Indian security agencies have flagged a dramatic increase in cryptocurrency-based 'hawala' networks that are being used to funnel foreign terror funds into the Jammu and Kashmir region, bypassing financial safeguards and oversight. Officials warn these networks, which exploit gaps in crypto regulation, could revive disrupted separatist structures.
Investigators detail that these networks operate outside regulated systems, using private digital wallets, VPNs, and unregulated platforms to avoid mandatory checks. The system creates a clear path for foreign money to enter India without detection, mirroring old hawala operations but relying on decentralized tools that leave limited financial trails. Enforcement agencies face significant challenges tracing these transactions, a shift that followed stricter action against traditional hawala routes.
The networks employ sophisticated methods, including the use of 'mule accounts' where holders receive small commissions to store and layer funds, breaking transaction trails before money is routed into Kashmir. Peer-to-peer (P2P) crypto traders in major Indian cities enable the off-grid conversion of digital assets into untraceable domestic cash, completing an end-to-end cycle. Foreign handlers from countries like China, Malaysia, Myanmar, and Cambodia are reported to help create private crypto accounts for locals, using VPNs to mask activity and avoid KYC requirements.
Concurrently, official data reveals an explosion in suspicious cryptocurrency transactions within India, rising from 1,343 in the 2023-2024 fiscal year to 11,720 in the first eight months of the current year—a 773% increase. People aged 20 to 40 account for 82% of these instances. India now has 34 million people trading virtual digital assets, holding assets worth ₹24,800 crore (approx. $3 billion).
The stablecoin Tether (USDT) was the most frequently mentioned cryptocurrency in suspicious activity reports, appearing in 76% (7,467) of cases reviewed between May 2023 and May 2025. Bitcoin was involved in just 6% of reports. Straightforward fraud made up 62% of the suspicious activity. The Financial Intelligence Unit (FIU) now requires registration for Virtual Digital Asset Service Providers, with 52 companies registered so far.
A specific case highlighted links to Cambodia, where 34 customers used Cambodian phone numbers to access Indian crypto accounts, funding them with USDT from the payment company Huione Pay—a firm the U.S. has since cut off from its financial system. Authorities suspect the funds are tied to internet crimes and human trafficking.
The government has imposed ₹29 crore in fines on rule-breakers and blocked 63 websites. A finance committee is now looking into cryptocurrency, amid growing concerns over tax evasion, as crypto enables covert cross-border transfers that make it harder to identify taxable revenue.
