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    Today’s world is a world of misinformation, misinterpretation and misleading with the advent of rapid communication and social networking tools. Majority of the law now is understood either from Facebook, Whatsapp or YouTube. The irresponsible sharing of messages, without investing time to validate the messages has creating a lot of trouble for the entire human race irrespective of the field we are in.

     

    The Government has introduced the Goods and Services Tax (GST) with effective from 01st July, 2017. Undoubtedly, GST has become as buzz/trending word on majority of the social networking sites, which made everyone to look at it and share their thoughts on such subject. Accordingly, there were presentation materials, video tutorials and what not. We welcome such awareness which is being created but the problem, we see is, majority of the presentations and tutorials are not well researched and done without understanding the law.

     

    One such issue, which the trade is being confused with is, whether the requirement of bond or letter of undertaking is applicable for every supplies made to a unit in Special Economic Zone or developer of Special Economic Zone (SEZ) or is it applicable only for certain supplies made to a unit in SEZ or developer of SEZ. In this article, we try to dwell upon the same issue.

     

    Before addressing the issue, let us understand the provisions applicable when supplies were made to a unit of SEZ or developer of SEZ. Section 7(5)(b) of Integrated Goods and Service Tax Act, 2017 (IGST Act) specifies that when supplies made to or by a SEZ developer or SEZ unit, the same shall be deemed to be supply of goods or services in the course of inter-state trade or commerce.

     

    Hence, by virtue of Section 7(5)(b) of IGST Act, any supplies made to a unit in SEZ or a developer of SEZ shall be treated as inter-state supply, irrespective of the fact, the supplier and recipient are located in the same state/union territory. This was made very clear by the proviso to Section 8 of IGST Act. So, it is in absolute clarity that the legislature wants to treat the supplies made to unit in SEZ or developer of SEZ are inter-state and not intra-state.

     

    Once, the supply is concluded to be an inter-state, then the provisions of IGST Act shall be applicable and accordingly, it has to be seen what is the rate applicable for the supplier when supplies were made to a unit located in SEZ or a developer of SEZ. In this regards, attention is required towards Section 16 of IGST Act, which deals with the concept of ‘Zero Rated Supply’.

     

    The phrase ‘Zero Rated Supply’ has been defined vide Section 2(23) of IGST Act as to have the meaning assigned to it in Section 16. Hence, Section 16 of IGST Act is the relevant section to understand the concept of ‘Zero Rated Supply’. Let us proceed to examine the anatomy of Section 16 ibid.

     

    Section 16 ibid has 3 sub-sections. The first sub-section deals with the meaning of ‘Zero Rated Supply’ stating that ‘any supplies of goods or services or both namely: (a) export of goods or services or both or (b) supply of goods or services or both to a special economic zone developer or a special economic zone unit’.


     

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    That is to say, if any supplies of goods or services or both were made to a unit located in SEZ or developer of SEZ, the same shall be termed as ‘Zero Rated Supply’.

     

    The second sub-section deals with availment of input tax credit used for making zero rated supply, notwithstanding the fact that such supply is an exempt supply. Hence on combined reading of first and second sub-section, it is evident that supplies made to a unit located in SEZ or a developer of SEZ are exempt supply in the nature of zero rated and credit used for making such supplies can also be availed.

     

    The third sub-section is creating the confusion for the trade. The third sub-section deals with the provisions applicable for a registered person who is engaged in making zero rated supplies for claiming refund of unutilised input tax credit (Since, the supplies made by supplier are not subjected to any tax, the GST paid on inputs and input services has to be given as refund, otherwise the cost of supplies might be increased).Let us take an example to understand.

     

    A Limited is engaged in supply of services to a unit located in SEZ namely, B Limited. For providing such supplies, A Limited has purchased certain goods and services, where GST paid on them was Rs 18,000. Now, A Limited using such goods and services, has provided supplies to B Limited and billed them Rs1,00,000/-. Since the supply is being made to a unit in SEZ or a developer of SEZ, a simple invoice with Rs1,00,000/- shall be raised on B Limited.

     

    If you see in the above example, the input taxes of Rs 18,000/- was lying with A Limited since the same cannot be used for payment of output tax on supplies made to B Limited, since such supply is zero rated [Please note that for the purposes of availing the credit, the zero rated supplies are treated as taxable supplies].

     

    Hence, in order to refund the input taxes paid by A Limited since the output is exempted because of a zero rated supply, the third sub-section states that such refund can be obtained in either of the two options:

     

    1. With Payment of IGST
    2. Without Payment of IGST

     

    With Payment of IGST:

     

    A question arises as to when the supplies to SEZ unit or developer of SEZ is not taxable, then how is that payment of IGST arises. This is nothing but creating an artificial tax liability on supplies made to SEZ unit or developer. The supplier will not charge tax on the said supplies, however, for the purposes of refund, the supplier shall create an artificial tax liability which is equivalent to the input tax and claim the refund of the same from the government.

     

    Like in the above example, the supplier will raise an invoice (only for the purposes of claiming refund and not to be shared with B Limited) with Rs 1,00,000/- + Rs 18,000/- as IGST and submit to the government that Rs 18,000/- payable is adjusted against the available input tax credit and accordingly the government, will refund the IGST paid which is Rs 18,000/-

     

     

     

     

     

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    Story of Bond or LUT for SEZ Supplies

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    Hence, technically, the refund is being granted is the unutilised input tax credit but said and understood as refund of IGST paid. This option can be exercised by tax payers who do not want to go into the bond or letter of undertaking model.

     

    Without Payment of IGST:

     

    In this option, the tax payer shall be eligible for refund of unutilised input tax credit which got accumulated because of zero rated supplies. However, in order to be eligible for refund, the tax payer has to execute a bond (for specified persons a letter of undertaking can be filed instead of bond) prior to export of goods or services.

     

    The bond shall be realised within 15 days after the expiry of three months from the date of issue of invoice for export of goods, if the goods are not exported out of India or within 15 days from one year, or such further period extended by Commissioner, from the date of issue of the invoice for export of services, if payment for such services is not received by exporter in convertible foreign exchange as per Rule 96A of Central Goods & Services Tax Rules, 2017 (CGST Rules).

     

    Further, the sub-rule (5) of Rule 96A of CGST Rules, the provisions of bond or letter of undertaking shall be applicable mutatis mutandis in respect of zero rated supply of goods or services or both to a developer of SEZ or unit located in SEZ.

     

    Issue for deliberation:

     

    Now, the core issue for discussion is:

     

    Whether a supplier who is engaged in supply of services to a unit located in SEZ has to apply for a bond or letter of undertaking as mentioned in Rule 96A(5) of CGST Rules?

     

    (or)

     

    Does the provisions of bond or letter of undertaking shall be applicable only for registered persons who are planning to claim refund of unutilised input tax credit as per Section 16(3) of IGST Act?

     

    On a plain reading of Section 16 of IGST Act and specific reading of Section 16(3) ibid, it is evident that only persons who are opting for claiming of refund has to file either a bond or letter of undertaking prior to export. However, on reading Rule 96A (1) of CGST Rules, it states that every person who has opted to supply goods or services without payment of IGST, has to file a bond or letter of undertaking prior to export which is apparently contradictory to Section 16 of IGST Act.

     

    However, on a careful reading of both Section 16(3) and Rule 96A, it can be safely said that only persons who are opting to export goods or services without payment of IGST has to file either bond or letter of undertaking. That is to say, even Rule 96A(1) also talks about the option provided in Section 16(3) of IGST Act. If the person opts to supply without payment of IGST, means, it is one of the option mentioned in Section 16(3) of IGST Act.

     

     

     

     

     

     

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    Story of Bond or LUT for SEZ Supplies

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    Hence, we can conclude that there is no requirement of bond or letter of undertaking if the person is not claiming refund and as per Section 16(1) and (2), there is no requirement to pay tax on supplies made to unit located in SEZ or developer of SEZ.

     

    However, as stated in the initial paragraphs of this article, there is a lot of misinformation in the public domain concluding that every supply made to SEZ shall be either under the cover of bond or letter of undertaking and it is immaterial, whether the supplier is claiming refund or not.

     

    We opine that government should come up with a circular to clarify that bond or letter of undertaking is applicable only when the supplier of services to SEZ unit or developer of SEZ or exporter of services is required only when the supplier is interested to claim the refund of taxes as per Section 16(3) of IGST Act.

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    Introduction:

     

    Agricultural Sector is the largest contributor to the Indian economy. It covers around 16% of the overall GDP of the Country. Under the earlier regime, Centre and State Governments are lenient in taxing the agricultural sector as compared to all other sectors. However, GST is implemented on the premise to widen the tax base with fewer exemptions and to ensure seamless flow of input tax credit so that the entire tax burden will be rested on the end consumers. This will have a bearing on all the business sectors and will impact one or the other aspects of every sector. Agriculture is no exception. In this article, an attempt is made to provide a macro view on the overall impact of GST on agricultural sector.

     

    Agriculturist is relieved from GST Compliances:

     

    The word ‘Agriculturist’ is defined under section 2(7) of CGST Act, 2017 to mean an individual or HUF who undertakes cultivation of land by own labour or by labour of family or by employing labour on wages or through hired labour. In terms of Section 23(1)(b), an agriculturist is relieved from the requirement of registration to the extent related to supply of produce arising out of cultivation of land. This would imply that any agriculturist is not legally required to collect and pay GST to Government, though the produce of the agriculturist would be subject to GST. This would mean that the person who buys such produce from an agriculturist is required to discharge the corresponding GST liability under reverse charge mechanism as it becomes a supply from unregistered persons in terms of Section 9(4) of CGST Act, 2017. A similar practice was adopted by State Governments under earlier regime also, in order to relieve the farmers from the burden of VAT compliance.

     

    However, the said privilege is not applicable to those persons who are involved in animal husbandry and aquaculture. Thus subject to other requirements relating to taxability, these persons are required to register and pay GST upon supply of meat, eggs, milk, fish, shrimps, prawns etc.

     

    GST Impact on Agricultural Produce:

     

    Under the earlier regime, there used to be no excise duty or any other central taxes on agricultural produce as the said activities does not amount to manufacture. The only tax implications are of VAT or CST. Many of the states used to charge VAT at the rate of 5% on most of the agricultural produce viz. rice, wheat, barley, oats, maize etc. However, under GST there is not tax on these items unless they are sold in unit containers bearing a registered brand name. In such case, the applicable GST rate is 5%. Thus, compared to earlier regime, the tax impact on agricultural produce under GST regime is reduced and is restricted only to that produce that is sold under a brand name which are meant for consumption by wealthy citizens.

     

    GST Impact on Milk Products:

     

    Fresh milk, Pasteurised milk, separated milk curd, lassee and butter milk are not subject to VAT and excise duty under the earlier regime. These items continue to be exempt under GST also. Condensed milk was subject to VAT at 5% and excise duty at 12.5% under the earlier regime. It is now going to be taxed at GST

     

     

     

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    rate of 18%. In case of ultra-high temperature milk, which possess longer shelf life upto nine months, there used to be no excise duty but were subject to VAT at the rate of 5%. Now they are subject to GST at the rate of 5%. Thus, there is no increased tax impact on milk products due to GST.

     

    GST Impact on Animal Husbandry and Aquaculture:

     

    Live birds and their eggs, sheep, goats, swine, bovine animals were not subject to any VAT and they continue to be exempt under GST also. Meat used to be completely exempt under VAT. Under GST regime, frozen meat sold in unit containers under a registered brand name are subject to GST at the rate of 12%.

     

    Coming to aquaculture, all kinds of fishes, prawns, shrimps were not subject to any VAT and they continue to be exempt under GST also. However, frozen meat of these items sold in unit containers under a registered brand name are subject to GST at the rate of 5%. Thus, under GST regime there is a higher tax impact on frozen meet.

     

    GST Impact on capital goods and inputs used in Agriculture:

     

    The capital goods required by agriculturists includes tractors, agriculture equipment, horticulture equipment, harvesting equipment, sprinklers, dippers, poultry machinery including incubators and brooders etc. All these items are exempted from excise duty under the earlier regime. They are subject to VAT at the rate of 5% in most of the states. Under GST regime, sprinklers and dippers are subject to GST at 18% while all other agriculture equipment is subject to GST at the rate of 12%. Thus these items would be subject to a higher tax rate under GST. However, as these items are exempted from excise duty under the earlier regime, there could be hidden tax impact on these items as no credit of service tax and excise duty paid by manufacturers of these items are allowed as CENVAT.

     

    Coming to fertilisers, they are subject to VAT at the rate of 5% and excise duty at the rate of 1% without CENVAT. Therefore, the duty impact is around 6%. As there is no benefit of CENVAT of excise duty and service tax paid by manufacturers on their inputs and input services, there was a hidden tax impact on these items. Under GST regime, they are going to be taxed at 5%. Further, there are no restrictionson availment of input tax credit under GST. Thus, there is favourable tax impact in case of fertilisers.

     

    Coming to the case of seeds including fish and prawn seeds, prawn feeds and other aquatic feeds, they are not subject to any tax under the earlier regime as well as under GST regime.

     

    Conclusion:

     

    Upon comprehension of the above tax changes of various aspects of agricultural sector, it is inevitable that both Centre and States continues to be lenient in taxing this sector under GST regime also. Only products that are sold under a registered brand name which are meant for consumption by wealthy citizens are subject to additional tax burden. In fact, the essential items like rice, wheat, barley, oats, maize etc are free of any tax as compared to earlier regime which is a welcoming move.

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    SBS DIGEST E Journal Aug 2017
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    Key Topics Covered:

    • COMPANIES ACT, 2013
    • AUDIT
    • FEMA

    Updates

    • FEMA
    • INCOME TAX
    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    SBS WIKI E Journal Aug 2017
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    Key Topics Covered:

    • INTERNATIONAL TAXATION
    • AUDIT
    • GST
    • DIRECT TAX
    • FEMA

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    As per Financial Action Task Force (FATF), Money laundering is the processing of the criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardising their source.

     

    As per US Department of Treasury, Financial Crimes Enforcement Network (FinCEN) 2, Money Laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean").

     

    Money laundering can facilitate crimes such as Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimise” the ill-gotten gains through money laundering.

     

    When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

     

    Typically, Money Laundering involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean".

     

    Many countries as part of their efforts to address the menace of Money Laundering have formed various groups of countries and they have been listed here for ready reference3

     

    1. Financial Action Task Force (FATF)
    2. Asia/Pacific Group on Money Laundering (APG)
    3. Caribbean Financial Action Task Force (CFATF)
    4. Eurasian Group (EAG)
    5. Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)

     

    1. Groupe d’Action contre le blanchiment d’Argent en Afrique Centrale (GABAC) - The Task Force on Money Laundering in Central Africa
    2. Financial Action Task Force of Latin America (GAFILAT)

     

     

     

     

    1

    http://www.fatf-gafi.org/faq/moneylaundering/#d.en.11223

    2

    https://www.fincen.gov/history-anti-money-laundering-laws

    3

    http://www.fatf-gafi.org/countries/

     

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    1. Inter Governmental Action Group against Money Laundering in West Africa (GIABA)
    2. Middle East and North Africa Financial Action Task Force (MENAFATF)

     

    1. The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)

    FATF

     

    In response to mounting concern over money laundering, the Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a co-ordinated international response. One of the first tasks of the FATF was to develop Recommendations, 40 in all, which set out the measures national governments should take to implement effective anti-money laundering programmes.

     

    FATF in February 2012 as part of Anti Money Laundering (AML) and countering the financing of terrorism (CFT) standards has published “International Standards On Combating Money Laundering And The Financing Of Terrorism & Proliferation” and also later published many other relevant publications/ standards.

     

    Virtual Currencies and Block Chain Technology

     

    Virtual currency4  is a digital representation (1) a medium of exchange; and/or (2) a unit of account; and/or

     

    • a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. It is not issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. Virtual currency is distinguished from fiat currency (a.k.a. “real currency,” “real money,” or “national currency”), which is the coin and paper money of a country that is designated as its legal tender; circulates; and is customarily used and accepted as a medium of exchange in the issuing country. It is distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency. E-money is a digital transfer mechanism for fiat currency – i.e., it electronically transfers value that has legal tender status.

     

    Bitcoin is a worldwide cryptocurrency and digital payment system invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. It was released as open-source software in 2009.

     

    The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Since the system works without a central repository or single administrator, bitcoin is called the first decentralized digital currency.

     

    Besides being created as a reward for mining, bitcoin can be exchanged for other currencies,products, and services in legal or black markets.

     

    As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.

     

     

    4http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

     

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    Virtual Currencies- Challenges to Anti Money Laundering Laws

     

     

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    According to research produced by Cambridge University in 20175 , there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.As per the said report the total cryptocurrency market capitalisation has increased more than 3x since early 2016, reaching nearly $25 billion in March 2017

     

    Apart from Bitcoin (BTC) there are largest cryptocurrencies viz., ETHEREUM (ETH), DASH, MONERO (XMR), RIPPLE (XRP), LITECOIN (LTC)

     

    The FinCEN guidance states that a user who obtains virtual currency and uses it to purchase real or virtual goods or services is not a Money Services Business (MSB). Importantly, the FinCEN guidance states that an administrator or exchange that 1) accepts and transmits a virtual currency or 2) buys or sells virtual currency for any reason is a money transmitter (an MSB) under FinCEN’s regulations and would be subject to the Banking Secrecy Act (BSA) monitoring and reporting requirements unless a limitation to or exemption from the definition applies to the person

     

    As per the said report 24% of incorporated wallets have a formal license from a regulatory authority, and all of them are wallet providers that offer national-to-cryptocurrency exchange services. 25% of wallets providing centralised national-to- cryptocurrency exchange services do not have a government license

     

    In order to keep more focus on the impact of cryptocurrencies on AML, for getting more details about Bitcoin the reader is requested to refer the paper presented by our team member which is available for download at http://sbsandco.com/wp-content/uploads/2017/06/June-2017-e-Journal-Digest.pdf

     

    In order to give a Birds eye view some of the recent issues pertaining to illegal activities carried on by using virtual currencies are dwelled at length herein below:

     

    Silk Road case

     

    There was one significant case example cited to IRS6 that involved Ross Ulbricht, the creator and operator of the “Silk Road” website. Criminal Investigation participated in an investigation along with several other Federal Government agencies. According to court documents, Ulbricht created the Silk Road in January 2011 and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. The Silk Road served as a sophisticated and extensive criminal marketplace on the Internet where unlawful goods and services, including illegal drugs of virtually all varieties, were bought and sold regularly by the site’s users. While in operation, the Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to more than 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions. Ulbricht sought to anonymize transactions on the Silk Road by operating it on a special network of computers on the Internet designed to conceal the identities of the networks’ users. Ulbricht also designed the Silk Road to include a bitcoin-based payment system that concealed the identities and locations of the users transmitting and receiving funds through the site.

     

     

     

    5Global Cryptocurrency Benchmarking Study by Dr Garrick Hileman & Michel Rauchs

     

    • https://www.treasury.gov/tigta/auditreports/2016reports/201630083fr.pdfand http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

     

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    Virtual Currencies- Challenges to Anti Money Laundering Laws

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    The Silk Road case is an example of a successful collaborative Federal investigation, but it is also a reminder that the anonymity feature of some virtual currencies is what attracts unscrupulous individuals to their use. The IRS should prepare a comprehensive virtual currency strategy that will assist taxpayers lawfully engaged with virtual currencies to voluntarily comply with the tax laws while seeking to identify individuals unlawfully engaged in their use.

     

    Liberty Reserve Case7

     

    In what is to date the largest online money-laundering case in history, in May 2013, the US Department of Justice charged Liberty Reserve, a Costa Rica-based money transmitter, and seven of its principals and employees with operating an unregistered money transmitter business and money laundering for facilitating the movement of more than 6 billion USD in illicit proceeds. In a coordinated action, the Department of the Treasury identified Liberty Reserve as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act, effectively cutting it off from the US financial system.

     

    Established in 2006, Liberty Reserve was designed to avoid regulatory and law enforcement scrutiny and help criminals distribute, store, and launder the proceeds of credit card fraud, identity theft, investment fraud, computer hacking, narcotics trafficking, and child pornography by enabling them to conduct anonymous and untraceable financial transactions. Operating on an enormous scale, it had more than a million users worldwide, including more than 200 000 in the United States, and handled approximately 55 million transactions, almost all of which were illegal. It had its own virtual currency, Liberty Dollars (LR), but at each end, transfers were denominated and stored in fiat currency (US Dollars)

     

    To use LR currency, a user opened an account through the Liberty Reserve website. While Liberty Reserve ostensibly required basic identifying information, it did not validate identities. Users routinely established accounts under false names, including blatantly criminal names (“Russia Hackers,” “Hacker Account,” “Joe Bogus”) and blatantly false addresses (“123 Fake Main Street, Completely Made Up City, New York”). To add a further layer of anonymity, Liberty Reserve required users to make deposits and withdrawals through recommended third-party exchangers— generally, unlicensed money transmitting businesses operating in Russia, and in several countries without significant governmental money laundering oversight or regulation at that time, such as Malaysia, Nigeria, and Vietnam. By avoiding direct deposits and withdrawals from users, Liberty Reserve evaded collecting information about them through banking transactions or other activity that would create a central paper trail. Once an account was established, a user could conduct transactions with other Liberty Reserve users by transferring LR from his or her account to other users including transferring funds, making the transfers completely untraceable. After learning it was being investigated by US law enforcement, Liberty Reserve pretended to shut down in Costa Rica but continued to operate through a set of shell companies, moving millions through their accounts in Australia, Cyprus, China, Hong Kong, Morocco, Russia, Spain and elsewhere

     

     

     

     

     

     

     

    7http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf

     

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    Bitcoin related Ponzi Scheme8

     

    The U. S. Attorney for the Southern District of New York, Preet Bharara, has issued several recent statements signaling a steady pursuit of criminal conduct related to bitcoin. First, on Thursday, November 6, 2014, Trendon Shavers was arrested and charged with one count of securities fraud and one count of wire fraud in connection with what Mr. Bharara describes as the “first federal criminal securities fraud case involving a bitcoin-related Ponzi scheme.” Notably, this criminal case follows a civil action against Mr. Shavers that was filed by the SEC in July 2013, and allowed to proceed in Texas federal court in August 2013. According to the criminal complaint filed in New York federal court, Mr. Shavers who runs a company called Bitcoin Savings and Trust – allegedly raised more than 764,000 bitcoin from investors between September 2011 and September 2012. Mr. Shavers allegedly told investors that he would engage in a bitcoin market arbitrage strategy (i.e., lending bitcoin to others for a fixed period of time, trading bitcoin via online exchanges, and selling bitcoin locally via private off-market transactions). In return for the investors’ bitcoin, Mr. Shavers promised up to one percent per day. According to the U.S. Attorney, however, Mr. Shavers failed to execute the claimed market arbitrage strategy, failed to honor investors’ redemption requests, and failed to deliver the agreed upon rates of interest.

     

    Apart from the above cases, the recent Wanna Cry ransom ware has primarily used the Bitcoin to extract the money from the people, whose systems have been effected with the virus, to claim the data back.

     

    Virtual Currencies and AML from India perspective

     

    India is a member of FATF, APG and EAG. India has passed legislation for Anti Money-Laundering in the year 2002 called as Prevention of Money Laundering Act, 2002 (Act No. 15/2003) (PMLA 2002) and also framed Rules thereunder

     

    The PMLA 2002 has approximately total 78 sections and one Schedule prescribing list of various offences considered to be Money Laundering activities.

     

    RBI has issued two Press Releases dated 24th December, 2013 and 01st February, 2017 stating that it cautions Virtual Currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing the users, holders and traders of themselves

     

    The RBI advises that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.

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