Crackdown against Bitcoins | money laundering and its prevention

The rising craze for bitcoin, a cryptocurrency that has rocketed to shocking highs, has come under the government’s lens. The government has begun a crackdown on illegal uses of this unregulated virtual currency.

Widening its probe into bitcoin investments and trade, the Income Tax (IT) department is set to issue notices to 4 to 5 lakh high networth individuals (HNI) across the country who were trading on the exchanges of this unregulated virtual currency.


Background:


While some of the countries such as Nepal, Bangladesh, Kyrgyzstan have declared Bitcoins as a means of payment illegal and in violation of the state law, a majority are yet to take a stand on it. In December 2013, RBI issued a warning with caution to users, holders and traders of virtual currencies, including Bitcoins, about the potential financial, operational, and legal, customer protection and security related risks that they are exposing themselves to. Bitcoins are currently unregulated in India. There are no specific legal frameworks for Bitcoins and crypto currencies in India yet.


Concerns associated with the use of bitcoins: 

Bitcoin can be an easy way to evade tax or snare unsuspecting small investors in ponzi schemes. The regulators are worried about their use for illicit and illegal activities, subjecting the users to an unintentional breach of laws against money laundering and terror finance.
Concerns also emanate from some unscrupulous entities indulging in illicit money-pooling activities—commonly known as ponzi schemes—with the promise of huge returns from investment in bitcoins and other variants, which they claim are minted through blockchain, a distributed ledger technology that was created to mint bitcoins and comprises of extremely complex algorithms with several thousand nodes for each chain.
There is a suspicion that some so-called cryptocurrencies and bitcoin investments may actually have nothing to do with any blockchain-developed virtual currency and are just new ways devised by scamsters to ride the wave and what they may be offering could be ‘e-ponzi’ schemes.