In brief
- Cryptocurrency and stablecoins are increasingly replacing hawala networks in drug and gold smuggling operations, according to a new report by India’s Directorate of Revenue Intelligence.
- The DRI uncovered a gold smuggling syndicate that laundered over $12.7 million through hawala and USDT to China.
- Experts say comprehensive crypto regulations are needed to close gaps exploited by criminal networks for money laundering.
India’s top anti-smuggling agency has sounded the alarm on the rising use of crypto and stablecoins in drug and gold trafficking, enabling rapid, untraceable international fund transfers that bypass formal financial oversight.
The warning comes from the Directorate of Revenue Intelligence’s Smuggling in India Report 2024-25, released Thursday, which points out that digital assets enable “faster and anonymous settlement, minimal oversight, and weak anti-money laundering compliance.”
“Cryptocurrency has emerged as a potent tool for smuggling syndicates due to its decentralised, pseudonymous, and borderless nature,” the report states, noting how digital assets are now widely used to route illicit payments and move crime proceeds, “particularly in narcotics trafficking and gold smuggling cases.”
Crypto-hawala network exposed
Among the cases highlighed by the report is a 108-kg transnational gold racket routed through the Indo-China border last July, with over $12.7 million (₹108 crore) in proceeds sent to China via hawala and Tether’s stablecoin USDT after the gold was sold in Delhi.
“The Chinese mastermind used multiple crypto wallets, layering funds for anonymity, and communicated via encrypted Apps like WeChat using VPNs,” the DRI noted. “Forensic analysis of chats, transaction hashes, and wallet IDs corroborated the smuggling trail, marking a significant breakthrough in crypto-hawala detection by DRI.”
“Most jurisdictions globally don’t yet have comprehensive crypto regulations, leading to some regulatory arbitrage and gaps, which are exploited for criminal and illicit activity,” Musheer Ahmed, Founder and MD of Finstep Asia, told Decrypt.
“Through an active regime, regulators and government bodies will have the ability to only allow compliant operators, implement KYC rules, as well as transaction monitoring, which can help reduce the misuse of virtual assets for illicit activity,” Ahmed said.
He noted it would be prudent for India and similar jurisdictions to consider a “comprehensive regulatory regime, which will not only prevent illicit activity, but also provide higher consumer protection.”
“Blanket bans will not necessarily prevent such activity,” he added, warning that they may push crime further underground and undermine legitimate tokenised-asset use that enables more efficient cross-border commerce.
There is also a need, Ahmed said, for regulators and law enforcement to be “trained in virtual assets activity and transaction tools” so they can act swiftly and effectively when confronting suspicious or illicit crypto activity.
Regulatory gaps persist
The DRI report comes as India grapples with crypto-enabled crime across multiple fronts.
In June, the Central Bureau of Investigation arrested Delhi resident Rahul Arora and seized over $327,000 worth of crypto after busting a transnational cybercrime operation targeting victims in the United States and Canada.
In July, India’s NCB arrested a 35-year-old Kerala engineer who allegedly ran the darknet drug syndicate “Ketamelon,” seizing LSD, ketamine, and over $82,000 in crypto, with investigators saying he sourced drugs globally and laundered proceeds through the privacy coin Monero.
The report acknowledges that while the traceability of blockchain transactions offers opportunities for enhanced intelligence gathering, “the evolving nature of digital assets demands stronger regulatory frameworks, enhanced Anti Money Laundering compliance, and advanced forensic tools, supported by global cooperation to curb cryptocurrency misuse.”
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