India Cracks Down on 25 Offshore Crypto Exchanges for Money Laundering

india crypto exchanges crackdown money laundering

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India’s Financial Intelligence Unit has intensified its scrutiny of the crypto sector by targeting 25 offshore digital asset platforms that failed to comply with anti-money laundering laws. The focus on money laundering is not accidental, since unregistered exchanges represent one of the highest risks for illicit finance in the region. These offshore firms allowed Indian users to buy and trade virtual assets without registering under the Prevention of Money Laundering Act of 2002, a clear violation of domestic compliance rules.

Money laundering vulnerabilities in India’s crypto market

The challenge for India lies in balancing the country’s growing digital asset adoption with the persistent risk of crypto being used to obscure financial crime. Offshore exchanges that do not submit suspicious transaction reports or conduct proper customer due diligence enable bad actors to move funds with minimal oversight. Unlike licensed entities that must maintain records, monitor patterns, and respond to regulator requests, these offshore providers operated without accountability.

Money laundering through crypto has increasingly become a transnational issue. Virtual asset service providers often position themselves outside major jurisdictions, exploiting the gaps between national regulations. By issuing notices under the PMLA and moving to restrict access to non-compliant platforms, India is signaling that it intends to close those gaps. The case also highlights how unregulated exchanges serve as conduits for layered transactions, enabling illicit proceeds to be routed across multiple accounts and converted into pseudonymous digital assets.

Criminal groups exploit such channels for both domestic laundering and cross-border transfers. This puts significant pressure on financial intelligence units worldwide to act before large-scale misuse destabilizes payment systems. India’s crackdown is not just about investor protection but about addressing a systemic risk to the financial system’s integrity.

Offshore exchanges and systemic AML gaps

The targeting of 25 offshore exchanges brings into focus a deeper structural weakness in the global crypto ecosystem. Platforms such as Bitmex, Poloniex, Paxful, and CEX.IO have long been subject to scrutiny in other jurisdictions, and their inclusion in India’s action suggests repeated patterns of regulatory avoidance.

The systemic gap is created when exchanges provide services in a market but remain outside its reporting framework. Without oversight, these entities can easily facilitate transactions that involve the layering of illicit funds, especially when connected to mixers or privacy coins. Offshore platforms also tend to accept weak onboarding documentation, allowing customers to bypass strict know-your-customer requirements.

By contrast, the 50 exchanges registered with FIU India are subject to stringent reporting obligations. They must file suspicious transaction reports, maintain client data, and align with AML rules. The unregistered offshore providers undermine this ecosystem by creating a shadow parallel market where illegal funds can be injected and withdrawn with little friction.

Moreover, the enforcement action under Section 13 of the PMLA establishes that India is prepared to escalate penalties beyond mere warnings. By also invoking provisions of the Information Technology Act to restrict access to websites and apps, regulators are introducing a two-pronged approach: compliance enforcement and digital takedown of illegal access points. This dual strategy reflects recognition that financial crime prevention must address both the financial and the technological dimensions of illicit finance.

Investor protection versus illicit finance channels

While much of the official narrative emphasizes investor protection, the broader AML perspective reveals that these actions are primarily about curbing illicit finance channels. Investors are vulnerable to fraud and hacks when dealing with unregulated platforms, but the greater risk is that their transactions become intertwined with laundered funds.

When exchanges do not file transaction reports, regulators cannot distinguish between legitimate and suspicious flows. This leaves the financial intelligence framework blind to patterns of trade-based laundering, ransomware proceeds, and terror financing. Offshore crypto exchanges can become vectors for smurfing, where illicit funds are broken down into smaller trades, or for layering schemes that obscure the original source of funds.

Critics argue that takedowns risk pushing users toward even more hidden platforms such as decentralized exchanges or peer-to-peer trading. Yet from an AML standpoint, the visibility of registered platforms is far superior to the opacity of offshore firms. The regulator’s message is that if a platform wants to serve Indian clients, it must submit to the country’s AML laws.

India’s approach mirrors moves in other jurisdictions where unlicensed crypto businesses have been restricted or blocked. The United States, for example, has charged platforms that facilitated money laundering by failing to implement effective programs. Europe has taken steps under its Markets in Crypto-Assets regulation to bring exchanges into the compliance perimeter. India is now aligning itself with this trend, reinforcing that no jurisdiction can afford to tolerate crypto blind spots.

Lessons for global AML enforcement

The Indian case provides a set of lessons for regulators and compliance professionals worldwide. First, it highlights the necessity of enforcement actions against offshore entities. Voluntary compliance alone is insufficient when firms base themselves abroad to avoid scrutiny. Second, it demonstrates the importance of legal tools that combine financial legislation with digital enforcement. Blocking access to non-compliant apps ensures that platforms cannot simply bypass financial regulation through technological loopholes.

From a financial crime standpoint, the action reinforces that crypto laundering is not confined to local exchanges. Offshore providers often act as key layering channels for organized crime. When criminals know that certain platforms do not verify customer identities or file reports, they naturally migrate to those platforms. Unless these weak points are addressed, broader AML frameworks remain compromised.

The crackdown also underscores the evolving role of financial intelligence units. They are not just data collectors but enforcement actors empowered to sanction and block. This shift is critical because illicit actors are adept at exploiting latency between monitoring and enforcement. By rapidly escalating notices into access restrictions, India is reducing the window of opportunity for money launderers to exploit offshore providers.

Global AML enforcement must therefore evolve toward coordinated takedowns, where regulators share intelligence on rogue platforms and apply synchronized pressure. India’s action could set a precedent for joint regional responses, especially across Asia where crypto adoption is high and regulatory arbitrage is common.

A tightening net on illicit platforms

India’s crackdown on 25 offshore exchanges illustrates a growing global intolerance for unregulated crypto channels. While some investors may see these platforms as convenient, the reality is that they weaken the fight against money laundering and undermine the integrity of financial systems. Offshore entities that ignore registration requirements are not just failing to comply, they are actively creating a safe haven for illicit funds.

The wider message is clear: governments will no longer allow regulatory gaps to become laundering pipelines. As India continues to strengthen its anti-money laundering framework, the pressure on both domestic and foreign crypto players will only increase. For compliance officers, the case serves as a reminder that AML oversight must adapt to rapidly shifting digital landscapes. For illicit actors, it signals that the space for regulatory evasion is shrinking quickly.

Source: Bitcoin.com, by Kevin Helms

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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India Cracks Down on 25 Offshore Crypto Exchanges for Money Laundering

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