Crypto adds new layer of opacity to old hawala channels, says report

A news report by The Indian Express has revealed that India's traditional hawala networks have rapidly adapted to cryptocurrencies, enabling illicit funds to move across borders with greater anonymity and speed. It highlights how crime proceeds, black money and cyber fraud gains are increasingly routed through virtual assets, complicating enforcement efforts.

In one case cited by the report, a trader from Ghaziabad funnelled Rs 1.3 crore of crime-linked money in 2024 into a Dubai-based crypto wallet. In another, a Delhi businessman has been charged with moving over Rs 4,000 crore overseas using fabricated invoices and shell companies.

Agencies told the newspaper that more than Rs 1,000 crore generated from cyber fraud has already left India this year through crypto channels. These transactions mirror hawala's informal structure but use blockchain pathways that make tracing more complex.

Traditional hawala typically connects two regions with a limited chain of intermediaries. With crypto, however, transfers can pass through many more layers across several jurisdictions.

A traditional hawala deal rarely crosses four layers, a senior compliance officer at a leading Indian crypto platform told the newspaper but one can add potentially infinite layers and jurisdictions to fund flow, which in any case is protected by the inherent pseudonymity of blockchain transactions.

The hybrid model has gained traction in areas such as real estate, betting, gold trade and offshore forex operations. While terror financing and cyber fraud remain high-risk indicators, many flows relate to black money or potential FEMA violations.

India recorded $118.7 billion in remittances in 2023–24, with outward transfers under the Liberalised Remittance Scheme at $31.73 billion. Various assessments cited in the report estimate that 20–40 per cent of total remittances may be routed informally through hawala. A growing share of these flows is now believed to move through crypto mechanisms.

How crypto-hawala is executed

According to the report citing sources, the process often begins with funds consolidated in multiple dummy or mule bank accounts. Transfers -- often under Rs 50,000 to avoid scrutiny -- are made via UPI QR codes to a shell account controlled by an unknown intermediary.

Banks, increasingly alert to warning signs such as structured deposits, rapid pooling of funds and immediate outward transfers, sometimes freeze such accounts. But once funds are collected, the remitter receives an agreed amount of USDT or similar stablecoins in a crypto wallet abroad, commonly in Dubai.

The stablecoins can then be converted into Dirhams at crypto ATMs or OTC counters, either as cash or into a bank account. Users of self-custody wallets -- where only the owner knows the private key -- gain an additional layer of anonymity, especially if they avoid interacting with regulated exchanges.

Tools that mask digital trails

To further obscure fund paths, the report notes the extensive use of:

* Mixers/tumblers, which combine crypto assets from multiple sources before redistributing them to new wallets.

* Bridges and swap protocols, which move tokens across blockchains such as Bitcoin and Solana, making investigations more complex.

* These methods allow funds to move through multiple jurisdictions and platforms, including unregistered or non-compliant exchanges, before ending up in the recipient’s location.

According to a private recovery consultant quoted in the report, hawala transactions executed through crypto sometimes fail midway. Brokers may disappear after receiving rupee deposits or stablecoins may vanish before being realised. Victims -- often high-net-worth individuals -- are reluctant to approach authorities due to potential PMLA implications and instead turn to private negotiators for assistance.

Officials from the Enforcement Directorate (ED) told the newspaper that they have cracked several crypto-linked hawala cases with support from the UAE, accessed through FIU-IND and the Egmont Group of FIUs (Financial Intelligence Units). They also rely on the Common Reporting Standard to trace cross-border financial data.

In a separate Indian Express report, authorities probing cyberfraud-related crypto flows found a recurring pattern: funds move from anonymous wallets to blacklisted exchanges in Dubai, then to Cambodia, and finally into Chinese scam operations. The Indian Cyber Crime Coordination Centre (I4C) has tracked such flows across Pakistan, China, Dubai (UAE), Cambodia and Myanmar.

Cryptos, scams and more

Cryptocurrencies are digital assets recorded on blockchain networks, without backing from any central authority. Crypto exchanges facilitate the buying and selling of such assets. Scams frequently involve fake platforms, phishing attacks and pump-and-dump schemes that manipulate token prices.

India currently has no dedicated law governing cryptocurrencies. Trading is not illegal, but crypto assets are not recognised as legal tender and are not insured, unlike bank deposits. The Reserve Bank of India (RBI) maintains that private digital currencies pose risks to financial stability and could undermine monetary control, while global jurisdictions like the EU and the US are moving toward stronger regulations.