- A complex “crypto hawala” system allegedly receiving untraceable international funds to J&K has been identified by Indian intelligence agencies, fueling fears of terrorism and separatism.
- The network is said to employ the use of personal crypto-wallets in addition to mule accounts to evade financial regulations and anti-money-laundering measures.
The Indian security agencies have warned of a sophisticated ‘crypto hawala’ network having emerged in the region, channeling untraceable foreign money into Jammu and Kashmir, presumably for terror activity funds. This new network is said to be functioning through unregulated financial systems, which enjoy the benefit of anonymity in unregulated cryptocurrency transactions, as per Times of India report.
Analogies were drawn by authorities concerning the digital money transfer and the conventional hawala money transfer, which is a remittance service that conducts money transfer without involving banks. This money transfer relies on cryptocurrency instead of money and ensures money trails are eliminated through transactions within private accounts and peer transactions that evade any record on registered platforms.
As per investigators, they use a “mule accounts system,” which refers to regular bank accounts used to launder funds temporarily to conceal their source. The people whose accounts are accessed to commit this crime, even including net banking credentials, are considered to be accomplices to this crime. These funds are later laundered in other cities using unregulated peer-to-peer traders to conceal their source.
Modus Operandi and Enforcement Challenges
The security officials said the foreign handlers based in China, Malaysia, Myanmar, and Cambodia are involved in setting up instructions for the local participants in creating private crypto wallets, which are not subject to mandatory Know Your Customer (KYC) verification. A large number of such wallets are being created using Virtual Private Networks (VPNs) to mask IP addresses so as not to get detected. For a while, law enforcement suspended the use of VPNs in certain areas of the Valley so that it could contain such activities.
Once money is lodged into such private accounts, such money falls under local control and does not have to go through any financial body that is under regulatory control. Usually, such money is swapped for cash through channels that are not under financial control and could therefore not be detected by any financial regulatory body as money that has passed through channels controlled by such bodies.
The crypto hawala system bypasses all financial and money laundering regulatory controls because such money does not use any financial body that is under the control of such regulations.
The emergence of these shadow networks also underlies the weakness in the existing financial framework, especially in sensitive geographic areas where the risk of security is high. The Financial Intelligence Unit in India has regulations that are mandatory for Virtual Digital Service Providers, whereas the crypto-hawala transactions happen completely in the dark region, thus making the tracing of suspicious transactions difficult to intercept.
The detection of a crypto-based hawala network in Jammu & Kashmir brings into focus an important law enforcement/administrative exercise because, in this particular case, it is seen that the cryptocurrencies have been exploited for evading the proper financial systems in place. Since this particular network is taking the help of personal wallets, mule accounts, and anonymous software such as VPNs, it would make it possible for foreign funds to come into the economy undetected. It would make the Indian law enforcement community even tougher in terms of foreign activities because of foreign threats of financial crimes in the current technology age.
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