India's Crypto Crackdown Aims to Align with Global AML Standards

India's Financial Intelligence Unit (FIU-IND) has intensified its regulatory scrutiny of offshore cryptocurrency exchanges, issuing compliance notices to 25 platforms-including BingX, LBank, CoinW, and ProBit Global-for failing to register under the Prevention of Money Laundering Act (PMLA) of 2002India cracks down on 25 crypto exchanges including BingX, LBank, CoinW over compliance failures^[1]. The exchanges, which collectively hold over $9 billion in assets and recorded $20 billion in 24-hour trading volumeIndia cracks down on 25 crypto exchanges including BingX, LBank, CoinW over compliance failures^[1], face potential market access restrictions if they do not adhere to India's anti-money laundering (AML) requirements. The move marks a second wave of enforcement following similar actions against major platforms like Binance, Coinbase, and OKX in 2023India Flags 25 Offshore Crypto Exchanges for AML Breach^[2].

The government's directive mandates that virtual digital asset service providers (VDA SPs) register with FIU-IND and comply with reporting and compliance obligations, regardless of their physical presence in IndiaIndia Flags 25 Offshore Crypto Exchanges for AML Breach^[2]. Non-compliant platforms are instructed to remove their apps and websites from public access within the countryIndia cracks down on 25 crypto exchanges including BingX, LBank, CoinW over compliance failures^[1]. As of now, most targeted exchanges remain accessible, but regulators have emphasized that enforcement could escalate if compliance is not met. Over 50 crypto exchanges have already registered with FIU-IND, including Binance, Coinbase, and KuCoin, which resumed operations after meeting regulatory requirementsIndia cracks down on 25 crypto exchanges including BingX, LBank, CoinW over compliance failures^[1].

The crackdown reflects India's broader effort to integrate digital assets into a regulated financial framework. The Ministry of Finance clarified that crypto products, including non-fungible tokens (NFTs), remain unregulated and carry significant risks for investorsCrypto Users Beware as India Shuts Down 25 Major Exchanges^[3]. The PMLA's application to VDA SPs, announced in March 2023, has since become a cornerstone of India's AML strategy. Compliance obligations include transaction monitoring, suspicious activity reporting, and maintaining records for five yearsThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4]. The government's sustained enforcement actions underscore its commitment to curbing illicit financial flows and aligning with global standards such as the Financial Action Task Force (FATF) guidelinesCrypto Users Beware as India Shuts Down 25 Major Exchanges^[3].

Indian users have been impacted by the regulatory shifts, with domestic exchanges like CoinDCX and WazirX reporting surges in user migration from non-compliant platformsThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4]. The crackdown has accelerated market domestication, with compliant exchanges offering localized services, faster KYC processes, and regulatory assurances. However, the high tax burden on crypto gains-30% flat tax plus 1% tax deducted at source (TDS) on transactions-has driven some users to offshore platforms. Authorities caution that unregistered exchanges pose risks, including asset freezes and retroactive tax liabilitiesThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4].

The government's stance on crypto regulation remains cautious yet structured. While India has not imposed a ban, it continues to refine its legal framework, with the Department of Economic Affairs delaying its proposed crypto consultation paperThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4]. The Reserve Bank of India (RBI) has maintained a conservative position, advocating for stringent oversight to mitigate risks from unregulated digital assets. Meanwhile, the Financial Intelligence Unit's enforcement actions signal a shift toward activity-based compliance, ensuring that platforms serving Indian users, regardless of location, adhere to AML normsIndia Flags 25 Offshore Crypto Exchanges for AML Breach^[2].

As the regulatory landscape evolves, India's approach is reshaping the global crypto ecosystem. The emphasis on compliance has spurred competition among registered exchanges, with re-entering offshore players like Binance and Coinbase investing in local infrastructureThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4]. However, challenges remain, including balancing innovation with investor protection and addressing privacy concerns related to data retention policiesThe Future of Crypto Exchanges in India After FIU-IND Crackdowns^[4]. For now, the message is clear: participation in India's crypto market demands adherence to PMLA requirements, or face exclusion from one of the world's fastest-growing economies.