” after a scrutiny that included oral and written submissions.
Last December, India’s anti-money laundering agency issued ‘compliance show cause’ orders to nine digital asset exchanges—Binance, Bitfinex, Bitstamp, Bittrex, Gate.io, Huobi (now HTX), Kraken, Kucoin and Russia-based MEXC Global. The Indian government said these exchanges were operating illegally without complying with the Prevention of Money Laundering Act (PMLA) provisions.
“Due to Binance’s ongoing provision of services to Indian clients and operations within India without adhering to its statutory obligations under the PMLA, a notice dated December 28, 2023, was issued to Binance…compelling Binance to demonstrate why appropriate action should not be undertaken against it for its dereliction of duties under the Act, despite its status as a Reporting Entity owing to its operations as a Virtual Digital Asset Service Provider,” India’s FIU said in a statement.
“After considering the written and oral submissions [from] Binance, Director, FIU-IND, based on the material available on record, found that the charges against Binance were substantiated.”
FIU has not only imposed a penalty of Rs 188.2 million ($2.2 million) on Binance for non-compliance, the digital asset exchange has also been given “specific directions” to ensure “diligent compliance” with the obligations outlined in PMLA, along with the PMLA Maintenance of Record Rules, for prevention of money laundering activities and combating financing of terrorism.
“FIU-IND has emphasized that the compliance framework under the Prevention of Money Laundering Act (PMLA) applies to Virtual Digital Asset Service Providers (VDA SPs) serving Indian users, regardless of their domicile. The obligations are activity-based rather than dependent on physical presence in India, highlighting the objective to track and trace fraudulent activities effectively,” said Dilip Chenoy, chairman of Bharat Web3 Association, an industry body formed to promote and grow the local Web3 industry.
So far, KuCoin digital asset exchange has registered with India’s FIU after reportedly paying a penalty of $41,000. Singapore-based Liminal Custody has also become a FIU-registered entity and a compliant digital asset custody for Indian institutions.
However, Seychelles-headquartered OKX, the second-largest global digital asset exchange by trading volume, announced it no longer serves Indian users. OKX’s decision came days after India blocked access to foreign digital asset exchanges like OKX, Binance, and Kucoin on the grounds of non-compliance. Apple (NASDAQ: AAPL) pulled some foreign exchange apps from its App Store, while Google (NASDAQ: GOOGL) delisted the trading platforms from its Play Store in India.
“The developments we are observing with FIU-IND related to Binance are very organic and are a significant pointer towards India’s progress on regulating the digital assets markets in India. A common regulation for all stakeholders and businesses – local and global – would ensure a level playing field for industry players and would provide equal growth opportunities to all the relevant stakeholders of the industry,” said Manhar Garegrat, Country Head of India & Global Partnerships, Liminal Custody.
“Since India is a lucrative market for global brands with a large representation of the young and ambitious demographic along with an increasing set of seasoned investors, it becomes highly critical for regulators to protect the interests of users and consumers in every sector… In such a large digital asset market, it is imperative to implement a regulatory framework for the protection of user funds and for providing a friendly environment for businesses,” Garegrat added.
The world’s biggest democracy imposes one of the harshest taxation on digital assets trading—a 30% flat tax on all digital currency income with no provision to offset losses and a 1% tax deducted at source (TDS) on all transactions above INR 10,000 ($120). The South Asian nation is the fastest-growing major economy and is expected to become the world’s third largest economy by 2028, luring investors and corporates to be part of India’s growth story despite the high taxation.
“This significant penalty is a clear indication of the increasing scrutiny and regulation in the digital asset space… I believe that the regulations are getting more organised for crypto currency exchanges, globally,” said Shivam Thakral, chief executive of BuyUcoin, one of India’s digital asset exchanges.
“The need for compliance is critical for user protection and to conduct business in a fearless environment. Sustained efforts by FIU-IND will lead to a fertile ground for Web3 businesses to grow and enable India to become a $1 trillion digital economy,” he added.
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