Entities providing services with respect to Virtual Digital Assets, now to comply with the PMLA law.

REPORTING REQUIREMENTS TO APPLY IN CASE OF VIRTUAL DIGITAL ASSETS

The Ministry of Finance through notification dated 07.03.2023 has prescribed the persons

dealing in virtual digital assets as ‘person carrying on designated business or profession’1

under the Prevention of Money Laundering Act, 2002.

The activities which will get a person qualified as a ‘person carrying on designated business

or profession’ are as follows:

1. exchange of virtual digital assets (‘VDA’) with other forms of VDA or with fiat currencies;

2. transfer of VDA;

3. safekeeping or administration of VDA or providing instruments enabling control over VDA;

4. participation in and provision of financial services related to an issuer’s offer and sale of VDA

exchange of virtual digital assets (‘VDA’) with other forms of VDA or with fiat currencies;

The term ‘Virtual Digital Asset’ has been defined as:

a) any information/code/number/token, generated through cryptographic means or

otherwise providing a digital representation of value exchanged with or without

consideration, with the promise or representation of having inherent value, or functions

as a store of value or a unit of account including its use in any financial transaction or

investment, but not limited to investment scheme; and can be transferred, stored or traded

electronically;

b) a non-fungible token or any other token of similar nature;

c) any other digital asset as the Central Government may specify.

It is noteworthy that a ‘person carrying on designated business or profession’ is a ‘reporting

entity3’ and such entity has to thus comply with the Prevention of Money-Laundering

(Maintenance of Records) Rules, 2005.

Our Comments

The notification will impact the entities engaged, inter alia, in the business of providing services relating to VDA inasmuch as the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, shall now apply to such entities.

In simpler terms, the above-mentioned entities will now be required to have a strong internal

compliance framework in place considering that such entities will now be required to carry out

a host of compliances such as client due diligence, KYC, maintaining records of the transactions carried out, furnishing information to the authorities etc., as applicable.