India Tightens Crypto Oversight Amid Border Security Concerns

India has intensified its scrutiny of cryptocurrency transactions, particularly those originating from Jammu & Kashmir and adjacent border regions. The government has instructed cryptocurrency exchanges to closely monitor these transactions due to growing concerns over money laundering and the potential for illegal funding. This heightened vigilance comes in the wake of a recent attack in Kashmir’s Pahalgam, which has escalated tensions and security apprehensions.

Crypto tokens named “Pahalgam” and “Operation Sindoor” have surfaced on platforms like Solana, adding to the government's concerns. The Financial Intelligence Unit (FIU-IND), responsible for tracking financial crimes, has reportedly advised several Indian crypto exchanges to be on high alert for such activities.

Exchanges have been directed to pay special attention to private wallet transactions, which allow users to transfer crypto directly from one person to another without involving exchanges or custodians. This direct transfer method complicates the tracking of funds, especially if they are being moved for illicit purposes.

A source indicated that the current focus is on monitoring trades from border areas, rather than just routine suspicious transactions. Similar to banks, crypto exchanges are obligated to regularly submit Suspicious Transaction Reports (STRs) to the FIU. Over the past year, crypto withdrawal rules have been tightened, requiring users to provide more information about the destination of their funds to prevent misuse, given the untraceable nature of crypto.

Some Indian crypto exchanges are now verifying whether a Binance wallet belongs to the customer before permitting withdrawals. However, the primary concern is that once funds reach Binance, they can be transferred almost anywhere. Additionally, there are currently no international guidelines for foreign crypto transfers.

In a related development, the Securities and Exchange Board of India (SEBI) has instructed the trustees of Alternative Investment Funds (AIF) to be vigilant about money laundering and terrorism financing risks within their funds.