An anti-crypto lawyer from India, Vijay Dalmia, put forth his perspective on the current situation in the country on Mondaq, August 13, 2019. Notably, he discusses the Benami Act, 1988, which can cause incrimination for crypto investors who choose to stash their holdings with relatives or peers in countries with more favorable regulations.
Harmony Between Ownership and Consideration
The Benami Act, 1988, was passed in order to prevent individuals from concealing their assets by registering them on another person’s name. The definition of property under this act encompasses any asset for which legal documents or a title exists, and if it is capable of being converted into some other form. As per the last defining feature, Dalmia believes cryptocurrency falls under the jurisdiction of this act.
Essentially, it prohibits a person from buying assets with their money and registering it on another person’s name. An Indian cryptocurrency investor has two legal options if/when the ban is enforced: liquidate their holdings or transfer them abroad.
Technically, the last option may be illegal too as the draft clearly outlines indirect holdings are subject to criminal investigations as well. But even if this aspect was removed, investors face a stumbling block in the form of the Benami Act.
Loopholes in the Act
If you have a spouse or child living abroad, you can transfer assets to them without violating the Benami Act. There are many exceptions to the act that investors can take advantage of if required.
Joint ownership in the name of a sibling, parent, grandparent, child, or grandchild is another exception to the act. Establishing joint ownership in crypto is easy to prove.
As there is no identity tied to the address, one can claim that it is indeed a joint account by showing that both parties have access to the private key. However, investor judgment should be adequately exercised as the 2016 amendment of this act extended the punishment to a fine of 25 percent of market value for the asset and up to seven years in prison.
Indian lawmakers will be presenting the draft bill in the lower house in the Winter session of parliament (Nov-Dec 2019). Many changes could be rendered to the draft before being passed, and there is a chance, albeit slim, that the house rejects it.
Now is the time for Indian crypto enthusiasts to wake up and rally to educate their government on the various merits in this technology.