The Financial Intelligence Unit (FIU), which operates under India’s Ministry of Finance to gather financial intelligence related to offenses under the Prevention of Money Laundering Act, issued a notice of noncompliance to several foreign crypto exchanges on December 28, 2023. The notice, sent to Binance, HTX, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex, required them to comply with Indian Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations within 12 days.
After two weeks, Apple’s App Store in India blocked the foreign crypto exchanges that had received the FIU notice. Shortly after, Google’s Play store followed suit, banning the crypto exchanges from its platform, as well as banning the URLs and alternate URLs of the crypto platforms.
The ban on foreign crypto exchanges was a surprise for many Indian crypto traders who had turned to these exchanges to avoid the 30% tax on cryptocurrency trading profits imposed by the Indian government. According to the Economic Times, nearly $4 billion worth of crypto assets were stuck on offshore platforms, with Binance holding almost 80% of that amount. The report also highlighted that the use of foreign crypto exchanges by Indian traders cost the government approximately 30 billion rupees ($361 million) in tax revenue each year.
This recent action by the Indian government against foreign crypto exchanges comes at a time when there are no clear regulations for domestic exchanges to follow. Despite years of campaigning and demands for clarity, the Indian government has not provided any definitive regulations.
Siddharth Sogani, CEO of blockchain analytics firm Crebaco Global, emphasized the necessity of compliance-based actions to prevent Indian traders from evading taxes. However, Sogani believes that the government should prioritize addressing issues faced by domestic exchanges, such as withdrawal difficulties reported by users of platforms like Bitbns. On the other hand, Rajagopal Menon, vice president of Indian exchange WazirX, supports the FIU’s action, stating that foreign exchanges have taken advantage of regulatory and tax differences.
Foreign crypto exchanges have remained uncertain about reentering the Indian market due to unclear regulations and the hefty 30% crypto tax. Despite India’s potential as a fast-growing crypto market during the previous bull cycle in 2021, the lack of regulatory clarity has deterred foreign companies and traders from operating in the country. However, Sumit Gupta, CEO of Indian crypto exchange CoinDCX, believes that the FIU ban is a step toward enforcing regulations and expects offshore exchanges to register and serve Indian customers under FIU guidelines.
While Binance, Kraken, KuCoin, MEXC, Bitfinex, and Huobi declined to comment on their plans in India, a spokesperson from Binance stated the company’s commitment to adhering to local regulations and laws. They also expressed dedication to maintaining communication with regulators to ensure user protection and the development of a healthy Web3 industry. HTX, another exchange, confirmed that it currently has no operations in India and will comply with regulatory requirements globally.
According to YouTuber SMC Kapil Dev, OKX was one of the first foreign crypto exchanges to work with existing compliance requirements and restart KYC for Indian customers. However, OKX did not respond to requests for comment. Indian crypto influencer Aditya Singh noted that most of the crypto exchanges he has spoken with have already responded to the FIU notice and are actively working to resolve the issue. Singh also suggested that the FIU registration for foreign crypto exchanges might begin after the general elections in India conclude in July 2024.