A detailed assessment by the Jammu and Kashmir Police and central agencies revealed that handlers based in countries such as China, Malaysia, Myanmar and Cambodia are directing individuals in the Union Territory to create private crypto wallets

Metro India News | SRINAGAR

Security agencies have sounded an alarm over the emergence of a sophisticated “crypto hawala” network that is allegedly being used to funnel untraceable foreign funds into Jammu and Kashmir, raising concerns that the money could be diverted to revive separatist activities and terror networks.

Officials said the system mirrors the traditional hawala mechanism but operates through unregulated cryptocurrency channels, enabling handlers abroad to bypass India’s financial safeguards. By exploiting the anonymity of private crypto wallets, the network effectively erases transaction trails, allowing funds to enter the local economy as cash without the involvement of regulated financial institutions.

According to security officials, the suspected objective behind this funding is to give renewed momentum to separatist elements and reignite anti-national narratives in the Union Territory, which had largely been curbed following sustained action by the police and central agencies in recent years. The development has placed the security establishment on high alert.

India mandates all Virtual Digital Asset Service Providers to register with the Financial Intelligence Unit (FIU) and comply with strict Know Your Customer norms. However, officials noted that the crypto hawala network functions entirely outside this framework. During 2024–25, only 49 exchanges registered as legal reporting entities, prompting the government to introduce tighter guidelines, including live selfie verification, liveness detection, geographical tracking, PAN-based checks and the “penny-drop” method to verify bank accounts.

A detailed assessment by the Jammu and Kashmir Police and central agencies revealed that handlers based in countries such as China, Malaysia, Myanmar and Cambodia are directing individuals in the Union Territory to create private crypto wallets. These wallets, often set up using Virtual Private Networks to mask locations, require no KYC or identity verification. In response, authorities have restricted the use of VPNs in the Valley, citing their misuse by terrorists and separatist groups to evade surveillance.

Officials explained that foreign handlers transfer cryptocurrency directly into these private wallets. The wallet holders then travel to cities such as Delhi or Mumbai, where they approach unregulated peer-to-peer traders to convert the crypto into cash at negotiated rates. This process, they said, effectively breaks the financial trail.

The system relies heavily on so-called “mule accounts” used to layer transactions and park funds temporarily. Ordinary individuals are lured into lending their bank accounts in return for commissions ranging between 0.8 and 1.8 per cent per transaction. In many cases, full control of these accounts, including net banking credentials, is handed over to the operators. A single handler may control between 10 and 30 such accounts at a time.

Officials warned that the rise of crypto hawala poses a serious challenge to enforcement agencies, as off-exchange and grey-market trading allows foreign-sourced funds to bypass anti-money laundering laws. Despite regulatory efforts, authorities said the evolving digital hawala system demands enhanced monitoring and coordinated action to prevent terror financing from resurfacing in Jammu and Kashmir.