India Warns Crypto exchanges about Illicit Funds Associated With Kashmir and Jammu Regions

India’s Financial Intelligence Unit (FIU) has issued an alert for crypto exchanges to monitor transactions associated with the locations of Jammu, Kashmir, and surrounding areas. The FIU is concerned that a terror threat may be imminent and that crypto could be used to fund military operations. The FIU particularly interests Pahalgam tokens and Operation Sindoor on the Solana blockchain. Indian authorities have asked exchanges to be on the lookout for terror funding and money laundering. Indian authorities seem to be concerned about private wallets that escape the purview of financial regulators, because centralised exchanges have very little control over what people do with their private wallets, including but not limited to military operations. The FIU, therefore, has asked exchanges to report crypto activities associated with border areas.

The FIU requested major crypto exchanges in India. They advised the exchanges to be on high alert for suspicious transactions. The FIU is responsible for investigating financial crimes in India. There has been a growing amount of tension building ever since India and Pakistan had a conflict. Indian officials may suspect that the conflict is not over yet and may spread to the Kashmir and Jammu regions. The FIU has asked exchanges to monitor transactions, especially those involving private wallets. Despite most exchanges holding custodial rights over a customer’s crypto, this doesn’t give the exchange control over where customers send their crypto. Such a loophole could be exploited by military groups that could fund operations by sending money to private wallets. The money could then be mixed so the original sender is not caught.

Indian authorities are concerned that private wallets could make it challenging to track illicit funds, such as those used in terror financing and money laundering. It would take a lot of work for the FIU to track all transactions from exchanges to private wallets. This would be difficult for Indian officials to track, let alone without further mixing tokens to obfuscate a transaction trail. Despite these obstacles, Indian officials still have much control over the crypto market and can compel exchanges to comply with their wishes. The exchanges could disregard regular business transactions and focus on outliers instead. The exchanges could further concentrate on danger areas, such as border locations with concentrated separatist movements. The FIU requires Indian exchanges to create ‘suspicious transaction reports’ so that the organisation can investigate the source of the funds.

India has stringent crypto laws and a concerted effort to track private wallets, and crypto users must report their activities. India has introduced new rules that require crypto users to report the identity of beneficiary addresses when sending funds to a private wallet. India is concerned about private wallets because a user on an exchange could transfer money to a private wallet and then swap the token for anonymous tokens like Monero or Zcash. The user could, theoretically speaking, make a payment to anyone, including terror groups. This issue has become a problem for other crypto projects, such as Ethereum, that wish to increase privacy features while also confirming that tokens have not originated from illicit trades.

The Enforcement Directorate (ED) recently raided a scam cryptocurrency called ‘Emollient Coin’ by raiding locations in Leh, Jammu, and Sonipat. The crypto project promised customers they could double their money in 10 months. India’s ED uncovered an extensive network of fraudulent crypto activities, including 7,200 mule accounts used for laundering money and 1,000 investors defrauded by the scheme. A core aspect of the project was converting illicit fiat money to cryptocurrencies, so bad actors could enjoy the benefits of liquidity.