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Anonymity Aids Hawala, Terror Deals: Why India's Top Probe Agencies Want Cryptocurrencies Regulated

Representations of Bitcoin and other cryptocurrencies on a screen showing binary codes are seen through a magnifying glass in this illustration picture taken on September 27, 2021. (REUTERS/Florence Lo/Illustration)

Representations of Bitcoin and other cryptocurrencies on a screen showing binary codes are seen through a magnifying glass in this illustration picture taken on September 27, 2021. (REUTERS/Florence Lo/Illustration)

Officials from the NIA, ED and NCB say there is no chain of transactions and no unified exchange, making cryptocurrencies easy for criminal misuse.

As debate rages around the government’s proposed move to ban almost all private cryptocurrencies, India’s top investigating and intelligence agencies are keen to have regulations on digital currencies due to what officials say is rampant misuse and difficulties in interception due to the anonymous nature of transactions.

The Cryptocurrency and Regulation of Official Digital Currency Bill has been listed for the upcoming session of Parliament and seeks to ban all but a few private cryptocurrencies to promote underlying technologies while allowing an official digital currency by RBI.

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Speaking to News18, officials from the Narcotics Control Bureau (NCB), National Investigation Agency (NIA), Enforcement Directorate, Income Tax and other investigating agencies said anonymity is the biggest issue on which criminals, drug smugglers and terror organisations thrive.


“It is almost impossible to know the complete chain of transactions and persons involved in it in case of any suspicious transaction. There is no unified cryptocurrency exchange and no one knows who regulates it and stores all data. Companies that deal with cryptocurrencies also have limited access and know limited information about users and transactions through KYC,” a senior NCB official said.

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The problem is not confined to India as globally, too, law enforcement agencies are known to be worried about criminal use of cryptocurrencies. After understanding the gravity of complexity and specialisation required to probe cases related to cryptocurrencies, the United States last month announced a National Cryptocurrency Enforcement Team (NCET). “This team will tackle complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors," the US government said.

Shashi Kant, former Punjab DGP actively involved in anti-drugs crackdown, told News 18: “They (cryptocurrencies) are generally routed through multiple networks. They are quick transactions and often difficult to trace. It is more true of private cryptocurrencies. Cryptography keeps the transactions secure. They are accepted at all e-commerce storefronts on the dark web. Hence, they come in handier for hawala transactions, money laundering and terror financing."

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The Interpol, too, has flagged growth in the use of technologies that lend anonymity to such operations, leaving them liable to be misused by criminal organisations.

“There has been a growth in the use of technologies which provide anonymity to their users. The Darknet – the vast portion of the Internet which can only be accessed using specialised software – and virtual cryptocurrencies have many positive benefits, but the focus on anonymity leaves them open to misuse by criminals. The illicit sale of drugs, firearms and explosives; people smuggling; money laundering; terrorist activities; and cybercrime can all be facilitated by these technologies," Interpol says.

Key issues related to the dark web and cryptocurrency were discussed in April this year during the BRICS Seminar on Misuse of Internet by Terrorists organised by the NIA. Sources said that during the seminar, attended by 40 experts from the five-member countries, all participants expressed the need for stricter restrictions on cryptocurrencies and raised concerns over crypto usage through anonymizers.

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“Technically, it is not possible to track a crypto transaction to a particular user. You can track a transaction using an open ledger where the money has been moved by the entity of the person receiving or moving money. It is very, very difficult to find out unless you have some deep database of exchange, or there’s a KYC-verified user of legalised exchange," cyber expert Jiten Jain told News18. He, however, added that banning cryptocurrencies is not an option.

One of the major and rampant misuse of cryptocurrencies is the smuggling of drugs. The NCB while giving details about an international drug smuggling nexus involving cryptocurrency had said, “The sourcing of the drug was primarily through the Darknet, which gives layers of anonymity to the buyers and sellers. The economic transactions in this type of international drug trafficking is based on cryptocurrency dealings."

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Several state police forces and central agencies, too, have encountered crimes involving cryptocurrencies, and except confessions, investigators have no help in cracking such cases.

The ED is currently probing a Bitcoin-for-drugs scam unearthed after local Karnataka CID arrested a hacker identified as Sriki. The hacker is alleged to have amassed Rs 9 crore worth of Bitcoins by hacking into accounts that deal in cryptocurrencies. He is alleged to have sourced drugs through the Darknet, with names of relatives of some top political leaders cropping up during investigation.

Similarly, the NIA had last year filed a chargesheet alleging that an ISIS operative, identified as Jahanzaib Sami, had received funds through Bitcoin to be used for terror activities in India. The accused and his wife, identified as Hina Bashir, were arrested from the national capital and were allegedly planning terror attacks in India.

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first published:November 25, 2021, 13:31 IST