Binance Faces Record Fine in India for AML Non-Compliance

India’s Financial Intelligence Unit has imposed a record fine of $2.2M on Binance for failing to comply with local AML regulations. This marks the highest penalty ever levied on a crypto entity in India. It also highlights the increasing regulatory scrutiny on cryptocurrency exchanges worldwide.

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Update from FIU – India 🇮🇳:

🚨 FIU imposed penalty of ₹18.82 Crores on Binance ($2.25 million)

✅Reasons for imposing Penalty:

1️⃣ Principal officer details not provided to FIU
2️⃣ No mechanism to detect suspicious transactions (ST)
3️⃣ Not informing FIU of ST pic.twitter.com/Akh8AJJsQ9

— CA Sonu Jain (Crypto Tax Expert) (@TheWeb3CA) June 20, 2024

Non-Compliance Issues

The penalty stems from Binance’s failure to provide the required principal officer details. Further, it originates from insufficient mechanisms to detect and report suspicious transactions. As a Virtual Digital Asset Service Provider (VDA SP), Binance is deemed a Reporting Entity under Section 2 of the Prevention of Money Laundering Act (PMLA), 2002. The FIU’s investigation concluded that Binance did not fulfill its statutory obligations. This led to a Notice issued on December 28, 2023, under Section 13 of the PMLA. Binance was called to account for its dereliction of duties despite its status as a Reporting Entity.

The FIU’s decision was based on multiple violations by Binance. These included contraventions of Section 12(1) of the PMLA, read with Rules 7(1), 3(1)(D), and 7(3) of the PML Rules, as well as Rule 8(2). These regulations are designed to ensure that entities like Binance have robust mechanisms in place to prevent money laundering and terrorism financing. The absence of such mechanisms raised significant concerns about the potential for misuse of the platform.

Record Penalty and Compliance Requirements

After reviewing Binance’s submissions, the FIU-IND Director determined that the charges were substantiated. However, under Section 13 of the PMLA, the Director exercised powers to impose the unprecedented fine of Rs 18.82 crore. 

Binance has completed its initial registration with the FIU and is expected to ensure diligent compliance with all outlined obligations. Specific directions have also been issued to Binance to ensure compliance with the obligations. This includes maintaining accurate records, reporting suspicious transactions, and ensuring appropriate internal controls are in place.

Global Regulatory Challenges

This fine comes just two weeks after the EEA announced new regulations under the Markets in Crypto-Assets (MiCA) framework. Binance plans to implement changes to comply with these regulations, impacting trading and rewards on its platform. Only regulated companies will be permitted to issue and offer stablecoins, with many existing stablecoins designated as unauthorized.

Additionally, Binance has filed an appeal against a $4.4 million penalty imposed by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Notably, Binance contends that it has no presence in Canada and its services do not specifically target Canadian residents. The exchange had previously planned to establish operations in Canada but exited the market in May 2023 due to regulatory concerns and investor restrictions. At the time, Binance emphasized the importance of the Canadian market, noting that it is the home country of Changpeng Zhao, the founder of Binance.

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Disclaimer: Cryptocurrency is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.