One of the most prominent questions regarding Bitcoins is whether use and dealing in Bitcoins is legal or illegal in India? The legal framework regarding use of Bitcoins in India is still evolving. Although there is no clear cut law pertaining to use of Bitcoins in India yet other laws can be applied to the use and dealing of Bitcoins in India.
For instance, some regulatory guidance regarding Bitcoins can be obtained from the Indian virtual currency schemed issued by RBI. Nevertheless, Bitcoins, their functionality and legality of use in India is still a grey area. The Information Technology Act, 2000 (IT Act 2000) is the cyber law of India that governs the online acts or missions in the Indian cyberspace. The IT Act 2000 prescribes cyber law due diligence in India and the Internet intermediary liability in India. These cyber laws due diligence and Internet Intermediary requirements squarely apply to use of Bitcoins in India.
The regulatory mood in this regard seems to be stringent in nature. For instance, fraudulent multi level marketing companies’ regulation in India is contemplated by Indian government. Similarly, blocking of multi level marketing (MLM) companies website in India has also been proposed. RBI Governor Duvvuri Subbarao has also stressed upon a need to take steps against money laundering in India.
Now Business Standard has reported that as Bitcoin becomes more popular day by day, regulators are getting worried about potential money laundering risks associated with this digital currency and its possible misuse by fraudsters to lure gullible investors into “e-ponzi” schemes. It is posing all possible questions to regulators in India i.e. whether to regulate it or not, who should do it, what should be the norms, how to regulate etc.
Those looking at this new phenomenon include almost all financial sector regulators as also agencies mandated to handle economic crimes, such as RBI, SEBI and various agencies under the Finance Ministry, a senior official said. When contacted, an RBI spokesperson said, “As of now we don’t regulate Bitcoins, but are observing developments.”
While regulators are tight-lipped about their plan of action, a senior official said that one possible way forward can be following the US, where authorities have decided to subject Bitcoins to money laundering rules applicable to all other financial transactions in the country.
Regulators are also looking into claims being made by some entities of being registered Bitcoin exchange providers, although they might have merely registered as a company with the Registrar of Companies with some generic business purposes.
Sources said that regulatory and enforcement authorities here are very much concerned about potential money laundering risks emanating from growing use of Bitcoins. To make the things worse, this virtual currency has become the latest tool adopted by fraudsters who are promoting Bitcoins as the next big investment products with unlimited returns. A few complaints have already poured in about Bitcoins being used by some operators in certain new-age and e-versions of multi-level marketing or ponzi schemes. Regulators fear that this new phenomenon can give rise to a new kind of illegal investment schemes that could be very difficult to track and clamp down. This is because there is almost zero physical activity when dealing in Bitcoins and nearly all transactions take place in the electronic format.
Being an “open source” product, Bitcoin can be mined by anyone through a complex computer software through solutions shared on an entire network, although the process is complex and such “mining” can be done only on very powerful computers.
Even in India few significant players offering Bitcoin exchange service online in lieu of rupee or other currencies have merged. However, they are incurring “great legal risks” as in their zest to earn profit they are violating the laws of India. These Bitcoins entrepreneurs must comply with techno legal requirements otherwise they can be prosecuted both civilly and criminally.