The recent G 20 meet at Osaka which was attended by Mr Narendra Modi discussed among other things the issue of “Money Laundering” and “Terror Financing”. The role of Crypto Currencies particularly in the light of the entry of FaceBook with its proposed Crypto Currency Libra was obviously one of the matters which was discussed as relevant to the issue of money laundering.
Some of the reports that have emerged about the Osaka meeting suggest as if Mr Modi participated in the discussions and the FATF (Financial Action Task Force) has recommended a “Crypto Standard”. An effort is being made to give an impression that India and the G 20 countries are in the process of supporting Crypto currencies.
This is not the correct inference about what appears to have transpired in the FATF meeting.
According to the report (Refer zdnet.com) Mr Suresh Prabhu briefed the media in which he confirmed that a discussion about standards for “Virtual Assets” were discussed. But what was confirmed was an affirmation of the commitment to applying the recently amended FATF standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism.
The G 20 therefore has recognized the role played by Virtual Assets (which includes the Bitcoin and other Crypto currencies) as an instrument of terror financing and money laundering and is thinking of measures to safeguard the society against the same.
The Crypto industry is trying to mis-inform the public to suggest that the deliberations indicate an endorsement of Crypto currencies in India which is an incorrect and mischievous interpretation.
Mr Nishchal Shetty, CEO of a crypto exchange Wazirx appears to have commented
” Implementing the FATF standards would mean that crypto gets a legal status in India. The biggest advantage is to end customers as the crypto industry can once again offer banking services to the fiat on ramps”
The recommendation that has been included in the FATF document is that
” Cryptocurrency organizations should be obliged to obtain, hold and when necessary, transmit information concerning account holders especially when transactions take place which are deemed suspicious”
This essentially means that FATF is recommending that Crypto Exchanges should be able to break the anonymity of every transaction and report it on demand to the authorities.
While this may ensure that identity of the current transactions are revealed, it does not ensure that the ownership of the earlier owners of the Crypto that is now transacted is revealed. Since it is known that almost all of the Bitcoin stock is “Tainted” having once passed through money laundering, it is inconceivable how the tainted asset can be transferred without the accompanying taint without calling it “money laundering”.
Hence the FATF recommendation is to be interpreted that the transaction of a Crypto currency from its root to the current exchange must be made available to the regulatory authorities.
This requirement will hit the fundamental USP of the crypto currency which is the anonymity and hence unlikely to be accepted by the industry.
However the Crypto industry which is an aggregation of dark web participants is unlikely to be concerned with such regulations since they may not have any intention of subjecting themselves to the laws of the civilized society. Their existence lies in promoting Cyber crimes and they will continue to promote money laundering rather than the regulators.
If some G 20 participants fall for any assurance in this regard, they will be the biggest fools in this world. I suppose neither Mr Suresh Prabhu nor Mr Modi nor Mrs Nirmala Sitharaman are fools of this kind.
It may be noted that Mr Sumit Gupta, CEO of Coindcx has admitted and clarified that FATF recommendations are not binding on the members and each member country is free to determine whether to enact the recommendations through legislation or regulation.
The industry representatives have however raised their concerns that there will be a need for a new infrastructure for complying with the FATF requirement and flagged it as a time-consuming and a lengthy exercise.
It appears that several crypto associations signed a Memorandum of Understanding (MOU) to establish an association to “assist in establishing a means to engage with government agencies and the FATF to ensure our best interests are understood and valued at an international level,” the V20 announced. This is an attempt to lobby with FATF to ensure that the standards are favourable to the industry when framed.
Some experts in the industry have opined that since India has already shut down the Crypto transactions and hence the FATF standards have no impact while others try to argue that India has to fall in line with other countries .
It is our clear view that Crypto currencies controlled by private agencies have no role in a regulated economy.
sovereign Crypto is a possibility but its necessity in the light of the already existing wide-spread adoption of “Digital Currency” in India, is questionable.
While the Crypto industry will as a part of its PR exercise try to project every development as a move towards legalization of crypto currencies, Indian authorities may be cautious and not allow the proverbial Arabian Camel which the Crypto currency can turn out to be, to step into the Indian Financial system.