ANTI-MONEY LAUNDERING COMPLIANCE IN TOKENIZED BIOTECHNOLOGY FUNDING

1. INTRODUCTION

Tokenized biotechnology funding involves raising capital for biotechnology research, pharmaceutical development, clinical trials, genomic platforms and medical innovation through blockchain-based tokens. These tokens may represent investment interests, contractual rights, project-linked digital assets or other forms of participation in a funding arrangement.

Although tokenization can improve transparency, facilitate cross-border investment and broaden access to capital, it may also create risks of money laundering, terrorist financing, sanctions evasion, fraudulent fundraising and concealment of beneficial ownership. Criminal proceeds could be introduced through token purchases, transferred between digital wallets and converted into conventional currency.

Anti-money laundering (AML) compliance therefore requires the application of financial-crime legislation, customer identification procedures, transaction monitoring and reporting obligations. The precise requirements depend on the jurisdiction, the legal character of the token and the activities performed by the issuer, exchange, custodian or intermediary.

2. LEGAL AND REGULATORY FRAMEWORK

A. Prevention of Money Laundering Act, 2002 (India)

The Prevention of Money Laundering Act, 2002 (PMLA), together with the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, establishes India's principal AML framework. In March 2023, the Central Government brought specified virtual digital asset activities within the definition of designated business or profession under section 2(1)(sa)(vi).

Covered activities include exchanges between virtual digital assets and fiat currencies, exchanges between different virtual digital assets, transfers of virtual digital assets, their safekeeping or administration, and certain financial services associated with their issuance and sale. Relevant service providers must comply with applicable reporting-entity obligations, including registration with the Financial Intelligence Unit–India (FIU-IND), where required.

The classification of a biotech funding token must be examined carefully. A token representing shares, debt, royalties or another investment interest may also engage securities, company, foreign-exchange and other financial regulations. The use of blockchain does not automatically exempt an arrangement from existing law.

B. Financial Action Task Force (FATF) standards

FATF Recommendations 10, 15 and 16 provide important international benchmarks concerning customer due diligence, virtual assets and transfer information. FATF guidance expects covered virtual asset service providers to implement risk-based AML controls, maintain records, report suspicious transactions and transmit required originator and beneficiary information.

These international standards are not automatically domestic legislation in every country; their enforceability depends on national implementation.

3. CORE AML COMPLIANCE REQUIREMENTS

A. Know Your Customer (KYC) and beneficial ownership: Issuers and covered intermediaries should identify investors, verify identity, establish beneficial ownership of corporate investors and assess politically exposed persons and relevant sanctions exposure.

B. Source-of-funds verification: Funding platforms should examine whether investment amounts originate from legitimate sources. Higher-risk investments may require additional evidence concerning wealth, corporate structures, associated wallets and the economic purpose of transactions.

C. Blockchain transaction monitoring: Monitoring tools should identify suspicious wallet exposure, rapid transfers, unusual transaction patterns, mixing services and unexplained movement across multiple wallets. Blockchain analytics should support, rather than replace, contextual investigation.

D. Suspicious transaction reporting: Reporting entities must submit applicable reports to FIU-IND or the relevant national financial intelligence unit within the prescribed framework. Reporting obligations may arise from suspicious activity even when the underlying transaction is incomplete.

E. Recordkeeping and internal governance: Platforms should maintain investor identification records, transaction histories, compliance decisions, risk assessments and investigation files for the legally prescribed periods. They should designate responsible compliance personnel and provide staff training.

F. Cross-border controls: International biotech projects may involve investors, research institutions, token issuers and custodians in several countries. Compliance programmes must assess applicable local laws, sanctions restrictions, data-transfer rules and foreign-exchange requirements.

4. CASE LAWS AND THEIR RELEVANCE

Because tokenized biotechnology funding is a specialised and evolving field, the following decisions provide relevant principles rather than establishing a single, dedicated legal framework for biotech tokens.1. Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274 — Direct Indian crypto-regulatory authority.

The Supreme Court of India set aside the RBI's 2018 circular restricting regulated entities from providing banking services to virtual-currency businesses, finding the measure disproportionate in the circumstances before it. The judgment did not exempt cryptocurrency businesses from other applicable laws or establish that all token offerings are lawful. Its relevance is that regulatory restrictions affecting digital-asset businesses must rest on lawful authority and satisfy applicable constitutional standards.

Sci API+1

2. United States v. Faiella, 39 F. Supp. 3d 544 (S.D.N.Y. 2014) — Direct virtual-currency authority.

The court considered whether Bitcoin transactions could fall within federal money-transmission and related criminal provisions. The decision illustrates that using virtual currency does not automatically remove financial activity from existing AML and money-transmission laws. A biotech token platform performing similar intermediary functions must assess the applicable statutory definitions.

:+1

3. United States v. Ulbricht, 31 F. Supp. 3d 540 (S.D.N.Y. 2014) — Analogous virtual-currency authority.

In proceedings concerning the Silk Road marketplace, the court addressed legal issues arising from an online marketplace that used Bitcoin. The case demonstrates the importance of examining the underlying transactions, criminal purpose and intermediary conduct rather than treating digital currency as legally untraceable or inherently outside criminal law.

4. Van Loon v. Department of the Treasury, No. 23-50669 (5th Cir. 2024) — Analogous authority concerning decentralized technology.

The United States Court of Appeals for the Fifth Circuit held that the immutable Tornado Cash smart contracts at issue were not sanctionable property under the International Emergency Economic Powers Act (IEEPA). The decision illustrates that enforcement against decentralized technology must remain within statutory authority. It does not eliminate AML duties applicable to identifiable issuers, custodians or regulated intermediaries.

Fifth Circuit Court+1

5. United States v. Park, 421 U.S. 658 (1975) — Analogous corporate-compliance authority.

The United States Supreme Court considered the responsibility of a corporate officer under federal food and drug law. Although unrelated to digital assets, the case illustrates the broader principle that responsible corporate officers may face liability when statutory requirements fall within their authority and responsibility. For biotech funding platforms, compliance governance should therefore identify accountable decision-makers.

6. R v. Anwoir [2008] EWCA Crim 1354 — Analogous proceeds-of-crime authority.

The English Court of Appeal considered the proof of criminal property under proceeds-of-crime legislation. The decision is relevant by analogy because suspicious digital-asset funding may require investigators to establish that property represents criminal proceeds through the available evidence. It does not create a token-specific AML test.

5. PRACTICAL COMPLIANCE MEASURES

A biotechnology token issuer should:

Determine whether the token represents equity, debt, royalties, utility rights or another legal interest.

Map every entity involved in issuing, distributing, transferring, exchanging and holding the tokens.

Identify which entities qualify as reporting entities or regulated financial intermediaries in each relevant jurisdiction.

Implement risk-based investor identification, beneficial-ownership checks and source-of-funds reviews.

Monitor wallet activity, investigate suspicious patterns and submit legally required reports.

Screen relevant persons and transactions against applicable sanctions requirements.

Maintain auditable records, written compliance policies, staff training and documented escalation procedures.

Establish controls for refunds, token transfers, smart-contract vulnerabilities and cooperation with lawful regulatory investigations.

The FATF standards and India's FIU-IND guidelines provide useful starting points for designing these controls. India's framework specifically covers designated virtual digital asset activities and should be examined against the actual services being provided.

FATF+2

6. CONCLUSION

AML compliance in tokenized biotechnology funding requires more than blockchain transparency. It requires a clear legal classification of the token, identification of responsible intermediaries, investor due diligence, risk-based transaction monitoring, suspicious-transaction reporting and effective corporate governance. The cited judgments establish relevant principles concerning virtual-currency regulation, money transmission, decentralized technology and corporate accountability, but none should be misrepresented as a binding judgment specifically governing biotech token fundraising. A compliant funding structure must satisfy the laws applicable to its actual activities, investor base and jurisdictions.