Indian Security Agencies Identify 'Crypto Hawala' Network for Terror Financing in Kashmir

A recent report indicates that a new, sophisticated "crypto hawala" network is being used to channel funds supporting terrorist activities in Jammu and Kashmir, leading to concerns from Indian security officials.

Key Takeaways

Indian security officials have identified a 'crypto hawala' network used for terrorist financing in Jammu and Kashmir.
This network operates outside traditional financial systems, raising serious concerns.
'Mule accounts' are used to obscure fund transfers, making them untraceable.
Individuals from foreign countries are involved in creating private crypto accounts for local residents.
Regulatory measures are not being met, and the use of VPNs for hiding transactions is prevalent.

Crypto Hawala India

According to the Press Trust of India, these foreign funds operate outside of traditional financial safeguards, entirely off the grid.

Under current Indian regulations, Virtual Digital Asset Service Providers (VDASPs) must register with the Financial Intelligence Unit (FIU). As of the 2024-25 fiscal year, only 49 exchanges have registered as legal reporting entities.

The emergence of this untraceable crypto hawala system has raised alarms, with officials warning it could revive separatist movements in the region.

How Crypto Hawala Operates: The Role of 'Mule Accounts'

The crypto hawala network employs "mule accounts" to temporarily hold and obscure the flow of funds. These accounts are used to layer transactions, making it difficult to trace the money trail. The syndicates behind this operation offer commissions ranging from 0.8% to 1.8% per transaction to the account holders, who are often ordinary individuals, according to officials.

These syndicates entice account holders with promises of commissions, assuring them that their involvement is safe and merely involves parking funds. The syndicates manage the bank accounts and passwords of all mule account holders.

"This effectively 'breaks the financial trail,' allowing foreign money to infiltrate the local economy as untraceable cash," officials noted.

In this process, foreign handlers send cryptocurrencies directly to these wallets without engaging regulated financial institutions. Furthermore, wallet holders travel to major Indian cities, such as Delhi and Mumbai, to meet with unregulated peer-to-peer (P2P) traders, where they sell cryptocurrencies at negotiable prices.

According to the Jammu and Kashmir Police and central security agencies, individuals from countries like China, Malaysia, Myanmar, and Cambodia have established private crypto accounts for local Indian residents. These international handlers often employ a Virtual Private Network (VPN) to evade detection and do not require Know Your Customer (KYC) verification.

The police confirmed that the use of VPNs is already suspended in the region, and the registration of crypto wallets has been notably increasing recently.