Security agencies have raised serious concerns over a new and sophisticated “crypto hawala” network that is quietly channeling foreign money into Jammu and Kashmir, officials said on Sunday. Authorities fear the untraceable funds are being used to support terror activities and revive separatist networks in the region.
Officials said the discovery has put the security establishment on high alert. According to them, these shadow funds are meant to give fresh momentum to anti-national elements whose activities had been largely curbed through sustained action by police and central agencies. Click Here To Follow Our WhatsApp Channel
Much like the traditional hawala system, which transfers money through informal channels, this digital version uses cryptocurrency to hide the source and movement of funds. By operating outside regulated financial systems, crypto hawala erases the money trail and allows cash to enter the local economy undetected.
India mandates that all Virtual Digital Asset Service Providers must register with the Financial Intelligence Unit (FIU). However, officials said this network operates completely outside the system. During the 2024–25 financial year, only 49 crypto exchanges were registered as legal reporting entities, prompting the government to introduce stricter rules.
The new guidelines require advanced verification steps, including live selfies with movement detection, geographical tracking, and a “penny-drop” bank verification using a Re 1 transaction. Users must also submit a PAN card along with a second ID such as Aadhaar, passport, or voter ID, verified through OTP.
Despite these safeguards, a detailed study by Jammu and Kashmir Police and central agencies found that handlers based in countries such as China, Malaysia, Myanmar, and Cambodia were guiding people in Kashmir to create private crypto wallets. These wallets often require no identity verification and are set up using VPNs to avoid detection.
Officials said VPNs have become a major concern, prompting police to suspend their use in the Valley. “VPNs are increasingly being used by terrorists and separatists to stay under the radar,” an official said.
Under this method, foreign handlers send cryptocurrency directly into private wallets controlled locally. The wallet holders then travel to cities like Delhi or Mumbai to sell the crypto to unregulated peer-to-peer traders in exchange for cash.
This process completely breaks the financial trail, allowing foreign money to enter the system as untraceable cash. The network relies heavily on so-called “mule accounts”, where ordinary people allow their bank accounts to be used temporarily in return for commissions ranging from 0.8 to 1.8 percent per transaction. In many cases, account holders hand over full control, including net banking details, to the syndicates.
Officials said a single operator may control 10 to 30 mule accounts at a time, making detection even harder.
Security agencies warned that crypto hawala presents a new and complex challenge. By operating in the grey market and staying off registered exchanges, these networks bypass anti-money laundering laws and formal banking oversight.
Despite regulatory efforts by the FIU, officials said crypto hawala remains a serious threat, as it allows foreign-funded money to flow into Jammu and Kashmir without passing through any regulated financial institution.
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