The much awaited public advisory by the Reserve Bank of India (RBI) regarding the legality of Bitcoins in India has been finally released. 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 warned 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.
According to RBI 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.
RBI also observed that 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.
In other words, RBI has said that Bitcoins users and stakeholders are exposing themselves to a wide variety of risks, including the legal risks, while dealing in Bitcoins.
According to Praveen Dalal, leading techno legal expert of Asia and managing partner of ICT law firm Perry4Law, “The dealing in Bitcoins in India is still A “Grey Area” and it is not safe to consider it “Strictly Legal”. Till the time Indian Government or other Regulatory Authorities of India make use and dealing of Bitcoins Legal in India, the use of the same in India is at the own “Legal Risk” of concerned person or Institution”.
It is legally wrong to assume that dealings in Bitcoins in India if strictly legal as individuals and companies have to take care of the cyber law due diligence and Internet intermediary rules compliances. For instance, a platform selling and purchasing or trading in Bitcoins must not only comply with the provisions of Information Technology Act, 2000 but also with laws applicable to online trading and income tax.
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. The net result of the advisory by RBI is that it has made the position of Bitcoins in India legally risky i.e. unless laws of India are duly complied with, dealings of Bitcoins in India could be punishable under Indian laws.