MC EXCLUSIVE Crypto under scanner: FIU scrutinising use of private wallets for illicit fund transfers from Pakistan

Bitcoin hits all time high

India's Financial Intelligence Unit (FIU-IND) is collecting information from leading cryptocurrency exchange Binance to identify accounts that could be receiving cryptocurrency in their "private wallets" from Pakistan, two senior officials told Moneycontrol. This is being done amid concerns that these wallets are being used to transfer funds to carry out illegal activities in India as well as for terror financing, they said.

A private crypto wallet is a digital tool that allows an individual to store, manage and transact with cryptocurrencies by holding their private keys. Unlike custodial wallets, where a third party holds the keys, private wallets give complete control to individuals over their assets. Crypto exchanges, such as Binance, allow the private wallets to be linked to their platforms, and use them for crypto transactions.

Sources say Binance is being probed as the exchange is being used in most cases for cross-border crypto transactions. "Binance has been cooperating with FIU and in recent months, as crypto transactions between J&K (Jammu and Kashmir) and border areas of Pakistan have increased," one official said. "We suspect some of these would be linked for financing terror… We’re probing."

The FIU typically collects information and shares it with other investigative agencies such as the Directorate of Enforcement, Income Tax Department, National Investigative Agency, Central Bureau of Investigation, etc., to take appropriate action in cases of foul play. The FIU is in touch with several crypto-exchanges, including WazirX, to investigate cross border digital currency transactions, said officials.

The spokesperson of WazirX, however, said that the platform has always upheld a strong commitment to regulatory compliance and transparency. "We have consistently extended full cooperation to law enforcement agencies in all past investigations. We maintain a strict zero-tolerance policy towards any unlawful activity on our platform and remain committed to assisting the authorities in every possible way to identify and take action against wrongdoers," the person told Moneycontrol.

The spokesperson mentioned that there have been no transactions on the WazirX platform since July 18, 2024, and even before that, crypto withdrawals were not permitted, adding that "WazirX is not under any scrutiny".

Earlier this week, a crypto cross-border scam was uncovered by the Cyber Crime Cell of the Ahmedabad Police, with the assistance of Binance. As per reports, many individuals in Gujarat were lured by scammers in Nepal to transfer money (over Rs 1 crore) through crypto wallets. In an official statement on Tuesday, the crime branch said, "With timely support from Binance, we were able to trace the crypto trail, identify key suspects and move quickly on arrests."

Moneycontrol had reported last month that the Income Tax Department in recent months had carried out raids at multiple locations in several states to arrest individuals suspected of using cryptocurrency for money laundering and transferring funds through illegal routes (hawala) via Dubai.

In August 2024, Binance officially registered with FIU-IND to comply with local regulations, specifically anti-money laundering (AML) rules. The FIU last year had cracked down on several global cryptocurrency exchanges, including Binance, for operating in India without following local laws.

These platforms were accused of not complying with India’s AML regulations, which are crucial for preventing illegal activities. For seven months, prior to registration with FIU, Binance was blocked from operating in India.

In coming months, the FIU might roll out a fresh framework for crypto exchanges under the Prevention of Money Laundering Act to receive more timely information on suspected accounts. The FIU is also likely to enhance reporting requirements for fintechs to report suspicious transactions.

In a report released on July 8, the Financial Action Task Force (FATF), while referring to incidents such as the 2019 Pulwama suicide bombing attack that killed 40 personnel of the Central Reserve Police Force and the 2022 Gorakhnath Temple attack, raised an alarm over the increasing use of e-commerce platforms and online payment systems in facilitating terrorist financing. The watchdog mentioned how aluminium powder, a key component in improvised explosive devices, was procured through Amazon to enhance the lethality of a bomb.