“Since this is a private kiosk, there isn’t any need for procuring any license or an approval of any sort from authorities,” Unocoin said in a blog post, published almost a month after CFO Harish BV was arrested (now released) for running an unauthorized “ATM” kiosk.
Kiosk not ATM, not connected to banking networks
According to the post, the kiosk was not an ATM. It was installed with the “primary motive” of allowing Unocoin customers to withdraw or deposit money to their Unocoin accounts “subject to all rules governing cash transactions.” This money could further be used to buy and sell cryptocurrencies on Unocoin.
“However, truth be told, the kiosk was initially branded as an “ATM” — which was our unintended, genuine and a rather grave mistake as this led to confusion amongst general public including media. Though we rebranded it immediately as Kiosk, it was little too late.” – the blog post
“Our kiosk is designed to only accept cash or give cash of certain denominations to its users just like any other kiosk,” explained the post. Unocoin explains that the kiosk wasn’t connected to any banking network and therefore was not governed by rules for bank ATM or Whitelabel ATMs. “Kiosk machines of Unocoin do not fit RBI’s definition of ATM which connects to the banking network,” says the post.
After Harish BV was arrested, Unocoin CEO Sathvik Viswanathan was also arrested on the same charge. Unocoin’s lawyer Swaroop Anand argued that the startup did not need any other permissions, when the mall had trade permissions. Besides, there hadn’t been “any violation of license requirements.”
“The situation finally came under control once the police authorities understood our initiative in its original intent,” says the blog post. “They also were made aware that we haven’t violated any law in setting up the kiosk.”
You know the story so far. From my understanding, main stream media calling crypto assets illegal & comparing our Kiosk with a bank ATM [that needs RBI perm as it is like a bank branch] was the trigger. Now that I am out,will try my best to give clarifications & move on. @Unocoin
— Sathvik Vishwanath (@sathvikv) October 26, 2018
Why the Unocoin executives were arrested
Unocoin’s Harish BV was arrested last month at a Bangalore mall for running an ATM kiosk without the authorization or license. At the time, the Bangalore police claimed that Unocoin did not have a license from RBI, SEBI or any other agency to carry out the cryptocurrency transactions, nor did it have license from Bangalore municipal corporation BBMP to run the kiosk. A case of cheating was filed, and charges under the IT Act were also pressed against Harish BV. CEO Sathvik Viswanathan was also arrested later.
The cryptocurrency conundrum
Unocoin explains why it set up a kiosk in the first place — an RBI circular from April prohibited all banks from providing services for exchanges of cryptocurrencies. Crypto-exchanges Zebpay and Unocoin suspended (see 1 and 2) operations related to sale and purchase of cryptocurrencies such as Bitcoin. In July, the Supreme Court refused to grant an interim stay on the RBI order, after hearing a batch of petitions challenging the circular. The SC order was the last nail in the coffin: Zebpay shut down all operations related to cryptoassets earlier this month.
The RBI reasoned that cryptocurrencies “raise concerns of consumer protection, market integrity and money laundering, among others.” Both the Finance Ministry and the Finance Minister Arun Jaitley have expressed that cryptocurrencies are illegal tender on separate occasions. The Income Tax department has also had its eyes on cryptoexchanges and scrutinized their operations.