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11 Apr 2022

Online skill gaming, which attracts millions of customers and involves large sums of money, is likely to be brought within the purview of the Prevention of Money Laundering Act (PMLA) in an attempt to thwart money laundering (ML) and terror financing (TL) via such activities reported the Business Standard. Last week, Jayesh Rangan, the Principal Secretary of IT, Telanagana Government urged the gaming companies to adopt robust KYC mechanisms

Citing documents reviewed, the report by Business Standard said 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. 

Companies facilitating such activities are incorporated in the country under the Companies Act or the LLP Act. There is no prohibition on foreign investment in the real money gaming sector with 3 companies currently valued at above $1 billion. 

Currently reporting entities like banks, financial institutions, and intermediaries are required to verify the identity of the customers by use of aadhaar authentication, passport, or any other valid identity document. 

If platforms facilitating online gaming with stakes are brought within the PMLA’s purview (mostly recognised as a reporting entity), gaming operators would have to follow the know your customer (KYC) norms while onboarding users including verification of the identity of the customers. 

According to Business Standard, the need for such a move arose after investigation 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. An investigation showed that large sums of money – in lakhs – changed hands through these gaming apps without any KYC check.

Apart from the KYC verification, reporting entities currently are required to maintain details of transactions and implement enhanced due diligence for each transaction. 

In line with other reporting entities, gaming companies may also be asked to flag a Suspicious Transaction Report for any transaction above Rs 50,000. Earlier, Raj Kundra was accused of an INR 3000 online gaming scam

India is among the top five mobile gaming markets in the world. A report by Statista estimated the Indian skill gaming industry's market value was around Rs 9,000 crore in FY20; it was expected to cross Rs 14,300 crore in FY22. 

As per KPMG-FICCI 2021 report, India's gaming market is projected to reach Rs. 143 billion (US$ 2.03 billion) by FY22 up from just Rs. 62 billion in FY 2021. The mobile gaming market in India is projected to hit a $5 billion opportunity by 2025 from the current $1.5 billion, according to a recent Sequoia India and Boston Consulting Group report

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