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Q: The inclusion of ‘virtual digital assets’ in the Prevention of Money-laundering Act 2002 is a positive step, but there are significant challenges in implementing the same. Comment (15 Marks, 250 Words)
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Virtual Digital Asset (VDA) refers to any information, code, number, or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise and can be called by whatever name.
It can be transferred, stored, or traded electronically. The finance ministry has added the activities related to Virtual Digital Assets (VDA) and Crypto currency under the PMLA Act.
Positives of the decision:
· According to a report by blockchain analytics firm Chainalysis, illegal use of cryptocurrencies hit a record $20.1 billion. Bringing under the PLMA will help in preventing the misuse.
· Extending regulation to virtual digital assets provides VDA platforms with a framework to diligently monitor and take actions against malpractices.
· A standardization of such norms will go a long way in making the Indian virtual digital assets sector transparent.
· It will also build confidence and assurance in the ecosystem and give the government more oversight on virtual digital asset transactions, which will be a win-win for all.
Challenges in implementation:
· There is a concern that without a central regulator, VDA entities could end up dealing directly with enforcement agencies, like ED (Enforcement Director).
· Owing to current tax regime, many Indian VDA users have already switched from domestic exchanges to foreign counterparts, causing a decrease in tax revenues and transaction traceability. This could also discourage international investors and result in capital outflow.
· The step goes towards regulation, rather than RBI advocacy for banning these digital assets.
· As there is multiplicity of regulations across the globe and transactions are across borders, the implementation will be arduous task.
· Being based on blockchain platform, tracking of these transactions can be extremely challenging.
With over 10 crore people involved in VDA transactions, there is a need for greater clarity related to these assets and a nudge for global cooperation on framing common guidelines for better regulation these assets.