New Delhi: A trends study conducted by the federal financial intelligence unit of India has expressed “suspicion” that cryptocurrency is being used across the country’s landscape in serious criminal acts like terrorist financing, fuelling secessionist activities, cybercrime, narcotics trafficking apart from illegal betting and gambling.
The typologies report for the virtual digital assets (VDAs) and their service providers (crypto exchanges) was prepared by the Financial Intelligence Unit (FIU) during the 2023-24 financial year after gathering a number of suspicious transaction reports (STRs) generated from this sector and conducting their “operational analysis”.
The report, however, made it explicitly clear that these trends were based “only on suspicion” and involved financial and national security implications.
The FIU, as per the report accessed by PTI, shared these trends as well as “credible” intelligence on the operations of cryptocurrency in the country with relevant law enforcement agencies like the ED, CBI and the Income-Tax Department and “necessary” enforcement action was taken by them in certain cases.
India is currently formulating a framework for regulating and monitoring cryptocurrencies, but until that is implemented, crypto is not yet illegal in the country.
Income earned out of cryptocurrency transactions is taxed at a flat rate of 30 per cent since 2022.
The Reserve Bank of India (RBI) too has been sceptical about the use of private crypto assets and considers it a major threat to the macro-economic and financial stability of the country.
The trends analysis found that VDAs or crptocurrency were “involved in” Child Sexual Abuse Material (CSAM), terror financing, narcotics trafficking, betting and gambling activities. Mule accounts at Indian crypto exchanges, through the use of VPN (virtual private network), were receiving “high volume” deposits from un-hosted and offshore exchanges apart from the laundering of cybercrime funds.
The federal agency also stated in its trend report about the suspicion of “high-volume” cryptocurrency, hawala and online gaming-related transactions by persons based in “sensitive” regions allegedly for terrorist and secessionist activities, money laundering through cryptocurrency by persons of origin from “sensitive” foreign countries apart from the existence of “illegal” and “unregistered” online Virtual Digital Asset Service Providers (VASP) or crypto exchanges.
The presence of some ‘pump and dump’ schemes involving fake coin and crypto tokens, “high volume” of crypto transactions involved in running “illegal” forex applications apart from attempts to onboard persons suspected to be involved in unlawful activities in “sensitive regions” were also among the suspicions reported by the trends study.
The report concluded that based on these trends and patterns, it can be said that VDAs like Bitcoin, Tron and Stable coins (USDT/TRC-20) are very “widely” used by “illicit actors” because of their widespread acceptability and stability in value.
In most of the cases, offshore VDA service providers and un-hosted/un-identified wallets were being used to launder the proceeds of crime, the analysis found.
“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.
