India’s Financial Intelligence Unit Imposes $2.25 Million Fine on Binance for AML Violations

India’s Financial Intelligence Unit (FIU-IND) has taken decisive action against Binance, the world’s largest cryptocurrency exchange, by imposing a substantial fine of 188.2 million Indian Rupees ($2.25 million) for violations of the country’s anti-money laundering (AML) regulations. This penalty, announced on June 19, 2024, marks a significant development in India’s ongoing efforts to regulate the cryptocurrency sector and enforce compliance with its financial laws.

The fine comes in response to Binance’s operations as a Virtual Digital Asset Service Provider (VDA SP) in India without adhering to the statutory obligations outlined in the Prevention of Money Laundering Act (PMLA) of 2002. Under the PMLA, VDA SPs are classified as Reporting Entities, which are required to maintain and report transaction records and implement robust AML measures.

The FIU-IND’s investigation revealed multiple contraventions by Binance, including:

  1. Failure to maintain and report transaction records as mandated by Section 12(1) of the PMLA and associated rules.
  2. Non-compliance with furnishing required information to authorities.
  3. Inadequate preservation of records as stipulated by the PMLA.

The regulatory action against Binance began in December 2023 when the FIU-IND issued a notice compelling the exchange to justify why appropriate action should not be taken against it for its non-compliance. After reviewing written and oral submissions from Binance’s representatives, including entities from the Seychelles, Cayman Islands, and Switzerland, the FIU-IND found the charges against Binance to be substantiated.

This fine is part of a broader regulatory landscape that has seen increased scrutiny of cryptocurrency exchanges operating in India. In January 2024, Indian authorities issued show-cause notices to several offshore cryptocurrency exchanges, including Binance, banning them from operating in the country for “operating illegally.” However, in May 2024, Binance, along with KuCoin, became the first offshore crypto-related entities to receive conditional approval from the FIU-IND, subject to paying a penalty after a hearing.

The regulatory action in India aligns with global trends of increased oversight of cryptocurrency exchanges. In May 2024, Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC) imposed a $4.4 million administrative monetary penalty on Binance for failing to register as a foreign money services business and report large digital currency transactions. Binance has appealed this decision.

Binance’s challenges in India come at a time when the country’s cryptocurrency industry is facing significant headwinds. The Indian government’s introduction of a 30% tax on crypto earnings and a 1% tax deducted at source (TDS) on every trade in 2022 has led to a dramatic 90% decrease in daily average trades on major local exchanges.

The exchange has acknowledged the FIU’s order and stated that it is reviewing the decision to determine its next steps. Binance expressed its desire to work with the FIU as a reporting entity and its enthusiasm for potentially re-entering the Indian market, emphasizing its commitment to maintaining transparency, fostering cooperation, and ensuring compliance with regulatory authorities.