The Indian government has directed domestic cryptocurrency exchanges to intensify monitoring of transactions originating from Jammu & Kashmir and nearby border regions, The Economic Times reported. This move stems from rising fears that digital assets may be used to launder money or fund unlawful operations.
According to the report, the Financial Intelligence Unit (FIU-IND), responsible for investigating financial crimes, has advised several Indian crypto trading platforms to be especially vigilant. These platforms have been told to monitor and report trades involving ‘private wallets’—wallets that allow users to store and transfer cryptocurrencies without centralized oversight by exchanges or custodians.
Private wallets are a key concern as they facilitate direct peer-to-peer transfers, bypassing traditional financial systems and making it harder for authorities to trace the source or destination of funds. This raises red flags, particularly in sensitive border areas where national security is a critical concern.
Sources familiar with the matter say the FIU has asked exchanges to prioritize tracking users in border zones over general Suspicious Transaction Reports (STRs). This comes as part of a broader effort to prevent misuse of digital assets, which are known for their anonymous and borderless nature.
In the past year, Indian exchanges have tightened withdrawal policies, demanding more disclosure from users regarding fund recipients. Despite such efforts, concerns persist. While privacy-focused coins like Monero and Zcash are not listed on Indian platforms, users can still acquire cryptocurrencies like USDT, move them to offshore exchanges such as Binance, and convert them into highly anonymous coins, complicating enforcement.
Some Indian platforms now restrict withdrawals to verified Binance wallets. However, once assets move offshore, the lack of regulatory clarity makes tracing and oversight difficult.
Separately, market regulator SEBI has asked Alternative Investment Funds (AIFs) to review their internal controls for risks related to money laundering and terror financing.
Crypto exchanges, like traditional banks, are obligated to file STRs with FIU regularly, flagging any suspicious activity they detect.
