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Real money gaming companies may have to comply with KYC norms as govt plans to bring them under PMLA: Report

India’s real money gaming sector has been saddled with uncertainty after multiple states moved to regulate it.

The Union government is planning to bring online skill-based gaming under the purview of the Prevention of Money Laundering Act (PMLA), as per a report in Business Standard. It means that gaming companies will have to comply with KYC (know your customer) norms once the sector is regulated by the PMLA, the report added.

The authorities are reportedly considering the United Kingdom’s Gambling Act for reference as India does not have a framework of its own. Moreover, the finance ministry and the Reserve Bank of India (RBI) have expressed concern over the lack of a framework for regulating online gaming with stakes, the business daily added.

The absence of a framework to regulate gaming has plunged the sector into a lot of uncertainty. Many bad actors have mushroomed in the wake, posing several problems out of which money laundering is one. The move is likely an attempt to enforce checks and balances to prevent money laundering and terror-financing activities.

What will happen once the step is taken?

The companies will have to appoint a designated director and a principal officer once the law is amended to bring skill gaming apps and sites under it, BS revealed.

The companies, which will turn into reporting entities, will have to share details of the remitter, the beneficiary, and other relevant information with the Financial Intelligence Unit (FIU), BS said in its report adding that companies may have to flag suspicious transactions above Rs. 50,000.

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The deliberation over the inclusion of gaming under the nation’s money laundering law was necessitated after law enforcement agencies failed to track certain money trails because online skill gaming companies did not authenticate their customers by verifying the documents required for a KYC check, BS explained.

Does India need a framework for online gaming?

There is no national framework regulating the online gaming space in India. The real money gaming industry has been wracked with uncertainty as several states move to regulate the domain. Some of them have tried to ban it altogether. Telangana, Tamil Nadu, Kerala, and Karnataka are some of the states that have tried to ban online gaming with real money stakes. Their approach suggests that they intend to leave no room for distinguishing between games of chance and skill much to the dismay of the gaming industry.

But the industry has had the support of the judiciary as three High Courts — Tamil Nadu, Kerala, and Karnataka — have struck down these bans, calling them unconstitutional.

IndiaTech sent a letter recently to the Ministry of Electronics and Information Technology (MeitY) urging the department to frame online gaming guidelines at the national level which can be followed by the states. IndiaTech is an industry association representing India’s consumer internet startups, unicorns, and investors, according to its website. Some of its notable members include Ola, MakeMyTrip, Dream11, and MPL.

The association affirmed that certain online games have an element of skill despite the involvement of money, distinguishing them from betting and gambling.

“The mere involvement of money does not make any game into an addictive or gambling genre,” the letter addressed to IT Minister Ashwini Vaishnaw read.

Will the Union government club gaming with gambling?

The Indian government, on its part, clarified that it has no proposal to include online gaming under the category of gambling. The government’s stance became clear in a response by Minister of State for Electronics and Information Technology Rajeev Chandrasekhar to a question in the Rajya Sabha.

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The minister said that “the government is aware of the growing number of online games available in India and also the opportunities for innovation and entrepreneurship associated with them”.

The growing number of app-based games also forced the minister to acknowledge the possible risks and challenges including that of user harm associated with such games and their advertisements, the response revealed.

‘Exploring a uniform approach’

The Union government has previously disclosed that it was exploring a “uniform approach” to regulating online gambling and real money gaming in September 2021. But there has been no movement on it so far. In the letter obtained via an RTI, IT Minister Ashwini Vaishnaw wrote to Andhra Pradesh Chief Minister YS Jagan Mohan Reddy, stating:

“The subject of “betting and gambling” falls under the jurisdiction of the State Governments under Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India,” but that “the Government is cognizant of the issues arising because of different legislations in different States in the area of regulation of online gaming and the matter is under consideration to have a uniform approach on this matter.”

It’s not clear what action the government will decide on — its actions could range from a “model law” that states could choose to emulate, to a constitutional amendment that would give it more powers to regulate online gaming.

Update (11/4): The headline and featured image of this article have been updated for clarity. 

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I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

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