Excerpts from what could be India’s new cryptocurrency bill have been leaked. While local media have made outrageous claims about the details of the bill, industry experts have pointed out numerous flaws and inaccuracies. Meanwhile, the country’s finance secretary has confirmed that the crypto regulation is ready to be submitted to the finance minister for approval.
Indian Cryptocurrency Bill
The Indian government has been working on a regulatory framework for cryptocurrency for over a year. Last week, Finance Secretary Subhash Chandra Garg revealed that the report containing the recommended crypto regulation is ready to be submitted to the finance minister. He heads an interministerial panel tasked with drafting the regulation. The government has not made the details of the report or any draft bill public.
Some Indian news outlets, however, claim to have some knowledge of this cryptocurrency bill. While it is unconfirmed whether the bill they cited is the same one the Garg panel will submit to the finance minister, industry experts have analyzed the excerpts and details of the bill and have shared their analyses.
Two major Indian news outlets have reported that the bill entitled “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019” is the one the Garg panel has proposed. The Economic Times wrote about it on April 26 and Bloombergquint on June 6. However, both publications have been vague about their sources, providing no evidence of the bill’s legitimacy.
The former wrote, “The government has kicked off interministerial consultations on a draft bill to ban cryptocurrencies and regulate official digital currencies.” It cited only “a government official who did not wish to be named” and certain minutes of the interministerial meeting it had reviewed.
The latter publication claims to have accessed the bill and boldly wrote, “India Proposes 10-Year Jail For Cryptocurrency Use…” However, an excerpt of the bill shared by the author of the article suggests that only certain activities are penalized and there is no blanket ban on general cryptocurrency use.
Following his article on Bloombergquint, journalist Nikunj Ohri tweeted excerpts of the bill he claims to be the one proposed by the Garg panel.
One excerpt reads: “Whoever directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of or issues cryptocurrency or any combination thereof with an intent to use it for any of the purposes mentioned in, or directly or indirectly uses cryptocurrency for any of the activities mentioned in clauses (e), (g) and/or (h) of sub-section (1) of Section 8 shall be punishable with fine as may be prescribed by the central government in the first schedule or with imprisonment which shall not be less than one year but which may extend up to ten years, or both…”
Ohri did not share the most crucial part of the bill which details the outlawed activities despite attempts by many people asking for him to do so. “Why not post the entire document when you have it instead of snippets? For all we know, the ‘activities’ mentioned here could be money laundering, etc., which are prohibited when done with INR too,” a Twitter user replied to Ohri’s post.
Tanvi Ratna, a policy analyst and Blockchain Lead at EY who has worked with the Indian government on several projects, also offered her analysis of this bill.
“From this excerpt, you see clearly that it says that, for activities which are listed out in certain clauses of Section 8, there is a proposed punishment of a fine or imprisonment ranging from one year to up to 10 years,” she began. “So clearly, this is a proposed punishment for some specific kind of activity or intent, that is, for example money laundering. Those punishments are typically harsh … so saying that you get imprisoned for up to 10 years for something like money laundering would not actually be very abnormal.” Ratna reiterated:
The first thing to note is that there isn’t really a blanket ban and imprisonment for 10 years that people are making this out to be.
Crypto Assets Undefined
Ratna further pointed out that “the most important section of any kind for blockchain regulation or policy” is missing in the leaked draft bill shared by the Bloombergquint journalist. “The definition of what constitutes the virtual assets,” such as what is getting classified as a security token or a utility token or which aspect this legislation applies, is the bulk of where the issues lie for crypto regulations globally, she opined. Since “the definition section is empty,” she concluded that this particular draft bill is not ready.
90 Days to Dispose of Crypto Assets
According to Bloombergquint, the bill also requires a person holding cryptocurrency to “declare and dispose it within 90 days from the date of commencement of the act.”
Kashif Raza, co-founder of Indian platform for blockchain and crypto regulatory news and analysis Crypto Kanoon, raised many questions regarding this requirement which the government needs to clarify before the bill can progress. Since the country’s central bank, the Reserve Bank of India (RBI), has banned banks from providing services to crypto exchanges, he questioned how the government expects the people to exchange their cryptocurrencies for rupees.
With the banking restriction, he asked if the government would be encouraging people to conduct in-person cash transactions and how anyone would be motivated to buy crypto assets knowing that they will be made illegal after 90 days. Alternatively, he questioned if there will be government agencies appointed to buy people’s cryptocurrencies at market prices. These are some unanswered questions the government will need to clarify if this requirement were to be enforced.
Raza also questioned how this law can be successfully implemented and how the government plans to enforce it and ensure compliance of 5 million registered crypto users in India after 90 days. He continued to question how practical it would be to put young people who embrace new innovations behind bars and what the government plans to do with Dapps startups since many projects have already gotten funds from banks and investors, elaborating:
If they don’t declare, would the government impound electronic devices of more than 5 million investors? … If they declare, would the government offer to redeem their funds as per market price?
Amending the Money Laundering Act
The Bloombergquint article also notes that “The draft bill proposes to amend the Prevention of Money Laundering Act 2002 [PMLA] to include under its purview transactions like mining, holding, generating, selling, transfer and disposal of cryptocurrency.”
This route of regulating cryptocurrency is not a surprising one. Hatim Husain, co-author of the Cambridge University’s Centre for Alternative Finance report entitled “Global Cryptoasset Regulatory Landscape Study,” previously explained to news.Bitcoin.com how this law could apply to cryptocurrencies.
The use of cryptocurrencies may fall under the PMLA, which carries statutory penalties of up to 10 years imprisonment. “It is possible to regulate transactions in cryptocurrencies, if they constitute money laundering, under PMLA Act,” he remarked. “Nevertheless, the effective application of PMLA to illegal transactions in cryptocurrencies is a grey area since it is unclear whether the reporting obligations prescribed under Chapter IV (Obligations of Banking Companies, Financial Institutions and Intermediaries) of PMLA Act would extend to wallet operators or bitcoin exchanges or any third party bitcoin services.”
He believes that an “Amendment to PMLA is certainly a faster process than introducing a new legislation, but has to meet the rigours of parliamentary approvals in any case,” emphasizing:
Further clarity (by way of amendment or otherwise) is indeed required before the government can effectively regulate illegal cryptocurrency transactions under PMLA.
More Reasons Not to Panic
The Indian crypto community has urged the public not to panic and read media reports with a grain of salt. Raza has shared a number of reasons why the public should stay calm. Firstly, he said that there is very little information about the bill and one cannot understand the bill on the basis of just a few lines posted on Twitter.
Secondly, he explained that there are two kinds of draft bills, private and public, and it is not clear which type of bill this is. Private bills can be prepared and introduced by any member of parliament, whereas public bills have to be introduced by a minister such as the finance minister. He further noted that the latter has a higher chance of getting approved in Lok Sabha, adding:
[The] bill is just a recommendation which may be rejected by the government.
Raza reiterated that this is just a legislative proposal which has yet to be approved, presented and converted into an act. If a bill is passed in Lok Sabha, it will need to be approved in Rajya Sabha and then by the president. Even if the bill is approved by all, he said that its constitutional validity can still be challenged by anyone.
EY’s Ratna clarified that the Garg committee is authorized to prepare a report, provide a set of recommendations regarding India’s crypto regulation, and even draft a bill which ministries are allowed to do. However, the bill will not automatically become law as it needs to go to the finance minister and to parliament to be voted on. Emphasizing that “there is no guarantee that this is the final draft,” the Blockchain Lead revealed that there was a bill “made by a bunch of research assistants who were working with the Minister of Finance and that’s been floating around for a while between departments and there’s not been any action on it.”
Raza similarly suggested that this bill could be an old draft bill that had already been rejected by the government and replaced by a different bill. The media may have gotten a hold of this rejected bill and reported it as the current bill.
RBI Knows Nothing of This Bill
There are discrepancies in the claims made by the authors of both articles. One major such discrepancy concerns the involvement of India’s central bank in drafting this bill.
The Indian government has previously confirmed that the RBI is part of the Garg panel. However, in its reply to a Right to Information (RTI) request filed by Blockchain Lawyer founder Varun Sethi, the RBI denied having knowledge of this bill. Sethi filed the RTI on May 7 and received a reply on June 4. He commented, “RBI has actually stated that they have not received any communication from any department and they have also not given any communication to any government department pertaining to [the] drafting of this bill and this is very surprising,” elaborating:
RBI did not actually propose any ban on crypto assets … [We also asked] did anyone else also propose these things to RBI … RBI said no.
In addition, the Bloombergquint article claims that the bill proposes creating a digital rupee to be legal tender and “would be governed by regulations that will be notified by the central bank under relevant provisions of RBI Act, 1934.” It further states that “The draft bill also grants power to the RBI to notify any official foreign digital currency to be recognised as a foreign currency in India.” If the bill is legitimate, then all these proposals were made without involving the central bank.
India Participates in G20 Crypto Discussions
As speculation grows over what the bill entails, India’s new finance minister, who will soon receive the real crypto bill from the Garg panel, was busy discussing various issues with her counterparts from other G20 countries. Nirmala Sitharaman, formerly the country’s defense minister, succeeded Arun Jaitley on May 31.
The G20 Finance Ministers and Central Bank Governors Meeting was held on June 8-9 in the Japanese city of Fukuoka, ahead of the G20 summit which will take place on June 28 and 29. After several discussions regarding crypto assets, the G20, including India, issued a joint statement confirming that it will follow the standards set by the Financial Action Task Force whose new guidance on crypto assets is expected later this month. The G20 also welcomed work done by the Financial Stability Board (FSB) and the International Organization of Securities Commissions on crypto trading platforms.
The Indian government has cited the opinion of the FSB several times such as in the central bank’s “Report on Trend and Progress of Banking in India 2017-18” published in December last year. A recent FSB report submitted to the G20 meeting over the weekend reaffirms: “To date, the FSB continues to assess that crypto-assets do not pose material risks to global financial stability at present, but that they do raise a number of further policy issues beyond financial stability.”
In addition, the supreme court is expected to hear the crypto case on July 23. Until then, the Indian crypto community has urged everyone to wait for the official announcement by the government without jumping to conclusions.
Do you think this bill is legitimate? Let us know in the comments section below.
Images courtesy of Shutterstock, Bloombergquint, Nikunj Ohri, and the Japanese government.