No Policy Is Complete without Enforcement: Unregistered Crypto Platforms Must Be Held Accountable

Crypto assets have gathered a respectable measure of currency within the regulatory debate on account of the banks internationally putting emphasis on bringing standards over this fairly newer asset class. FATF, IMF, and FSB have raised concern for immediate action against the risks posed by crypto assets, paramount of which is their facilitation of illegal financial flows. Well, things have changed. With crypto-payment rails being used for illegal purposes by unauthorized websites, it now looks rather alarming, in India, too.

The latest report on "The Gambling and Betting Market in India" sheds light on the fact that the illegal offshore betting websites are mushrooming very fast because they have started accepting payments in cryptocurrency. Most of these websites are located in tax havens and actively marketed online, creating a very high risk for India's financial system and security of the digital economy.

It describes how dubious platforms of illegal gambling have adopted cryptocurrencies as not only payment mechanisms but also as operational facets. Upon deposit, preferably through, say, UPI or foreign wallets like AstroPay, one is promptly steered towards the possibility of switching to crypto payment modes after the first transaction. This adds lesser friction to the traditional payment control systems and further obscures the trace of the money trail. The alarming results show that, only late in 2024, four illegal platforms drew over 1.6 billion visitors in just three months. Multiple operators publicly accept deposits through e-wallets, UPI, and, most commonly, cryptocurrency assets such as USDT, Ethereum, and Bitcoin. Although legitimate customers are excited about the borderless nature of cryptocurrencies, their acceptance leaves a wide road for these platforms for money laundering, tax evasion, and circumvention of regulatory frameworks.

In India, these are no longer hypothetical concerns. The report notes that these illegal offshore betting sites are using cryptocurrency payment rails for the laundering of money, evasion of discovery, and large-scale operations. Frequently hosted in tax havens and promoted through aggressive online marketing, these platforms leverage the anonymity and decentralized nature of cryptocurrencies to sidestep financial safeguards and regulatory scrutiny, posing a clear and present danger to India's digital economy and the integrity of its financial system.

But these are not the only gambling platforms that operate behind the curtains. Many of the digital platforms have been included in the Alert List of the Reserve Bank of India for promotion of unauthorized entities/ETPs, as well as advertisement or claims to provide training/advisory services. These sites, unregistered with the appropriate authority, blatantly violate the PMLA regulations and offer cryptocurrency trading as well.

Yet, while illegal platforms flourish, compliant platforms are becoming extinct. Excessive tax rates and stringent compliance requirements, like strong KYC, responsible gaming, and payment regulations, make it increasingly difficult for genuine operators to compete within the ecosystem that illegal players operate at scale without accountability. It has created a highly distorted playing field on which law-abiding enterprises stand under a show of enforcement failures, thereby placing the whole infrastructure of India's regulated digital economy under threat. Furthermore, they threaten the native citizen by draining the country's own resources.

These illegal websites have crossed more than just being treated as minor players by the governments. With huge deposits and millions of users, they now pose a serious challenge to financial oversight. It is no less than an artful turn to obfuscate the origin of criminal profits and evade scrutiny using cryptocurrencies.