Crypto exchanges hold cryptos in an exchange wallet. Cryptos can move from here to the exchange wallet of another domestic exchange. Cryptos could also move to the private wallet of another holder abroad or move to the private wallet of another person in India. Cryptos can move to the wallet of an overseas exchange.

The problematic transactions are the movement of cryptos to the private wallet of another person or to the wallet of a foreign exchange. These are high risk transactions. Under the Prevention of Money Laundering Act, these suspicious transactions reports (STRs) must be generated. There should be some parameters for such transactions, say customer profile, value of the transaction and frequency of such transactions.

The weak link is the transfer to a private wallet or an unknown wallet. These could be the proceeds of dubious deals. Such transfers are faceless, at times to foreign entities.

The prevailing system is likely to end. India’s crypto exchanges are working on the rules under which platform will allow the transfer only after the sender discloses the identity of the persons behind a private wallet.

In crypto trades, the identities of both buyers and sellers are not known, as long as the trade takes place in the exchange. It is the exchange which carries out the KYC process. There is however, no procedure to know the identity of a private wallet owner. There is no restriction to transfer cryptos from the wallet of exchange to the private wallet of someone who could be a foreign national. This situation is likely to change.

The type of IDS provided and the scrutiny of the IDS are under discussion.

The measures should not be too onerous or impossible to implement in the light of the technology employed in crypto trade.

It is also challenging to link a wallet address to the owner whose identity has been offered.

It is also to be decided whether cross-border transfer of cryptos violate the provisions of the FEMA.