Bitcoin users come under Enforcement Directorate, I-T scanner

Mumbai: Investigative agencies have turned their lens on bitcoin users after earlier surveying cryptocurrency exchanges. Last month, the Enforcement Directorate (ED) and the income tax department (IT) jointly raided users of cryptocurrencies in a few locations suspecting money laundering, fraud and tax evasion, said people aware of the development.

The agencies surveyed bitcoin users in Ahmedabad and Surat last month, said an ED official on condition of anonymity.

According to an income tax department official, who also declined to be named, the tax department after its December survey of bitcoin exchanges had identified some suspicious accounts and was examining replies to notices sent.

“The income tax department sent notices to bitcoin users who were conducting transactions of more than Rs1 crore daily. These details have been passed onto the Enforcement Directorate (ED), which is examining them for alleged money laundering and fraud,” said the IT official.

Individuals and companies in Surat connected to bitcoin trading are facing scrutiny, according to an executive at a bitcoin exchange.

“Last week, ED investigated many individuals and companies in Surat who are connected to bitcoin trading. Actually the entire system got stopped for two days and they all went out of business. The individuals who have been investigated have traded with the major bitcoin exchanges in the country,” said the executive.

“The IT department wants to do an analysis of where the money has gone. The individuals, who have been targeted for the ED investigation, are those who may have done a lot of transactions in a few accounts,” said the executive.

The regulators as well as the government have been closely monitoring bitcoin trading in India.

In December, the Reserve Bank of India (RBI) cautioned users of bitcoin for the third time citing potential economic, financial, operational, legal, customer protection and security related risks.

After the cautionary note from RBI, PTI in December reported that the income tax department conducted survey operations at major bitcoin exchanges across the country on suspicion of alleged tax evasion and detected several hundred thousand high-networth individuals (HNIs) in their databases.

In the same month, the IT department had issued notices to 400,000-500,000 high net worth individuals (HNIs) asking them to disclose details of bitcoins or other cryptocurrency transactions.

In December, two ED officials had told Mint that the agency was planning to scrutinize bitcoin exchanges to check for potential violations of foreign exchange rules following the IT department survey.