A recent report reveals that 49 cryptocurrency exchanges, predominantly located in India, successfully registered with the Financial Intelligence Unit (FIU) during the fiscal year 2024-25. This move is part of India”s ongoing efforts to establish a legal framework aimed at combatting anti-money laundering and terrorist financing risks associated with the burgeoning cryptocurrency sector.
The report indicates that a thorough “strategic analysis” of suspicious transaction reports (STRs) submitted by these exchanges has uncovered instances of serious criminal activities. These activities include hawala transactions, gambling, scams, fraud, and even the operation of an illegal adult content website. In legal terms, cryptocurrencies are referred to as Virtual Digital Assets (VDAs), and the exchanges that facilitate their trade are classified as VDA Service Providers (VDA SPs).
Since 2023, these exchanges have been integrated into India”s anti-money laundering framework under the Prevention of Money Laundering Act (PMLA). As reporting entities, they are obligated to submit STRs to the FIU, which is tasked with preventing and detecting financial system abuses in India. Furthermore, VDA SPs are required to identify and report the beneficial ownership of digital wallets, monitor crowdfunding initiatives similar to initial coin offerings, and track transfers between hosted and unhosted wallets.
The report, obtained by PTI, highlights the rapid evolution of India”s cryptocurrency landscape, which has garnered significant attention due to its potential for transforming the financial sector and creating wealth opportunities. However, it also emphasizes the inherent risks of VDAs and VDA SPs, including their global reach, rapid transaction capabilities, and the potential for increased anonymity, which can obscure transaction flows and counterparties.
In contrast to numerous countries where multiple agencies oversee cryptocurrency exchanges, India has designated the FIU, operating under the Union finance ministry, as the sole authority for registering and monitoring VDA SPs concerning money laundering and terrorist financing risks. As of March 2025, 49 VDA SPs were recognized as reporting entities by the FIU, with 45 being onshore exchanges based in India and the remaining four located offshore.
The STRs filed by these exchanges during the past fiscal year were subjected to strategic analysis, revealing that many fell into high-risk categories such as scams, fraud, gambling, and peer-to-peer scams. Some reports also raised red flags concerning child sexual abuse material (CSAM), terror financing, dark web services, and proceeds of crime, underscoring the growing exploitation of crypto assets for serious criminal activities.
Additionally, the report notes a significant regional concentration of suspicious activities tied to these STRs, identifying common digital assets used in illicit activities. In response to non-compliance, the agency imposed a total penalty of Rs 28 crore during the fiscal year 2024-25 against certain cryptocurrency exchanges.
Following their registration as reporting entities, the crypto exchanges must disclose their bank and financial institution accounts, appoint a designated director and principal officer, and provide the necessary contact information to the FIU. They are also required to conduct internal audits, adopt risk-based customer due diligence and enhanced due diligence practices, implement sanctions screening, and perform periodic risk assessments to share with the federal agency.
India”s approach to mitigating risks associated with cryptocurrency and its exchanges is reflected in several legislative actions, including the introduction of taxation on cryptocurrency transactions and withholding taxes as specified in the Income-Tax Act.
