Indian Intel Agency Flags Crypto’s Potential Links to Terrorism and Drug Trafficking

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Indian Intel Agency Flags Crypto’s Potential Links to Terrorism and Drug Trafficking

Financial Intelligence Unit Report Highlights Suspicious Crypto Transactions and National Security Concerns

A new report by India's Financial Intelligence Unit (FIU) has raised alarm over cryptocurrency's possible role in financing terrorism, cybercrime, drug trafficking, and illegal gambling within the country. The findings, based on suspicious transaction reports (STRs) and operational analysis from the 2023-24 financial year, underline concerns about virtual digital assets (VDAs) being misused for illicit activities.

Suspicion, Not Proof – But National Security at Stake

The FIU's analysis, while based on patterns and suspicion rather than conclusive proof, has flagged cryptocurrency transactions as a potential financial and national security risk. The report has been shared with key enforcement agencies, including the Enforcement Directorate (ED), Central Bureau of Investigation (CBI), and the Income Tax Department. Some cases have already led to enforcement actions, according to officials.

While India is still working on a regulatory framework for digital assets, cryptocurrency remains legal but heavily taxed. Since 2022, crypto earnings have been subject to a 30% tax. Meanwhile, the Reserve Bank of India (RBI) has repeatedly voiced concerns over private cryptocurrencies, warning of threats to macroeconomic and financial stability.

Crypto’s Alleged Role in Crime and Terrorism

The report outlines several alarming trends linking cryptocurrencies to unlawful activities, including:

  • Terrorist financing & secessionist movements - High-volume transactions and online gaming activities involving individuals from sensitive regions.
  • Cybercrime & drug trafficking - Mule accounts on Indian crypto exchanges using VPNs to receive large deposits from unhosted and offshore wallets, allegedly tied to money laundering.
  • Illegal gambling & forex scams - A surge in crypto transactions linked to unlawful foreign exchange applications and ‘pump and dump’ schemes involving fake tokens.
  • Child Sexual Abuse Material (CSAM) - Crypto’s role in transactions related to illicit online content.

The FIU report also highlighted that VDAs like Bitcoin, Tron, and Stablecoins (USDT/TRC-20) are frequently used by illicit actors due to their stability and broad acceptance. Offshore crypto platforms and unregistered wallets were often found to be involved in laundering criminal proceeds.

India’s Crypto Crackdown and Regulatory Push

In response to rising concerns, India made it mandatory in March 2023 for all crypto exchanges to register with the FIU as reporting entities under the Prevention of Money Laundering Act (PMLA). Banks, financial institutions, and payment service providers were also instructed to monitor and report crypto-related transactions.

Additionally, the Central Economic Intelligence Bureau (CEIB) has urged the government to establish a dedicated regulatory body for the crypto sector, reinforcing the push for stricter oversight in the rapidly evolving digital asset market.

As India moves toward greater regulation, the debate over cryptocurrency’s role in both innovation and crime continues to intensify. While crypto offers new financial opportunities, authorities remain wary of its darker side – one that could pose significant risks to national security.

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