A study conducted by India's Financial Intelligence Unit (FIU) has raised concerns that cryptocurrency may be involved in serious criminal activities across the country, such as terrorist financing, supporting secessionist movements, cybercrime, narcotics trafficking, and illegal betting and gambling.
The Financial Intelligence Unit (FIU) compiled the typologies report for virtual digital assets (VDAs) and their service providers (crypto exchanges) during the 2023-24 financial year. This was based on a collection of suspicious transaction reports (STRs) from the sector, along with the findings from their "operational analysis."
However, the report clarified that these trends are based on "suspicion" and carry potential financial and national security risks.
According to the report accessed by PTI, the Financial Intelligence Unit (FIU) has shared these trends, along with "credible" intelligence regarding cryptocurrency operations in India, with relevant law enforcement agencies such as the Enforcement Directorate (ED), Central Bureau of Investigation (CBI), and the Income Tax Department. In certain cases, these agencies have taken "necessary" enforcement actions.
India is currently in the process of developing a framework to regulate and monitor cryptocurrencies, but until that framework is implemented, cryptocurrency is not considered illegal in the country.
Since 2022, earnings from cryptocurrency transactions in India have been taxed at a fixed rate of 30%.
The Reserve Bank of India (RBI) has also expressed concerns about the use of private cryptocurrencies, viewing them as a significant threat to the country’s macroeconomic and financial stability.
The trends analysis revealed that virtual digital assets (VDAs), or cryptocurrencies, were linked to activities such as Child Sexual Abuse Material (CSAM), terrorist financing, narcotics trafficking, and illegal betting and gambling. It also found that mule accounts at Indian crypto exchanges, using VPNs (virtual private networks), were receiving large volumes of deposits from unhosted and offshore exchanges, along with the laundering of funds from cybercrimes.
The federal agency also highlighted in its trends report concerns regarding "high-volume" cryptocurrency transactions, hawala activities, and online gaming transactions by individuals from "sensitive" regions, allegedly linked to terrorist and secessionist activities. It also pointed to money laundering through cryptocurrency by individuals from "sensitive" foreign countries, as well as the presence of "illegal" and "unregistered" online Virtual Digital Asset Service Providers (VASP) or crypto exchanges.
Additionally, the report flagged the existence of 'pump and dump' schemes involving fake coins and crypto tokens, a large volume of crypto transactions connected to operating "illegal" forex applications, and efforts to involve individuals suspected of participating in unlawful activities in "sensitive regions."
The report concluded that, based on these trends and patterns, virtual digital assets (VDAs) such as Bitcoin, Tron, and Stablecoins (USDT/TRC-20) are widely used by "illicit actors" due to their broad acceptability and stable value.
The analysis found that, in most cases, offshore VDA service providers and un-hosted or unidentified wallets were being used to launder criminal proceeds.
"It is reiterated that the trends based on operational analysis carried out are based only on suspicion. The credible intelligence was shared with law enforcement agencies and necessary enforcement action has been taken by law enforcement agencies in some cases," it said.
The report underlined that the cryptocurrency landscape in India has been "rapidly" evolving and gaining "popularity" among investors and traders.
The VDAs have gained significant attention in recent years due to their potential to transform the financial sector and provide new opportunities for wealth creation, it stated.
Keeping in view the challenges and risks posed by cryptocurrencies particularly with respect to money laundering and terrorist financing, India, in March 2023, brought out a regime where all crypto exchanges were required to register as reporting entities with the FIU and share suspicious transaction reports with the agency under the provisions of the Prevention of Money Laundering Act (PMLA).
During the same time, all other reporting entities like private and public sector banks, capital market intermediaries, non-banking financial companies, insurance entities and credit card operators among others were asked to "monitor" and share reports of all crypto transactions and customers in their respective channels with the FIU.
The Central Economic Intelligence Bureau (CEIB), another agency under the Union finance ministry like the FIU, has also submitted a report on VDAs to the government in 2023 recommending a regulator for the crypto sector in the country.
