Virtual Digital Asset Service Providers under PMLA: India’s AML Duties for Crypto Businesses

India brought specified virtual digital asset activities within the PMLA reporting framework through the Central Government notification of 7 March 2023. The focus is functional: an entity conducting covered VDA activity in or from India may be subject to Indian AML obligations even if its incorporation or technical infrastructure is abroad.

Covered activities

The notification addresses exchange between VDAs and fiat currency, exchange between one or more forms of VDA, transfer of VDAs, safekeeping or administration of VDAs or instruments enabling control, and participation in or provision of financial services related to an issuer’s offer and sale of a VDA.

Registration and governance

Covered service providers must register with FIU-IND and comply with the current registration circulars. They require a Designated Director and Principal Officer, an enterprise AML/CFT/CPF programme, risk assessment, independent review, training, sanctions controls and reporting mechanisms.

KYC and beneficial ownership

Providers must identify clients and beneficial owners, understand the purpose of the relationship and apply enhanced measures to higher-risk customers, products, geographies and transaction patterns. Pseudonymous blockchain addresses do not replace customer identification.

Transaction monitoring

Effective monitoring combines on-chain and off-chain information. Relevant indicators may include rapid chain-hopping, mixers, exposure to sanctioned addresses, structuring, mule accounts, unexplained peer-to-peer flows, high-risk jurisdictions and activity inconsistent with the customer profile. A blockchain alert is a starting point for analysis, not automatic proof of crime.

Travel Rule, reports and records

Current FIU-IND VDA guidelines require prescribed originator and beneficiary information to accompany qualifying transfers under the Travel Rule framework. Suspicious transactions must be reported without tipping off the customer. Transaction records must support reconstruction and ordinarily be retained for five years; customer records continue for the statutory period after the relationship ends.

Foreign platforms

Offshore status does not necessarily remove obligations where services are offered in India. FIU-IND’s registration and enforcement approach looks to activity in or from India. Platforms should assess localization, access, marketing, rupee interfaces and Indian users rather than rely solely on place of incorporation.

VDA compliance is now an operational licensing reality: traceability, governance and FIU registration are essential to lawful market access.

Sources

Ministry of Finance notification S.O. 1072(E), 7 March 2023.

FIU-IND, Updated AML & CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets, 8 January 2026: https://fiuindia.gov.in/pdfs/downloads/VDA08012026.pdf

FIU-IND downloads and registration circulars: https://fiuindia.gov.in/files/Downloads/Downloads.html

Prevention of Money-Laundering Act, 2002: https://www.indiacode.nic.in/handle/123456789/15402

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