In June 2024, Binance, the world’s largest cryptocurrency exchange, has been fined USD 2 million by India’s Financial Intelligence Unit (FIU – IND) for violating anti-money laundering (AML) laws. This penalty is now the largest fine in the history of India for AML violations, underscoring the severity with which regulatory bodies are addressing financial misconduct in the burgeoning cryptocurrency sector. This fine marks a significant step in the Indian government’s effort to regulate the rapidly growing cryptocurrency market and ensure compliance with its stringent AML regulations.
The action against Binance came after a ban imposed in January 2024, which affected nine foreign crypto exchanges including Binance, for failing to adhere to the Prevention of Money Laundering Act (PMLA) of 2002. This ban involved blocking the URLs and mobile applications of these platforms to prevent them from operating within the country. The FIU requires all virtual digital asset service providers to register and adhere to Indian AML laws.
Which Laws Were Breached?
Binance’s primary breach involved non-compliance with the Prevention of Money Laundering Act (PMLA) of India. The PMLA mandates that financial institutions, including cryptocurrency exchanges, implement robust measures to detect and report money laundering activities. Key breaches identified include:
- Failure to conduct proper due diligence on customers
- Inadequate transaction monitoring systems to detect suspicious activities
- Delayed or non-reporting of transactions that appeared dubious
These lapses pose significant risks, as they can potentially allow illicit money to flow through the exchange undetected, undermining financial integrity and security.
What Actions Did The Government Take?
Here’s the catch! Binance after paying the fine, received approval from the FIU to resume operations in India. This makes Binance the second major offshore exchange, following KuCoin, to become FIU-compliant and re-enter the Indian market.
The Indian government has also imposed -
- 1% Tax Deduction At Source (TDS) on all crypto transactions
- 30% tax on crypto profits to curb tax evasion and enhance financial transparency
The re-entry of Binance into the Indian market is seen as a positive step towards a more regulated and secure crypto trading environment. However, it also highlights the stringent regulatory landscape in India, which has prompted several other foreign exchanges to reconsider their operations in the country. While Binance and KuCoin have opted for compliance, other exchanges like OKX and Bitstamp have chosen to exit the Indian market due to the regulatory burdens.
The FIU’s actions underscore the importance of adhering to local regulations and the increasing scrutiny faced by cryptocurrency exchanges worldwide. This case serves as a precedent for other crypto platforms aiming to operate in compliance with Indian financial laws, ensuring that the crypto ecosystem is safeguarded against illicit activities. This development is part of a broader regulatory crackdown in India aimed at bringing transparency and legal oversight to the crypto industry.
Binance's Response
In response to the fine, Binance has issued a statement expressing its intent to cooperate fully with Indian regulators. The company emphasized its commitment to regulatory compliance and stated that it has been working diligently to enhance its AML and KYC protocols globally.
“Binance takes its compliance obligations very seriously and is committed to maintaining the highest standards of regulatory adherence,” the statement read. “We are actively working with the FIU and other relevant authorities to address the concerns raised and to ensure that our platform continues to provide a secure and compliant environment for our users.”
Fines And Actions On Crypto Firms In India
1. WazirX
- GST Evasion Fine: In December 2021, WazirX was fined INR 49.20 crore (USD 6.6 million) for evading Goods and Services Tax (GST).
- Asset Freezing: On August 05, 2022, the Enforcement Directorate (ED) froze assets worth INR 64.67 crore (USD 8.1 million) as part of an ongoing money laundering investigation involving the exchange.
2. Binance
- Show-Cause Notice: In December 2023, Binance and several cryptocurrency exchanges, including KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex, received show-cause notices from the Financial Intelligence Unit of India (FIU-IND). These notices were issued due to concerns about non-compliance with local regulations, particularly those related to preventing money laundering under the Prevention of Money Laundering Act (PMLA).
The FIU-IND also took the additional step of requesting the Ministry of Electronics and Information Technology to block the URLs of these exchanges within India, aiming to restrict their operations and enforce compliance. In June 2024, Binance was fined $2 Million for violation of AML laws.
3. KuCoin
- Regulatory Compliance Fine: In December 2023, KuCoin settled a fine of USD 41,000 imposed by FIU-IND for non-compliance with local regulations.
- App Store Removal: On January 10, 2024,
KuCoin, along with other exchanges like Binance, was removed from Apple's App Store in India due to regulatory actions targeting offshore crypto platforms.
4. CoinDCX and CoinSwitch Kuber
- ED Notice: CoinDCX and CoinSwitch Kuber received notices from the Enforcement Directorate in 2022 as part of investigations into potential regulatory violations within the Indian crypto sector.
India’s evolving regulatory landscape for cryptocurrencies reflects a balance between strict measures and cautious acceptance. The government’s actions, including imposing fines, freezing assets, and issuing show-cause notices, underline the increasing scrutiny and regulatory enforcement in the sector. These steps aim to ensure compliance with the Prevention of Money Laundering Act (PMLA) and other relevant regulations to safeguard financial integrity and security.
Actions On Binance Till Date
July 2020 
The Financial Services Agency (FSA) of Japan issued a warning to Binance for operating without proper registration. Binance was warned by the FSA in March 2018 for the same reason. CEO Changpeng Zhao claimed that the exchange was in “constructive dialogues” with the regulator over the matter.
April 2021
BaFin, the German financial regulator, warned Binance over offering securities-tracking digital tokens without an investor prospectus. This action was taken after Binance said it would offer "stock tokens" denominated in the exchange's own cryptocurrency giving investors exposure to MicroStrategy Inc, Microsoft Corp (MSFT.O), and Apple Inc.
June 2021
The Financial Conduct Authority (FCA) of the United Kingdom banned Binance from conducting any regulated activities in the UK. The FCA stated that it was not possible to supervise Binance efficiently. The first supervisory notice was released in the same month.
July 2021
Commissione Nazionale per le Societa e la Borsa (CONSOB), the financial regulator of Italy, announced that Binance was not authorized to provide investment services and activities in Italy. Regulators took issue with Binance's approach to anti-money laundering regulations
August 2021
The Securities Commission (SC) of Malaysia ordered Binance to halt its operations in the country, citing non-compliance with local regulations. The SC has issued a public reprimand against Binance for continuing to operate illegally in Malaysia despite being included in the SC’s Investor Alert List in July 2020.
December 2021
Ontario Securities Commission (OSC), Canada, took enforcement action against Binance for non-compliance with securities regulations. Binance represented to OSC Staff that no new transactions involving Ontario residents would occur after December 31, 2021. It issued a notice to users, without any notification to the OSC, rescinding this commitment.
July 2022
De Nederlandsche Bank of Netherlands fined Binance USD 3.3 million for offering services without proper registration. The fine was imposed following a public warning issued against Binance in August 2021.
The recent fine imposed on Binance by the FIU of India underscores the growing regulatory vigilance in the cryptocurrency space. As digital currencies continue to gain traction, ensuring robust compliance with AML laws is paramount to safeguarding financial systems from illicit activities. The global regulatory landscape is evolving, with various jurisdictions striving to strike a balance between fostering innovation and maintaining financial security. Binance’s regulatory challenges highlight the imperative for cryptocurrency exchanges to adhere strictly to local and international laws to operate sustainably in the global market.
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- #AMLViolations
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14 Nov 2024
