In what can pose a fresh challenge to those at the helm cracking terror funding trail, security agencies have flagged a sophisticated “crypto hawala” network bypassing the country’s financial safeguards to funnel untraceable foreign funds into Jammu and Kashmir, sparking grave concerns that the money is being used to support terror activities.
This has put the security establishment on high alert, with officials warning that these shadow funds are intended to give a fresh lease of life to separatist elements and reignite the anti-national rhetoric within the Union Territory that had otherwise been virtually neutralised by a crackdown by police and central agencies, officials said.
Mirroring the traditional hawala system, where money is sent through non-banking channels, this digital version uses the anonymity of unregulated cryptocurrency to erase the financial trail and inject cash into the domestic economy. Officials warn that the “crypto-hawala” method is designed to bypass formal banking systems and avoid leaving any financial traces. By moving money from a digital private wallet to a physical cash transaction in a different city, the “financial trail” is effectively cut off.
While India requires all Virtual Digital Asset Service Providers (VDA SPs) to register with the Financial Intelligence Unit (FIU), this shadow network operates entirely off the grid.For the 2024-25 fiscal year, only 49 exchanges have registered as legal reporting entities, prompting the government to come out with fresh guidelines that include a mandatory liveness detection and geographical tracking, besides asking users to take a “live selfie” using software that verifies their presence, typically through eye-blinking or head movement.
A detailed study done by the Jammu and Kashmir Police, along with central security agencies, identified people in countries like China, Malaysia, Myanmar and Cambodia directing people in the union territory to create private crypto wallets, which are often set up using a Virtual Private Network (VPN) to avoid detection and require no Know Your Customer (KYC) or identity verification.
The Jammu and Kashmir Police has already suspended the use of VPNs in the valley as registering in crypto wallets was increasingly seen in the region of late. The VPN is a handy tool for terrorists as well as separatists to avoid detection.
This effectively “breaks the financial trail,” allowing foreign money to enter the local economy as untraceable cash, the officials said.The officials said the rise of crypto hawala throws a new challenge of off-exchange trading and, by operating in the “grey market,” these traders evade the anti-money laundering laws that apply to registered entities.
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