Key Details of the Crypto Hawala Network
- •Indian agencies have identified a crypto-based hawala system suspected of funneling foreign funds into Jammu and Kashmir.
- •This network utilizes mule accounts, unregulated peer-to-peer crypto trades, and layered transactions to evade detection.
- •International handlers and the use of VPNs are crucial components in bypassing Know Your Customer (KYC) and regulatory controls.
Sophisticated Network Undermines Financial Oversight
Indian security agencies have issued warnings regarding a newly discovered and highly sophisticated “crypto hawala” network. This system mirrors the traditional underground money transfer system and is allegedly being used to channel foreign funds to support terrorist activities in Jammu and Kashmir. Officials have indicated that the network operates entirely outside of regulated financial channels, enabling illicit foreign money to enter India without detection by authorities or compliance checks. This development has heightened concerns among security agencies, who fear that such untraceable funding routes could potentially reignite separatist activities in the region.
Crypto used for terror funding in J&K? Agencies flag digital ‘hawala’ network; how it works | India News – The Times of India https://t.co/dkksCaT5ID
— Steve Stalinsky PhD (@SteveStalinsky) January 18, 2026
Mechanisms of Evasion
Under India’s current regulatory framework, Virtual Digital Asset Service Providers (VDASPs) are required to register with the Financial Intelligence Unit (FIU). However, investigators have noted that as of the 2024–25 fiscal year, only 49 crypto exchanges have registered as legally compliant reporting entities. The crypto hawala system completely bypasses these essential safeguards. According to investigators, foreign handlers send cryptocurrency directly to private wallets without involving any regulated financial institutions. The individuals holding these wallets then travel to major cities like Delhi and Mumbai, where they sell the cryptocurrency through unregulated peer-to-peer (P2P) traders at negotiated rates, effectively converting digital assets into cash.
Reliance on Mule Accounts, VPNs, and International Coordination
Security agencies have revealed that the network heavily relies on “mule accounts.” These are bank or crypto accounts held by ordinary individuals who are recruited to temporarily “park” funds. The account holders are compensated with commissions ranging from 0.8% to 1.8% per transaction and are often reassured that their role is harmless. Once recruited, syndicates gain complete control over these accounts, including passwords, and implement layered transactions to obscure the money's flow.
Investigations also indicate the involvement of international handlers operating from countries such as China, Malaysia, Myanmar, and Cambodia. These handlers assist in creating private crypto wallets for Indian users. They reportedly utilize VPNs to avoid detection and operate without requiring Know Your Customer (KYC) verification. Despite VPN usage being officially suspended in the region, police reports suggest a surge in crypto wallet registrations in recent months, pointing to the growing exploitation of digital loopholes.
In parallel, India’s Financial Intelligence Unit (FIU) has released new regulations that mandate stricter KYC checks for crypto platforms.