Quick Breakdown
- Indian agencies warn that a crypto-based hawala system is funnelling foreign funds into Jammu and Kashmir.
- The network uses mule accounts, unregulated P2P crypto trades, and layered transactions to evade detection.
- International handlers and VPNs play a key role in bypassing KYC and regulatory controls.
Indian security agencies have raised alarms over a newly uncovered and highly sophisticated “crypto hawala” network that mirrors the traditional underground money transfer system, allegedly channelling foreign funds to support terrorist activities in Jammu and Kashmir.
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
Officials told Press Trust of India (PTI) on Sunday that the system operates completely outside regulated financial channels, allowing illicit foreign money to enter India without detection by authorities or compliance checks.
The development has triggered fresh concerns among security agencies, which warn that such untraceable funding routes could reignite separatist activities in the region.
How the crypto Hawala Network evades financial oversight
Under India’s regulatory framework, Virtual Digital Asset Service Providers (VDASPs) must register with the Financial Intelligence Unit (FIU). However, officials noted that as of the 2024–25 fiscal year, only 49 crypto exchanges are registered as legally compliant reporting entities.
The crypto hawala system bypasses these safeguards entirely. According to investigators, foreign handlers send cryptocurrency directly to private wallets without involving any regulated institution. The wallet holders then travel to cities such as Delhi and Mumbai, where they sell the crypto through unregulated peer-to-peer (P2P) traders at negotiated rates, converting digital assets into cash.
Mule accounts, VPNs and international handlers
Security agencies revealed that the network relies heavily on “mule accounts” bank or crypto accounts held by ordinary individuals recruited to temporarily “park” funds. These account holders are paid commissions ranging from 0.8% to 1.8% per transaction and are often assured that their role is harmless.
Once recruited, syndicates take full control of the accounts, including passwords, and layer transactions to obscure the money flow.
Investigations also point to international handlers operating from countries such as China, Malaysia, Myanmar, and Cambodia, who help create private crypto wallets for Indian users. These handlers reportedly use VPNs to avoid detection and operate without Know Your Customer (KYC) verification.
Although VPN usage has officially been suspended in the region, police say crypto wallet registrations have surged in recent months, indicating growing exploitation of digital loopholes.
Meanwhile, India’s Financial Intelligence Unit (FIU) released new rules that make KYC checks stricter for crypto platforms.
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