Cryptocurrency, stablecoins being used to fund drug, gold smuggling racket: DRI report

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The use of cryptocurrency for illicit payments and transfer of proceeds of crime particularly in drug and gold smuggling cases has surged in recent years, with stablecoins like USDT increasingly replacing traditional hawala networks, a DRI report said on Thursday.

The Smuggling in India report 2024-25 by the Directorate of Revenue Intelligence (DRI) said unlike traditional financial channels, cryptocurrencies enable rapid, hard-to-trace international transfers, bypassing formal financial oversight.

This growing trend poses significant challenges to law enforcement agencies, necessitating the adoption of advanced blockchain forensics, inter-agency intelligence sharing, and specialised analytical tools to trace illicit flows and to combat associated illicit activities, it said.

"Cryptocurrency has emerged as a potent tool for smuggling syndicates due to its decentralised, pseudonymous, and borderless nature. DRI has observed a rise in the use of digital assets for illicit payments and transfer of proceeds of crime, particularly in narcotics trafficking and gold smuggling cases," the report said.

In gold and narcotics smuggling, sale proceeds are either hawala-transferred or sent as cryptocurrency to masterminds abroad, it added.

Crypto wallets, often anonymous and accessible via VPNs, facilitate off-the-book illicit payments, including for under-invoiced and misdeclared imports allowing smugglers to evade customs duties and taxes, and other regulatory requirements.

"The pseudonymous nature of cryptocurrencies such as Bitcoin allows fraudsters to conceal their identities, hindering detection and enforcement," it added.

The DRI's application of blockchain analytics to trace cryptocurrency transactions marks a significant step in combating crypto-enabled crime.

However, the evolving nature of digital assets demands stronger regulatory frameworks, enhanced Anti Money Laundering (AML) compliance, and advanced forensic tools, supported by global cooperation to curb cryptocurrency misuse, the report said.