India's Efforts Against Offshore Virtual Asset Service Providers (oVASPs)

Creation of Indigenous Virtual Asset Lab

India is developing an indigenous Virtual Asset Lab aimed at detecting unregistered and high-risk offshore virtual asset service providers using analytics and web surveillance tools.

FATF Report Insights

A Financial Action Task Force (FATF) report titled 'Understanding and Mitigating the Risks of Offshore Virtual Asset Service Providers' includes case studies from India and other countries on the use and regulation of oVASPs.

• India has directed intermediaries to take down content related to unregistered oVASPs, leading to the removal of 85 URLs.
• FIU-India takes supervisory actions against VASPs raising red flags, requiring compliance or cessation of operations.

India's Regulatory Actions

India has introduced a virtual asset tax regime, impacting trading behavior:

• A 1% tax for VA transfers to be deducted at source has been implemented.
• Significant traffic has shifted from Indian onshore VASPs to offshore unregistered VASPs.

Challenges with Offshore VASPs

Offshore VASPs are required to register in India but often provide services without complying with Indian regulations:

• They onboard Indian customers with minimal KYC requirements and enable transactions using domestic payment channels.
• These activities circumvent India's regulatory perimeter.

Coordination and Regulatory Measures

India has established a Virtual Assets Contact Sub-Group to coordinate approaches to VASP-related risks:

• The platform includes law enforcement, intelligence agencies, and regulators for risk identification and strategy formulation.

Additionally, FIU-India has set up a working group to develop Red Flag Indicators, designating FIU-IND as the money laundering regulator for Virtual Digital Asset Service Providers in India.