Against the backdrop of the financial revolution via the internet, India has forever navigated that thin line between innovation and regulation. While the emergence of cryptocurrency has ushered in unprecedented opportunity, it has ushered in equally potent peril as well: cryptocurrency money laundering. As the volumes of blockchain-based transactions expand and become more complicated, so expands the threat of such systems being manipulated by rogues.
India's policymakers, regulators, and police are struggling to keep pace. Here we examine how India is fighting back against money laundering with the use of targeted policy, technological monitoring, and cross-border cooperation — and what is yet to be closed.
Crypto: The New Frontier for Launderers
Cryptocurrencies such as Bitcoin, Ethereum, and Monero present money launderers with an attractive proposition: anonymity, decentralization, and borderless transfers. While all blockchain transactions are traceable, sophisticated laundering methods — such as "mixers," privacy coins, and layering between several wallets and exchanges — have made it possible for criminals to take advantage of the system.
It is not an abstract problem in India. Cases of money laundering using cryptocurrency have gone up significantly since 2020, says the Enforcement Directorate (ED), and such alleged scams as the Morris Coin Ponzi scam and WazirX-Binance trail are tributes to failures in regulation.
A Wake-Up Call: The WazirX Incident
In 2022, India's top crypto exchange WazirX was in the middle of a huge scandal when the ED froze assets of $8 million, accusing the platform of assisting Chinese loan app companies in money laundering. The case marked a turning point. Crypto exchanges had previously been allowed to operate with minimal regulation, citing that their decentralized nature meant they could not be held accountable.
The case spurred a heightened crackdown on exchanges, particularly those whose ownership was opaque or whose Know Your Customer (KYC) procedures were weak. It put the industry on notice that financial anonymity is a regulatory nightmare.
Policy Response: FIU Registration and AML Compliance
India has attempted to broaden the reach of financial law to Virtual Digital Asset (VDA) entities since then. In March 2023, the Ministry of Finance formally notified crypto exchanges, wallet providers, and intermediaries as "reporting entities" under the Prevention of Money Laundering Act (PMLA), 2002.
This implies that these platforms needed to:
Get registered with the Financial Intelligence Unit (FIU)
Perform strict KYC checks on all customers
Keep records of transactions for five years
Report suspicious transactions to the FIU-IND
This regulatory update, although long overdue by years, was also greeted with open arms by crypto businesses and law enforcement authorities alike. It aligned Indian crypto regulation with the Financial Action Task Force (FATF) standards, a leading international regime to fight money laundering and terrorist financing.
The Application of Technology to Track Laundering
One of the largest crypto myths is that it's totally anonymous. Far from it, as all public blockchain transactions are permanently stamped into history. The ED and the FIU already use blockchain analysis software such as Chainalysis, Elliptic, and CipherTrace to monitor suspicious wallet activity.
These technologies allow it to identify wallet addresses of crime businesses, trace high-value money flows, and even track money between hundreds of pseudonymous accounts. India's enforcement regime depends more and more on these kinds of forensic technologies, eliminating the technological disadvantage previously that gave an advantage to criminals.
In 2024 alone, blockchain analysis helped freeze more than ₹120 crore worth of cryptocurrency assets of fraud and drug syndicates, Ministry of Home Affairs officials said.
Challenges: Global Exchanges and Regulatory Arbitrage
Even with these policy improvements, India's battle against crypto money laundering is severely handicapped — primarily because digital assets are global in nature. Indian users continue to trade on foreign exchanges such as Binance, KuCoin, and OKX, which are largely beyond the immediate regulatory jurisdiction of Indian authorities.
Nine of the world's largest crypto exchanges were sent compliance notices in December 2023 by India's FIU for not registering to conduct business in India. Others, such as Binance and KuCoin, then complied and vowed to do so, but the incident revealed a larger issue: regulatory arbitrage. Without coordination globally, the criminal simply shifts their assets elsewhere that is more lenient.
Working with Global Allies
Having achieved this, India has also developed interest in global regulatory forums. Being a front-line G20 member during its 2023 presidency, India emphasized the need for creating a worldwide crypto regime. The G20 Summit Final Communiqué called for harmonized regulation of AML across borders.
India is also working extensively with the Egmont Group of Financial Intelligence Units and INTERPOL to exchange information, monitor global laundering networks, and freeze cross-border crypto assets.
Industry's Role: From Opposition to Collaboration
There was a time when Indian crypto firms regarded regulation as a survival necessity. But after risks became self-explanatory — and institutional trust became a differentiator — larger players such as CoinDCX, CoinSwitch, and Giottus have embraced compliance.
CoinDCX, for example, already employs real-time blockchain monitoring for suspicious activity flagging and daily reporting to the FIU. Self-regulatory mechanisms that achieve balance between compliancy and innovation also exist through engagement with regulators by organizations such as the Bharat Web3 Association (BWA).
Conclusion: A Fight Far From Over
India has come a long way in its fight against crypto money laundering. From the juridical structuring of VDAs under PMLA to advanced monitoring and international cooperation, the system is being developed for a digital finance space which would be cleaner, more open, and transparent.
But there are challenges still — namely, how to address decentralized platforms, peer-to-peer transactions, and obstinate jurisdictions. For the battle to be won, regulation needs to move at the pace of innovation, not years behind.
Crypto is not good or bad — it's a tool. Whether it creates prosperity or facilitates crime is not a function of the technology, but rather how well it is regulated. And India, which is one of the world's fastest-growing crypto economies, can't help but take the lead.