Monthly Archives: December 2013

RBI Cautions Users Of Virtual Currencies Against Risks

RBI Cautions Users Of Virtual Currencies Against RisksThe legality of Bitcoins in India is an area that has been vexing many stakeholders. The Reserve Bank of India (RBI) was contemplating to issue a public advisory to warn against potential risks of Bitcoins in India. As per the press release, RBI cautioned users of virtual currencies against risks of use of Bitcoins in India. The advisory of RBI is in conformity with the views expressed by Perry4Law so far.

RBI has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.

In its cautionary advice, the Reserve Bank has been mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard.

The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities. As such, they may pose several risks to their users, including the following:

(1) VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.

(2) Payments by VCs, such as, Bitcoins take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc.

(3) There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.

(4) It is reported that VCs, such as, Bitcoins are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.

(5) There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.

Norway Says Bitcoins Does Not Qualify As Real Money

Norway Says Bitcoins Does Not Qualify As Real MoneBitcoins and its legality are still evolving. However, the mood of majority of countries and regulatory authorities around the world is to restrict the open and unregulated use of Bitcoins.

For instance, Thailand has already banned Bitcoins. The People’s Bank of China (PBC) has warned financial institutions that they should be “on guard” against the use of Bitcoins because of risks of fraud and money laundering. The France’s central bank has warned against the use of the virtual currency Bitcoin, noting that it is not only highly volatile but also unregulated by authorities. Even India is planning to issue a public advisory against use of Bitcoins in India.

Now Bloomberg has reported that the government of Norway said the virtual currency doesn’t qualify as real money.  “Bitcoins don’t fall under the usual definition of money or currency,” Hans Christian Holte, director general of taxation in Norway, said in an interview. “We’ve done some assessments on what’s the right and sound way to handle this in the tax system.”  Norway will instead treat Bitcoins as an asset and charge a capital gains tax, after Germany in August said it will impose a levy on the virtual currency.

The European Banking Authority (EBA) has also released a warning on the risks of using unregulated digital money that is susceptible to hackers. “Cases have been reported of consumers losing significant amounts of virtual currency with little prospect of having it returned,” the EBA said in a statement on its website. “When using virtual currency for commercial transactions, consumers are not protected by any refund rights under EU law.”

Public Advisory To Warn Against Potential Risks Of Bitcoins In India To Be Issued By Indian Government Soon

Public Advisory To Warn Against Potential Risks Of Bitcoins In India To Be Issued By Indian Government SoonIndia lacks insight and ingenuity when it comes to dealing with novel problems. It always tries to adopt other’s plans and efforts to solve its problems. This is many cases bring absurd results. The latest in this series was the issue pertaining to legality of Bitcoins in India. India waited for other nations to take the lead and take a stand before it can regulate or govern Bitcoins in India.

Meanwhile, China, France, Thailand, etc have either regulated the use of Bitcoins or they have completely banned them in their jurisdictions. But the Reserve Bank of India (RBI) and Indian government kept on sleeping over the issue. Meanwhile, Bitcoins frauds and crimes are increasing world over, including in India.

The Indian approach towards Bitcoins is not at all conducive for national interest and Indian government must urgently regulate Bitcoins in India as soon as possible. Perry4Law and Perry4Law’s Techno Legal Base (PTLB) have been stressing upon the need to regulate Bitcoins in India for long.

Now media reports have confirmed that Indian authorities may soon issue a public advisory to warn against potential risks associated with this new digital currency concept. We at Perry4Law and PTLB welcome this move of Indian government.

International Regulatory Framework For Internet Governance And Indian Perspective And Approach

International Regulatory Framework For Internet Governance And Indian Perspective And ApproachInternet governance is a complicated international issue that required international support and coordination to resolve. While United States has an inherent interest in retaining as much control over Internet as possible yet international community is more eager to make the Internet decentralised and internationally regulated.

According to Wikipedia, Internet governance is the development and application of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the Internet.

The recent e-surveillance exercises of National Security Agency (NSA) of United States have shaken the faith and trust of world community at large. James Clapper has also admitted that NSA is targeting foreign citizens for surveillance.

Reacting sharply, the United Nations (UN) Third Committee approved text titled Right to Privacy in the Digital Age. United Nations (UN) has approved the United Nations (UN) Draft Resolution on the Right to Privacy in the Digital Age- Final Version (PDF). It is different from the Original United Nations (UN) Draft Resolution on the Right to Privacy in the Digital Age (PDF). This has happened as United States objected to the original Resolution and UN removed the relationship between Human Rights Violations in Cyberspace and e-surveillance exercises by various nations. This change of language breaks the link between extraterritorial surveillance and human rights violations.

Nevertheless countries are not comfortable with the control of United States over the Internet through root servers and domain name infrastructure. The Hindu has reported in view of its growing cyber security concerns, India has decided to challenge the U.S. government’s control over the Internet and ensure that the trio of the U.S., Russia and China does not ignore India’s concerns while developing an international regime for Internet governance.  India will also push for storing all Internet data within the country, besides ensuring control and management of servers.

India has also been stressing that Internet telephony and VOIP service providers must establish servers in India. Besides issues like e-surveillance and conflict of laws have also forced India to exert more control over its cyberspace. However, India must ensure techno legal measures to regulate Indian cyberspace. Further, domain name protection in India must be free from ICANN’s influence as ICANN is not helping in enforcement of Indian laws at all.

“The control of Internet was in the hands of the U.S. government and the key levers relating to its management was dominated by its security agencies…Mere location of root servers in India would not serve any purpose unless we were also allowed a role in their control and management. We should insist that data of all domain names originating from India…should be stored in India. Similarly, all traffic originating/landing in India should be stored in India,” says an internal note prepared after the meeting of Sub-Committee on International Cooperation on Cyber Security under the National Security Council Secretariat (NSCS). Notably, the key function of domain name system (DNS) management today is in the hands of the U.S. National Telecommunication and Information Administration and the Department of Commerce. Though after persistently putting pressure on companies, India managed to get root servers installed in the country, it wants a say in management of these servers. India is also seeking a key role in policy making on Internet governance at the international level, said a senior government official engaged in India’s cyber security preparedness.

“It was important that management and control of the DNS should be supervised by a ‘Board’ consisting of technical experts nominated by governments and India should be represented on this Board. We should seek a larger determinate role for the GAC [Government Advisory Committee] in ICANN [Internet Corporation for Assigned Names and Number] a U.S.-based non-profit organisation that coordinates global Internet systems, which we should be effectively represented,” the note adds.

Significantly, under the ‘Affirmation of Commitments’ between the ICANN and the U.S. Department of Commerce, the ICANN committed that it would not shift outside of the U.S. without the concurrence of the U.S. government and the process of Internet management would be led by private sector. At the meeting, held last month and headed by Deputy National Security Advisor and NSCS Secretary Nehchal Sandhu, it was decided that the Ministry of External Affairs along with the Department of Electronic and Information Technology (DEITy) and the NSCS, will develop a position paper, highlighting India’s concerns regarding representation and management control in the Internet governance domain.

India is also concerned about the proximity of the U.S., Russia and China while deciding on issue of Internet governance. “There was a possibility that the U.S., Russia and China may work out an arrangement that met their concerns and this arrangement was thereafter forced upon other countries. We need to guard against this possibility and ensure that India’s concerns were also accommodated in whatever international regime for Internet governance that ultimately emerged,” the note adds. Notably, today India has third largest Internet users in the world at over 15 crore, only after China (56 crore) and the U.S. (25 crore).

Similarly, India has also decided to favour a pre-dominantly multilateral approach on issues related to Internet governance rather than multi-stakeholder approach which is mainly being advocated by the West. “India feels that the very term multi-stakeholder was something of a ‘misnomer’. A small unrepresentative group of certain individuals, supported by vested interests, appear to have arrogated themselves the right to present certain views in discussions relating to Internet governance. It was not clear as to who they represent and whether who they claimed to represent had in fact nominated them. These persons undermine the positions of the government and were really spokespersons of certain Western interests,” the note says.

After China Now French Central Bank Warns Of Bitcoin Risks

1606-83923The process of regulation of Bitcoins around the world has started. Initially, Thailand banned use and dealing of Bitcoins in its jurisdictions. Then the People’s Bank of China (PBC) warned financial institutions against risks of fraud and money laundering due to use of Bitcoins.

Now it has been reported by TOI that the France’s central bank has warned against the use of the virtual currency Bitcoin, noting that it is not only highly volatile but also unregulated by authorities.

It seems the central banks around the world are now coming against the use of Bitcoins. However, the Reserve Bank of India (RBI) is still sleeping over the issue despite increase in illegal use of Bitcoins in India. The Indian approach towards Bitcoins is not at all conducive for national interest and Indian government must urgently regulate Bitcoins in India as soon as possible.

The Bank of France is skeptical about the currency, and underlined that the “highly speculative” currency poses a “certain financial risk” to users. “Even if the high volatility of the Bitcoin is of possible interest for individual or professional speculators, they should be aware of the risks they are taking,” the bank said. In addition, there are no official security guarantees for the electronic safes which store the virtual currency, making the user vulnerable to cyber attacks. Further, the convertibility of Bitcoin is not ensured and an investor could be unable to regain his investment.

The central bank noted that if a currency is to be used as a mode of payment, it should meet rules against money laundering, and its security platform should be monitored by the Bank of France. Nevertheless, the bank has no oversight of Bitcoin, and urged instead for action to prevent the virtual currency from being used in illegal transactions.

It is high time for Indian government and RBI to do needful in this regard.

People’s Bank of China (PBC) Warned Financial Institutions Against Risks Of Fraud And Money Laundering Due To Use Of Bitcoins

People's Bank of China (PBC) Warned Financial Institutions Against Risks Of Fraud And Money Laundering Due To Use Of BitcoinsReserve Bank of India (RBI) has the statutory obligation to maintain financial stability and currency legitimacy in India. However, RBI is failing in this statutory obligation by leaving the Bitcoins unregulated and allowing them to be used as an alternative to Indian currency. The illegal use of Bitcoins is increasing and RBI is not doing anything in this regard.

It seems the Indian approach toward Bitcoins is of indifference rather than of concern. Thailand has recently banned use and dealing of Bitcoins in its jurisdictions. Now even the People’s Bank of China (PBC) has warned financial institutions that they should be “on guard” against the use of Bitcoins because of risks of fraud and money laundering. RBI, on the other hand, is not fulfilling its statutory duties in this regard. As a result Bitcoins are used in India for multiple purposes including conducting medical and surgical abortions in India.

As per RT, PBC has issued a joint statement along with five other ministries that has clarified that Bitcoin has “no legal status or monetary equivalent”.  PBC has also urged financial and payment institutions not to use Bitcoin pricing for products or services, may not trade or sell Bitcoins, sell Bitcoin-related insurance, provide customers with Bitcoin registration, trading or other services, conduct Bitcoin storage, issue mortgages in Bitcoin, or set up investment funds or trusts based on the currency.

Individuals however, are free to buy and use Bitcoin at their own risk, and PBC cannot be held accountable for any losses, as the digital currency is not tied to any government or central banking institution.

We at Perry4Law and Perry4Law’s Techno Legal Base (PTLB) believe that China has adopted the right approach that India is not willing to undertake. Indian government and RBI must understand that the sooner position of Bitcoin is clarified the better it would be. Waiting for other nations and authorities to take a stand and then regulating Bitcoin shows weakness of and lack of insight on the part of Indian government and RBI.

With its growing popularity, Bitcoins frauds and crimes are also increasing world over. Cyber criminals and crackers have started exploiting software and the platforms using Bitcoins. In one such incidence Sheep Marketplace, the descendant of Silk Road, has been compromised and 5,400 Bitcoins (worth about $5.6 million) have been stolen. India would also not be free from troubles and the inaction on the part of Indian government and RBI would only make things worst.

Bitcoins Banned In Thailand And May Be Illegal In India As Well Unless Laws Are Followed

Bitcoins Banned In Thailand And May Be Illegal In India As Well Unless Laws Are FollowedBitcoins is a decentralised and cryptographic virtual currency whose legality is still unclear in many jurisdictions. Most of the jurisdictions have adopted a “wait and watch policy” regarding Bitcoins.

The United States tried to curb the use of Bitcoins with existing laws but the same has not become a complete success so far. China has though not officially recognised Bitcoins but it has also not made their use illegal as well. India is still analysing the use of Bitcoins and may come up with its verdict in this regard very soon.

Meanwhile, trading of Bitcoins suspended in Thailand due to Bank of Thailand advisement (PDF). According to this document/statement, Bitcoin gave a presentation about the workings of Bitcoin, the benefits of Bitcoin, insight into the company’s operations and future implications of Bitcoin to the Bank of Thailand.

At the conclusion of the meeting senior members of the Foreign Exchange Administration and Policy Department advised that due to lack of existing applicable laws, capital controls and the fact that Bitcoin straddles multiple financial facets the following Bitcoin activities are illegal in Thailand:

(a) Buying Bitcoins

(b) Selling Bitcoins

(c) Buying any goods or services in exchange for Bitcoins

(d) Selling any goods or services for Bitcoins

(e) Sending Bitcoins to anyone located outside of Thailand

(f) Receiving Bitcoins from anyone located outside of Thailand

Based on such a broad and encompassing advisement, Bitcoin Co. Ltd. therefore has no choice but to suspend operations until such as time that the laws in Thailand are updated to account for the existence of Bitcoin. The Bank of Thailand has said they will further consider the issue, but did not give any specific timeline. Bitcoin Co. Ltd. has currency exchange applications currently pending review with the Bank of Thailand.

The question that can be asked is whether use and dealing in Bitcoins legal or illegal in India? At present dealing in Bitcoins in India is a risky affair as the legality of Bitcoin in India in doubts. For instance, 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. However, none of the Bitcoins enthusiastics are following the applicable laws of India as on date. Thus, they are violating the laws of India and can be prosecuted both civilly and criminally.