Indian security agencies have raised alarm over what they describe as a new and highly sophisticated “crypto hawala” network being used to funnel money into terror-related activities in Jammu and Kashmir.
According to a report by Press Trust of India (PTI), the system closely mirrors the traditional hawala model but replaces cash couriers with cryptocurrency—allowing funds to move entirely outside regulated financial channels.
Officials warned that the network bypasses India’s financial safeguards and operates “off the grid,” raising fears that it could help revive separatist elements in the region.
How the ‘Crypto Hawala’ Network Works
Under Indian law, crypto exchanges and Virtual Digital Asset Service Providers must register with the Financial Intelligence Unit (FIU). However, officials say this network avoids registered platforms altogether.
As of the 2024–25 financial year, only 49 exchanges are officially registered as reporting entities, leaving gaps that illicit actors are exploiting.
At the center of the scheme are so-called “mule accounts”—wallets and bank accounts belonging to ordinary individuals who are paid a small commission, typically 0.8% to 1.8% per transaction, to temporarily hold funds.
Authorities say these individuals are often told their role is harmless and limited to “parking” money. In reality, syndicates take full control of their accounts, including passwords, and use layered transactions to hide the source and destination of funds.
“This effectively breaks the financial trail,” officials said, allowing foreign money to enter the local economy as untraceable cash.
Foreign Handlers and P2P Crypto Sales
Investigators say foreign handlers send cryptocurrency directly to these wallets without involving any regulated financial institution. The wallet holders are then instructed to travel to major cities like Delhi and Mumbai, where they sell the crypto to unregulated peer-to-peer (P2P) traders at negotiated prices.
According to the Jammu and Kashmir Police and central security agencies, individuals from countries such as China, Malaysia, Myanmar, and Cambodia are suspected of helping create private crypto wallets for locals. These handlers reportedly use VPNs to avoid detection and bypass KYC checks.
Police confirmed that VPN usage is officially restricted in the region, but noted a rise in wallet registrations and suspected misuse in recent months.
Growing Concern for Security Agencies
Officials say the untraceable nature of crypto hawala poses a serious challenge for law enforcement, especially in a sensitive region like Kashmir. With no regulated intermediaries involved, tracking funds becomes extremely difficult.
Security agencies warn that unless these networks are disrupted, crypto-based hawala systems could become a preferred channel for illicit financing—combining the secrecy of traditional hawala with the speed and reach of digital assets.
