Crypto and Money Laundering in India: Summary of Advocate Dalmia’s interview by Crypto Kanoon

Kashif Raza or better known as the face of India’s Crypto News and Policy Discussion platform Crypto Kanoon interviewed Advocate Vijay Dalmia about Money Laundering and Crypto’s role in it. Mr. Dalmia is a partner in a reputed law firm Vaish Associates and founder of moneylaundering.legal.

Advocate Dalmia comes with 30+ years of experience in court trials and deals with cases relating to prosecution under the Income Tax Act, 1961, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Money Laundering Act, economic offences and white collar crimes.

He is also the first person to file a PIL (Public Interest Litigation) in the Supreme Court seeking that crypto currencies and all the platforms including mobile applications, websites etc. used for sale and purchase of crypto, be declared as illegal. But this was back in November 2017, a lot of things have changed since then.

We are trying to summarise the entire 31 minute video into this article for our readers. So let us begin with the major topics of discussion.

What is Money Laundering?

The prime issue discussed in the video was that of money laundering and its relation to Bitcoin. Mr Dalmia explained the concept of money laundering in the most simple terms. “Converting or changing the colour or money” i.e from black to white by any means.

According to Mr. Dalmia, money laundering is not an independent crime. Procuring money through illegal means like bribe or other under the table acts is the first crime, so far a procurer has not committed Money laundering. The next step is using that illegally procured money for legal purpose like that of buying a flat, investing in shares or any other method thereby converting it into a legal asset. This act will fall under money laundering.

For example: a person takes a bribe or ransom after kidnapping and uses that money to buy a house. Such a person is therefore using illegally procured money in legal ways. Such an act is termed as money laundering. Basically converting black money to white. 

The Relation of Crypto and Money Laundering

The duo then went on to discuss how money laundering is related to Bitcoin. In today’s technology dominated world, cash is being used less and hence Bitcoin or other cryptocurrencies becomes the best way to procure bribe or to carry out any under the table act.

This in fact has been the primary reason for the bad reputation of Bitcoin and crypto currencies in general.

Due to countless Ponzi schemes, a lot of crypto investors have lost money. However, the mere act of cheating people to make a quick buck is not money laundering but what you do with that money is more important. As said before, unless the money is spent to convert to a legal asset, it isn’t money laundering.

According to Mr. Dalmia, the Enforcement Directorate (ED) deals with such Ponzi scheme makers . This department has immense powers that can restrict the basic functions of people in the economy. Hence once caught, the person will not only be sentenced 7 years of imprisonment but his wealth will be confiscated.

Is Crypto to Crypto Trading Legal?

Raza then goes on to ask Mr. Dalmia whether crypto to crypto trade is legal or that falls under money laundering as well. Mr. Dalmia explains that it matters how the crypto is procured. If it was procured using money that was reported to Income Tax department, aka white money, crypto to crypto trading and holding the funds in an exchange or a wallet is not a concern.

Does transferring Crypto to Foreign Exchange violate FEMA?

You can take 2.5 lakh USD worth of currency out of India under the Foreign Exchange Management Act (FEMA), but the purpose is specified in the guidelines. You can travel, buy consumer goods, etc from that money, however buying crypto becomes a tricky prospect according to Mr. Dalmia.

INR is not an acceptable currency world over like the USD, GBP or JPY. You need to convert INR to another acceptable currency which is processed by your bank. Once it goes via banking channel you must specify the purpose and it is likely your Crypto purchase is not a valid purpose for conversion.

However, carrying the crypto currency or assets in wallets or exchanges to another country and not using it, will not be considered illegal, said Mr. Dalmia.

Punishment for Money Laundering

As mentioned earlier, money Laundering is not an independent crime. Hence you will be first charged for the original crime like bribery and then charged for money laundering when the acquired money is converted into white money by any means.

Once caught, a money launderer can be jailed for seven years in addition to the Enforcement Directorate attaching and seizing all the property and money the person holds.

Receiving Salary in Crypto Currency

A lot of people receive salary in the form of crypto currency. The next question raised was is such a salary deemed illegal? Well, NO it’s not. When a person receives salary due to a contract, it’s not necessary that it will be in the form of money or currency only. In such a situation, the recipient must declare the crypto and convert the coming into fiat money through the bank. Therefore you will be converting the money in legal manner and then can use it in any manner says Mr. Dalmia.

The same holds true for any P2P or exchange to exchange barter of crypto currency. As long as it remains in the exchange and sourced with legitimate money it’s all legal. Incase there is a need to use it like money then one must convert it to fiat money and declare that to Income Tax department.

What happens when we convert crypto to fiat money, is it taxable? Yes, it is. However, Mr Dalmia is of the opinion that one does not have to pay tax on Crypto to Crypto conversion.

Can Government Ban or Regulate Crypto?

When asked about the recent push of banning or regulation of crypto currencies by the government, Mr. Dalmia said that certain points must be taken into consideration.

For starters, he said, dissatisfaction will always remain, whether it is regulated or banned, someone is going to be unhappy. However, at this point in time the government doesn’t have the powers or a powerful body to man the such technology driven transactions. Therefore controlling crypto currency is an impossible task for them. Due to this it’s almost certain that they’ll ban what they can’t control.

Can’t be Banned under Prevention of Money Laundering Act

Crypto currencies as such cannot be completely banned without the needed laws and circulars from the government and RBI , however what they can ban is the private money earned though it. Money Laundering Act is itself cannot ban the use of cryptocurrencies, but if a scheme is used to lure investors into a ponzi like structure, that money can be confiscated and the persons behind it may be prosecuted.

The technology of cryptocurrency of ledgering transaction is great and must be capitalised but the coins used for Ponzi schemes is what must be targeted, says Mr. Dalmia.

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We tried to summarise the crux of the video into this article for the English speaking viewers as well as those who prefer writing. It is only a matter of time before Crypto Kanoon launches its own blogs, but until then, we are here to spread the information to whoever we can. So please go ahead and share this article and the video with everyone you know.

With Inputs from Chaitali Gursahani

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