Binance to restart operations in India as compliant FIU-registered entity

Binance, the world’s largest cryptocurrency exchange that was banned by the government in January, is poised to return to India by paying a penalty of about $2 million, people aware of the developments told ET.

The crypto exchange will come back as an entity registered with the Financial Intelligence Unit (FIU) of the finance ministry, they added. FIU is tasked with oversight of trade in virtual digital assets (VDA). Binance will comply with all applicable laws, including the Prevention of Money Laundering Act (PMLA) as well as the VDA taxation framework, “which it had been sloppily flouting until now”, said one person cited above.

Officials aware of the matter said India’s stance “has always been clear to all global cryptocurrency exchanges — comply with all laws to continue operating in India”.

It is “unfortunate that it took (Binance) more than two years to realise there is no room for negotiations, and (that) no global powerhouse can command special treatment, especially at the cost of exposing the country’s financial system to vulnerabilities,” said one person cited above.

However, the official did not confirm the penalty amount of $2 million, or the calculations behind it. ET’s queries to Binance remained unanswered until press time on Wednesday.

Binance is the world’s largest crypto exchange, in terms of both asset holdings and daily trade volume. According to CoinMarketCap, it recorded a trade volume of $22 billion in the previous 24 hours (ending 7 pm IST on Wednesday), which is 25% of the global volume. In January, Binance was among nine offshore cryptocurrency platforms to be prohibited from operating in India through web addresses and mobile applications. The government’s action was in response to the platforms’ failure to comply with FIU and PMLA guidelines.

Tax leaks

Before it was banned, Binance accounted for nearly 90% of the estimated $4-billion crypto holdings of Indian nationals. The platform’s market dominance is mainly attributed to its non-compliance with tax laws, which allowed investors to trade without paying the 1% tax deducted at source (TDS) applicable on registered exchanges. Manhar Garegrat, India head at crypto custody solutions provider Liminal, said Binance’s re-entry must be considered a win, which will bring maturity to the crypto industry, with global companies investing in India. “However, it must be kept in mind that all exchanges are now on a levelplaying field, where there is no evasion of taxes. User acquisition and retention will be a different ball game altogether,” he added.

Subsequent to the ban on Binance, a significant chunk of Indian crypto investors moved their holdings to Indian exchanges, including the likes of CoinDCX, WazirX, which reported inflows growing by as much as 2,000% week-on-week. Typically, global crypto exchanges that do not have a registered entity in India were also causing hefty tax leakage of nearly Rs 3,000 crore every year to the exchequer, according to research by think tank Esya Centre. Executives in the cryptocurrency industry also pointed to Binance’s reluctance to open its trades for scrutiny, for fear that this would take away big-ticket investments.

Growing compliance

The crypto major’s acquiescence to now operate as a fully-compliant entity marks a significant turnaround. “I think the bigger win here is getting an entity like Binance to agree and comply with Indian laws, and participate in the country’s financial monitoring system by reporting to the law enforcement agencies,” said a senior executive at an Indian cryptocurrency exchange.

Binance will be the second offshore exchange to register in India after Seychelles-based Kucoin announced FIU compliance last month, following which the ban on its website was lifted. Kucoin said that by registering, it “is setting a precedent for a more inclusive, secure and regulated cryptocurrency landscape in India.”

Market leaders believe Binance’s return could upend the market dynamics, as it brings superior technology and larger liquidity than Indian exchanges. It is re-entering India at a time when popular currencies such as bitcoin and ethereum are breaching all-time highs.

Financial regulators in the likes of the US, the UK and Hong Kong have started approving crypto-backed securities for trade in traditional financial markets. Binance plans to offer localised payment solutions, build a dedicated India team and invest further in the country’s blockchain system.

According to its official website, it operates in more than 100 geographies. It has significant operations in Seychelles, Malta, Cayman Islands and Singapore. It does not list any specific headquarters.

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