Happy New Year and welcome to Degen Lawyer's Newsletter, this week we bring you some fascinating news. Every week we serve up curated analysis, hot takes, and expert commentary on all things emerging tech and law, sprinkled with a healthy dose of wacky and meme-worthy. Enjoy!

In this week’s edition:

News in short:

1. Council of Europe releases Guidelines on responsible AI implementation in Journalism

   The Council of Europe (not to be confused with the European Council) set up a Committee on Media and Information. The Committee has come up with guidelines on the responsible implementation of AI in Journalism. The guidelines cover the use of AI systems in different stages of journalistic production, ranging from the acquisition of AI tools, incorporating AI systems into practice to using AI in newsrooms, and its effect on audiences and society. The guidelines also propose certain responsibilities for technology providers and platforms, in developing standards for the responsible use of AI and providing support, including financial schemes for the development of responsible journalistic AI systems. Given the speed of dissemination of information in this digital age, it is only a matter of time before AI take over several aspects of journalism. Given the power of journalists and the free press, responsible AI practices must be implemented.

2.  New York Times sues ChatGPT over Copyright Infringement

   Legacy Media outlet NY Times has sued the fastest kid on the block - ChatGPT. The lawsuit filed in New York alleges that ChatGPT has unlawfully used NYT content to train its chatbots. This is the latest in a long list of similar lawsuits, including my comics like Sarah Silverman. The law suit even included a snapshot of the training data of ChatGPT which shows NYT as one of the foremost sources of input. Oops! looks like everyone wants to get their shot at taking down ChatGPT.

   

3. Jio and IIT to develop India’s own AI Model - BharatGPT:

   Akash Ambani announced partnering with IIT Bombay in a bid to launch India’s own ChatGPT rival - BharatGPT. The Bharat GPT consortium, aims to deliver India-centric multi-lingual and multi-modal GPT/LLMs, is a unique Public Private Partnership (PPP) initiative. The AI would be initially aimed at key verticals like Telecom and Retail and will slowly expand to others. Trust the Ambani’s to give Satya and Sam a run for their money, even if it is initially used to make Jio Cinema actually worth opening.

   

Article of the week

What’s the deal with the Indian Government banning Foreign Crypto Exchanges?

There has been a lot of misinformation surrounding this topic. Having worked on Money Laundering matters and with the FIU, the Degen Lawyer is here to separate fact from fiction.

Backdrop

On December 28, 2023, the Press Information Bureau (PIB) – India, reported that FIU issued compliance show cause notices to 9 off shore virtual digital asset service providers. Note: PIB is reporting on FIU’s show cause notice, there is no public copy of the show cause notice.

What's FIU, and why are they handing out these notices? 

FIU, short for Financial Intelligence Unit, is a national watchdog under the Ministry of Finance. It collects information related to financial transactions & passes on this information to enforcement agencies like ED, IT Dept etc

The FIU issued a COMPLIANCE show cause notice Meaning – they have posed questions to these exchanges on their reasons for non-compliance with the Anti Money Laundering/Counter Financing of Terrorism (AML-CFT) framework under the Prevention of Money Laundering Act, 2002 (PMLA)

Please note: This does not mean there is a ban on these exchanges or it is illegal to interact with these exchanges (YET) You can read FIU's guidelines for VASPs here.

What is PMLA? 

PMLA forms the core of the legal framework in India to combat Money Laundering and Terrorist Financing. Now usually Banks (like ICICI and SBI), Non-Banking Financial Companies (such as Bajaj FinServ, Muthoot Finance etc) come under the definition of ‘Reporting Entity’. However, in March 2023, the govt. amended the PMLA Act, & broadened the scope to include virtual asset service providers within the ambit of ‘Reporting Entity’.

Several Indian crypto companies such as CoinDCX, WazirX, Giottus and CoinSwitch are PMLA compliant (in most cases even before the 2023 amendment - as a good business practice). However, post the amendment- it is now mandatory to comply with the provisions of PMLA, as well as register with the FIU.

Overview of PMLA Obligations 

The Obligations of a Virtual Asset Service Provider (aka crypto service company) under PMLA are:

→Register with FIU

→Appoint a Designated Director and Principal Officer

→ DD & PO will be the point of contact with the FIU

→Conduct Customer Due Diligence including KYC

→Maintain transaction records including reporting suspicious transactions to FIU

→Furnish reports to FIU based on risk levels.

→Adopt an Internal Anti-Money Laundering /Know Your Customer /Counter Financial Terrorism Policy.

As of today, there are 31 companies registered with the FIU.

Why didn't these offshore cytpo exchanges such as Binance comply with Indian Laws? 

My guess is as good as yours. Let’s wait and watch whether these companies issue a public statement. PMLA obligations are no cakewalk, it involves serious risk assessment, careful management decisions and constant interactions with the FIU to find a fine balance between business needs and legal compliance.

Between March to November, the Govt had given time to business to fulfil these legal obligations and comply with the law of the land. Now the time for enforcement has come.

What’s next? 

The FIU has requested the Minstry of Information & Technology to block the URLs of these 9 exchanges, when will this happen is anyone’s guess. This may just be a warning shot or it might be the start of a completely new era for Indian users interacting with foreign exchanges.

What should you as a User of these exchanges do next? 

As a user, there's not much you can do. The responsibility lies with the exchanges, but it is probably safer to move your funds to an exchange which is registered with the FIU. Use registered Indian exchanges.

General Thoughts:

If you're in crypto, consider having self-custody of your funds. Please note: It's not illegal to interact with these exchanges, but hiding crypto income and not paying taxes is a no-no.

Did You Know?

Money Laundering has been around for as long as taxes have been around. However, it was not always called by this name. The legendary gangster helped coin the term ‘money laundering’ because he invested in cash-intensive businesses such as restaurants, nightclubs, and breweries to commingle his illegal proceeds with legitimate earnings. This made it difficult for law enforcement agencies to trace the source of his wealth back to his criminal activities. However, there was one business he preferred over other, Laundromats to turn his black money to squeaky white.

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