A study conducted by India’s federal financial intelligence unit has raised suspicions over the use of cryptocurrency in serious criminal activities, including terrorist financing, secessionist movements, cybercrime, narcotics trafficking, illegal betting, and gambling.
The Financial Intelligence Unit (FIU) compiled a typologies report on virtual digital assets (VDAs) and their service providers, including cryptocurrency exchanges, during the 2023-24 financial year. The report was based on suspicious transaction reports (STRs) collected from the crypto sector and subjected to operational analysis.
While the FIU acknowledged that the findings were based “only on suspicion,” the report underscored the potential financial and national security risks associated with digital assets. As per the report, which was accessed by PTI, the FIU shared intelligence on cryptocurrency operations with key law enforcement agencies, including the Enforcement Directorate (ED), the Central Bureau of Investigation (CBI), and the Income Tax Department. It stated that “necessary” enforcement actions had been taken in certain cases.
India is in the process of developing a regulatory framework to oversee and monitor cryptocurrency transactions. Until such measures are implemented, cryptocurrency remains legal in the country, although earnings from digital asset transactions have been subject to a flat 30% tax rate since 2022.
The Reserve Bank of India (RBI) has consistently voiced concerns over private cryptocurrencies, viewing them as a potential threat to the country’s macroeconomic and financial stability.
The FIU’s analysis also highlighted alarming trends, revealing that VDAs were reportedly linked to illicit activities, including Child Sexual Abuse Material (CSAM), terror financing, drug trafficking, and online gambling. The report indicated that mule accounts operating on Indian crypto exchanges, facilitated through Virtual Private Networks (VPNs), were receiving high-volume deposits from unhosted and offshore exchanges. Additionally, it pointed to the laundering of cybercrime-related funds through these channels.
As India works towards formulating comprehensive regulations for cryptocurrency, concerns over its potential misuse continue to shape discussions on financial security and law enforcement responses.
