Cryptocurrency & Money Laundering

08.08.2025

Cryptocurrency & Money Laundering
 

The Enforcement Directorate conducted searches at 11 locations in Delhi-NCR and Dehradun, investigating a ₹260 crore international cyber fraud where scammers posed as law enforcement and laundered money via cryptocurrency and hawala channels.

Crypto-Based Money Laundering

Definition:
 Money laundering through digital currencies involves disguising the origins of illegally obtained funds by converting them into cryptocurrencies like Bitcoin, Monero, or Tether (USDT). These funds are then routed through various layers and eventually converted back into fiat currency or assets, making them appear legitimate.

Key Enablers of Crypto-Fueled Laundering

• User Anonymity: Crypto wallets can be created without disclosing personal identity.
   
• Rapid Global Transactions: Cross-border transfers are instant and low-cost.
   
• Minimal Transaction Fees: Automating transfers via scripts allows large-scale laundering at low expense.
   
• Jurisdictional Loopholes: Crypto operates beyond national borders, sidestepping capital controls.
   
• Lack of Central Control: Decentralized platforms and privacy-enhancing coins reduce traceability.
   

1. Placement

Purpose: Introduce illicit funds into the financial system.
 Crypto Use: Buy crypto via poorly regulated exchanges using illicit cash.
 Example:
 In 2021, North Korean hackers laundered ransomware proceeds by purchasing Bitcoin through overseas exchanges in Southeast Asia with lax KYC rules.

2. Layering

Purpose: Obscure the origin of funds by creating complex transaction trails.
 Crypto Use: Split holdings across wallets, use mixers (e.g., Tornado Cash), privacy coins (e.g., Monero), NFTs, or gambling sites.
 Example:
 Lazarus Group used Tornado Cash to launder over $450 million in crypto from the Axie Infinity hack, fragmenting and mixing the funds to evade tracing.

3. Integration

Purpose: Reintroduce laundered funds into the legal economy.
 Crypto Use: Convert crypto to fiat via ATMs or shell firms, purchase luxury assets, real estate, or run fraudulent ICOs.
 Example:
 In 2022, a Russian oligarch reportedly used crypto profits to buy luxury apartments in Dubai, using shell companies and crypto-fiat conversion services.

Associated Challenges

• Inadequate KYC/AML Standards: Many platforms lack stringent compliance procedures.
   
• Untraceable Tools: Mixers and privacy coins mask sender/receiver and transaction histories.
   
• Regulatory Fragmentation: Inconsistent international crypto laws hamper cooperation.
   
• Weak Prosecution Record: India saw only 15 convictions out of 5,892 money laundering cases under PMLA up to 2025.
   
• Shadow Platforms: Crypto ATMs and P2P transactions are difficult to monitor.
   

Way Forward

• Update Legal Framework: Amend PMLA to address crypto-related money laundering explicitly.
   
• Enhance Global Coordination: Utilize international frameworks like FATF and DTAAs to enable cross-border data exchange.
   
• Leverage Tech: Use AI-driven blockchain analytics for real-time monitoring and anomaly detection.
   
• Strengthen Compliance: Enforce universal KYC/AML protocols for all exchanges and wallets.
   
• Monitor Obfuscation Tools: Regulate mixers and privacy coins with mandatory audit requirements.
   

Conclusion

The ₹260 crore crypto fraud case underlines a pressing challenge, the exploitation of digital currencies for organized financial crimes. As cryptocurrencies evolve, so does their misuse. India must move swiftly with smart regulations and cross-border collaboration to safeguard its financial ecosystem. Cryptocurrencies can be transformative, but without oversight, they risk becoming enablers of serious crime.