The governments of India and China are taking new measures to curb the use of crypto exchanges and the Tether stablecoin, which are seen as threats to their financial stability and sovereignty.
India targets offshore exchanges for non-compliance
India’s Financial Intelligence Unit (FIU) has issued compliance show cause orders to nine crypto exchanges that operate in the country without registering with the authorities. These exchanges include Binance, Bitfinex, Bitstamp, Bittrex, Gate.io, Huobi, Kraken, Kucoin and MEXC Global.
The FIU said these exchanges are violating the Prevention of Money Laundering (PML) Act and have given them two weeks to submit evidence that they are complying with the law. The FIU also asked the Ministry of Electronics and Information Technology to block the URLs of these exchanges.
The FIU said that these exchanges are activity-based and not contingent on physical presence in India. So far, 31 Virtual Digital Asset Service Providers (VDASPs) have registered with the FIU, but many Indian users still use unregistered exchanges.
The move comes after the Bharat Web3 Association, a group of registered VDASPs, sent a letter to the Finance Ministry proposing that the offshore exchanges be allowed to set up local subsidiaries that would collect the 1% tax deducted at the source from Indian customers. The Association also suggested a 30-day window for Indian customers to withdraw their assets from the offshore exchanges.
India is a highly valued market for crypto, with nearly 1.5 billion population, but tough new tax rules have driven many users to offshore platforms. Binance, which recently settled with the U.S. authorities for $4.3 billion for similar violations, is likely to face more scrutiny from the Indian regulators and the U.S. compliance monitor.
China targets Tether for facilitating capital flight
China, which has banned crypto trading and mining, is now focusing on the Tether stablecoin, which is widely used to circumvent the country’s capital controls and facilitate illegal activities. The Supreme People’s Procuratorate and the State Administration of Foreign Exchange issued a joint statement reminding prosecutors and forex regulators that converting yuan to crypto and vice versa is illegal.
The statement gave several examples of criminal cases involving Tether, such as individuals and entities that provided forex payment services in China and the UAE, converting UAE dirham to Tether and then selling it to Chinese gangs for yuan. These gangs were involved in online gambling, fraud scams, and other crimes.
The authorities said they would use procuratorial technology to assist case handling and review electronic data, such as mobile phone chats, to track down the offenders. The statement also warned that anyone who provides technical support, such as building and maintaining websites, for such illegal activities would also be held liable.
The statement cited the case of Zhao Dong, a former OTC crypto trader and Bitfinex shareholder, who was sentenced to seven years in prison for his involvement in Tether-related crimes. Zhao, who helped create the RMB-pegged version of Tether in 2019, was detained in 2020 and pleaded guilty in 2021.
China’s crackdown on Tether poses a serious threat to the crypto ecosystem, as Tether is the most widely used stablecoin and accounts for a large share of the global crypto market cap and trading volume. China also has extradition treaties with many countries, and could seek to arrest other Tether-affiliated individuals who may have violated its laws.