Tracking the legal bits of Virtual Currency regulations in India

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Amit Retharekar
Amit Retharekar
Amit Retharekar is a banker by profession. He has extensively worked in co-operative banking sector in India for more than a decade. He is a Certified Anti Money Laundering Expert. He also is the Certified Trade Based Money Laundering Expert and has witnessed the walk through of this course hands on. He recommends this course for AML professionals to have a deeper understanding on TBML subject.

I am elucidating the sequence of events unfolded with respect to various regulatory aspects on virtual currencies in India.
The special interest the world has taken on “Libra” by Facebook has also landed on Indian shores. The following events have taken place in the past few months:

  • An episode of popular game show KBC aired a question on cypto. Indian Superstar Mr Amitabh Bachhan read out a small para detailing what is virtual currency, hype generated.
  • Bitcoin Foundation member Charlie Shrem had a podcast with Member of Parliament Mr Rajeev Chandrashekhar (Tech Entrepreneur himself) wherein he said laws to support blockchain infrastructure in India will be rolled out eventually. Bitcoin community in India hailed it and termed it as a welcome move.

However the following events have also taken place on the legal front across years, which is the crux of this article. Let’s understand the sequence of events in a chronological order for better legal understanding:

  • First RBI press release dated Dec 24, 2013, “RBI Cautions users of Virtual Currencies against risks”.
  • FATF made a preliminary assessment of ML/TF risks on VCPPS (virtual currency payment products and services) and published “Guidance for a Risk –based approach to virtual currencies” in June 2015.  
  • Early 2015, app based bitcoin exchanges started to crop up in India (A to Z name based). With curious Indians following global trends by end of 2016 (I hope all of you can connect the dots of the significant event-#Demon at the end of 2016), these app based bitcoin exchanges had created a buzz and downloads hit million mark.
  • Mr Amit Bharadwaj an early 2017 VC enthusiast created a #Bitcoin MLM scheme and a cryptocurrency he named as MCAP. Many investors who were lured finally realized the fact it’s a ponzi scheme and case was registered under MPID (Maharashtra Protection of Interest of Depositors Act), 1999 at Pune.  First arrest in the VC sphere in India.
  • RBI press release dated Feb 1,2017 referred back to the earlier cautionary advise on virtual currency and stated that it had not given any license/authorization to any entity/company to operate such schemes or deal with any virtual currency.
  • March 1, 2017, RBI Governor R Gandhi signaled his views at the “Fintech Conference 2017” organized by FICCI,IBA & NASSCOM stating he believes in the power of #Fintech and Blockchain but skeptical on the anonymity issues of Virtual currency.
  • Nov 2,2017 Ministry of Finance, Govt of India announced it has created a Inter-Ministerial Committee (IMC) to study issues related to virtual currencies and propose specific action to be taken in this matter. 
  • Nov 3, 2017 Mr Siddharth Dalmia & Vijay Pal Dalmia file a writ petition W.P.(C)No.001071-001071/2017 against the Government and RBI in the Hon. Supreme Court of India. This was the first petition by anyone at Courts in India seeking official stand of the Government and various other regulatory bodies on crypto-currency.
  • Mid Dec, 2017 as reported by Press Trust of India, the Income Tax Department raided major bitcoin exchanges across India seeking information on cryptocurrency traders and major investors.
  • In his budget speech dated 01 Feb, 2018; Former Finance Minister Late Shri Arun Jaitley explained his stand; Govt does not recognize cyptocurrency as legal tender and that Govt will take all measures to eliminate use of these since they are not part of payments system.
  • RBI press release dated Apr 05,2018 “Statement on Developmental and Regulatory Policies, point no 13, elaborated as “Ring fencing entities from virtual currencies” and entities regulated by RBI (banks primarily) with immediate effect shall not deal or provide services to any individual or business entities dealing with or settling virtual currencies.   
  • RBI circular dated April 06, 2018 “Prohibition on dealing in virtual currencies followed which ordered regulated entities by RBI (banks) to stop maintaining accounts, trading,clearing,giving loans, opening accounts of new exchanges. Those banks already providing these services shall exit the relationship within 3 months from the date of this circular.
  • This circular freezed the entire virtual currency market in India and most exchanges stopped their operations soon after.
  • May 2018, Ahmedabad based crypto exchange Kali Digital Eco Systems (CoinRecoil) filed a writ petition in Delhi High Court against RBI guidelines that banned banks from dealing with cryptocurrency exchanges as arbitrary.
  • May 2018, IAMAI (Internet & Mobile Association of India-Industry body formed as non for profit society) move to Supreme Court seeking stay on the RBI circular of April, 2018. The Hon. Supreme Court clubs all the petitions related to cryptocurrencies pending at courts in India into one.
  • Contrasting views mentioned in the Law Commission of India in its report submitted to Minister of Law and Justice in July 2018. The report has favored the use of cryptocurrencies for gambling transactions. (The Hon. Supreme Court had asked the Law Commission to submit a report on possibility of regulated gambling instead of straight jacket ban and the Law Commission recommended gambling transactions be made cashless and VC was one of the options submitted.)
  • July 2019, the Ministry of Finance releases the IMC report and draft bill Banning Cryptocurrency & Regulation of Official Digital Currency Bill, 2019. 
  • A government panel in India has issued a recommendation to ban all “cryptocurrencies created by non-sovereigns,” a step which could be applied to Bitcoin.

The cryptocurrency industry has been open with its views that they seek regulation after consultation and research with all the regulatory bodies concerned adopting best global practices. They even submit before the Court, legislation like Wyoming in US, UK’s financial conduct authority, G20 nations position on the same, etc. They have also shown their willingness they reiterate in following self KYC, cashless domestic transactions only and constant monitoring of transactions from ML/TF perspective.

The Govt stand so far is confusing so say the least but as an entire new digital domain is being debated in the Supreme Court precincts; the war rooms of major corporate and financial conglomerates in India are keeping their tabs on it carefully planning their future move in these uncharted waters. As the entire cryptocurrency industry awaits the judgment along with hoards of investors locked in; as well as an entire legal community awaiting clear definitions spelt out by the Hon. Supreme Court.

4th March’2020 was a historic day, when finally Supreme court decided to lift the ban on the trading in crypto-currencies. This is a game-changer decision and it is important to see if the bankers start offering the services to the crypto currency companies. Now it is important for the banking system to re-look at the RBI Ban, which was reversed by the Supreme Court Decision to lift the ban on trading in virtual currency.

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