Why is India investigating Binance and WazirX over crypto loopholes?

Why did India launch an investigation into Binance and WazirX?

India’s Monetary Intelligence Unit (FIU-IND) is investigating the worldwide cryptocurrency alternate Binance and the Indian alternate WazirX, specializing in potential loopholes in cross-border digital asset transfers.

The investigation is pushed by issues about unregulated wallet transactions linked to accounts from Pakistan. Authorities are notably nervous about actions close to delicate areas like Jammu and Kashmir, the place such transfers may very well be used for illegal funding or money laundering. They’re additionally investigating the funds despatched from India to addresses positioned outdoors the nation.

Though no direct felony connection has been discovered but, an absence of transparency in crypto wallets has led the FIU-IND and the Enforcement Directorate (ED) to watch blockchain actions. The investigation started as a result of uncommon cryptocurrency transactions, notably wallet-to-wallet transfers. 

These transfers, typically made by way of non-public addresses not linked to regulated exchanges, are arduous to trace and don’t comply with commonplace reporting guidelines. Issues concerning funding of terrorism and separatist actions within the Indian area of Kashmir have given the investigation a extra pressing tone. 

The investigation has turn into extra pressing as a result of geopolitical issues. Authorities observed elevated crypto exercise between accounts related to Pakistan and recipients in delicate border areas like Jammu and Kashmir. These transactions increase vital nationwide safety issues due to the area’s instability and historical past of unlawful monetary actions.

Do you know? In 2019, Gerald Cotten, CEO of QuadrigaCX crypto alternate, died in India, locking entry to $190 million in buyer funds. Investigators later revealed Cotten had run Quadriga as a Ponzi-style fraud, utilizing buyer funds for private buying and selling and luxurious spending, after claiming they have been securely saved in cold wallets.

Binance and WazirX: Previous regulatory and safety points in India

Binance and WazirX are dealing with increased regulatory scrutiny as India strengthens its oversight of cryptocurrency exchanges, due to issues about potential cash laundering and the financing of unlawful actions by way of cross-border digital asset transfers.

Binance, the world’s largest crypto alternate, returned to the Indian market after resolving compliance points. In June 2024, it paid a advantageous of about INR 18.9 crores (value $189 million on July 21, 2024) for previous violations and registered with the FIU-IND in August 2024. Nevertheless, the ED has frozen some financial institution accounts linked to Binance’s Indian operations as a part of an ongoing investigation into cross-border pockets transactions.

WazirX has been beforehand related to Binance and is broadly used for cross-border remittances in India. The alternate was hacked by the Lazarus Group in July 2024, which stole round $235 million, highlighting weaknesses in its security and Know Your Customer (KYC) measures. A 72-page affidavit filed in a Singapore court docket claims WazirX not directly supported TRX (Tron) token transfers allegedly related to ISIS financing. 

Each exchanges have been within the highlight as Indian authorities work to make sure cryptocurrency actions don’t threaten monetary integrity or nationwide safety.

How crypto regulation advanced in India and Pakistan

India and Pakistan have taken divergent but more and more structured paths towards crypto regulation. India has adopted a cautious strategy, specializing in taxation and Anti-Money Laundering (AML) measures inside a framework that doesn’t acknowledge crypto as authorized tender. Pakistan has moved towards legalizing crypto trading and establishing a regulatory authority to draw international funding and modernize its monetary system.

In March 2025, Pakistan established the Pakistan Crypto Council, with Bilal Bin Saqib appointed because the council chief, whereas Binance co-founder Changpeng Zhao will function its strategic adviser.

On July 8, 2025, Pakistan launched the Digital Property Ordinance, creating the Pakistan Digital Property Regulatory Authority (PVARA) to deal with licensing and oversight. The PVARA will operate as an autonomous regulatory physique. Its tasks will embody licensing, monitoring, and overseeing suppliers of digital asset providers. Moreover, PVARA will guarantee adherence to worldwide requirements, notably these outlined by the Monetary Motion Job Power (FATF).

India, after initially banning banks from supporting cryptocurrency in 2018, noticed the Supreme Courtroom lift the ban in 2020. Since March 2023, crypto exchanges in India should register with the FIU-IND, comply with AML guidelines, conduct full KYC checks, preserve data and report suspicious actions. Cryptocurrency income are taxed at 30% with a 1% tax deducted at supply (TDS), and the 2025 funds launched stricter tax disclosure necessities. 

Though a complete crypto regulation is nonetheless pending, India is aligning with world requirements, such because the Crypto-Asset Reporting Framework (CARF), to reinforce transparency and oversight.

Do you know? In April 2021, Turkey’s Thodex abruptly halted buying and selling and withdrawals. CEO Faruk Fatih Özer fled to Albania carrying a tough drive with $2 billion in crypto. He later acquired an astonishing 11,196‑yr jail sentence for fraud and different crimes.

Dangers of cross-border transactions between India and Pakistan

Cross-border cryptocurrency transfers between India and Pakistan pose vital dangers as a result of differing rules, geopolitical tensions and the shortage of transparency in crypto wallets. These elements increase issues about unlawful financing and monetary instability:

• Regulatory variations: Various regulatory approaches create gaps that may be exploited for illicit transactions. India’s adoption of the global Crypto-Asset Reporting Framework (CARF) displays efforts to enhance tax compliance and monetary oversight.
• Anonymity dangers: Specialists warn that unregulated non-public wallets can be utilized for terrorism financing. Regulators now require Suspicious Transaction Reviews for crypto mixers, privateness instruments and stablecoins, although some argue extreme regulation might hinder innovation.
• India-Pakistan tensions: Ongoing jurisdictional disputes enhance scrutiny of crypto transactions, particularly in Jammu and Kashmir, the place fears of terrorism funding are excessive. Jammu and Kashmir’s State Investigation Company (SIA) carried out coordinated raids in Jammu, Doda, and Kupwara, targeting a suspected community utilizing cryptocurrency to fund cross-border militancy and radicalization efforts.
• Rising cybercrime: Cross-border cyber scams involving cryptocurrencies, mule accounts, and Telegram-based banking bots have been reported, resulting in enhanced vigilance on crypto transactions. The Monetary Motion Job Power (FATF) warned that terrorists more and more exploit e‑commerce platforms, messaging apps and cryptocurrencies to finance extremist actions, citing terrorist assaults in Pulwama (2019) and Gorakhnath Temple (2022).

Do you know? By 2021, rug pulls, when alternate founders instantly abscond with investor funds, accounted for a staggering 37% of all crypto‑rip-off income (up from simply 1% the yr earlier than). Thodex topped that class throughout the identical interval.

International development in crypto oversight

As governments all over the world tighten crypto rules, India and Pakistan are adapting to a brand new period of transparency and accountability in digital finance ecosystems.

India’s probe into Binance and WazirX mirrors wider initiatives. The US Division of Justice disrupted three crypto‑enabled terrorist financing operations involving teams like Hamas, al‑Qassam Brigades, al‑Qaida, and ISIS, seizing vital quantities of digital forex. 

Then again, the US Congress has advanced the GENIUS, Anti-CBDC, and the CLARITY Acts to make sure regulatory readability. The EU’s AMLA additionally acknowledges the potential for utilizing crypto for cash laundering and enforces region-wide licensing measures.

The efforts of investigating companies in India replicate a worldwide development. States are looking for to steadiness innovation with monetary integrity and counter illicit flows of cash to curb unlawful and anti-national actions.