India Targets Offshore Crypto Platforms in Escalating Anti-Money Laundering Crackdown

India’s Financial Intelligence Unit has intensified its regulatory focus on the cryptocurrency sector by issuing actions against 25 offshore digital asset platforms accused of violating anti-money laundering laws. The move comes as authorities zero in on money laundering risks, noting that unregistered exchanges represent one of the highest threats for illicit finance in the region. Regulators contend that these platforms enabled Indian users to buy and trade virtual assets without registering under the Prevention of Money Laundering Act of 2002, a breach of domestic compliance rules.

The challenge for India lies in balancing the country’s fast-growing appetite for digital assets with the parallel risk that crypto can be exploited to obscure criminal finance. Unlike licensed entities that must record transactions, monitor trading behavior, and respond to regulatory requests, the offshore providers operated without accountability. By failing to submit suspicious transaction reports or conduct proper customer due diligence, they allowed bad actors to shift funds with minimal oversight.

Money laundering through cryptocurrency has increasingly become a transnational issue, with virtual asset service providers basing themselves outside major jurisdictions to exploit regulatory gaps. India’s issuance of notices under the PMLA, along with efforts to restrict access to non-compliant platforms, signals a determination to close those gaps. Regulators warn that “unregulated exchanges serve as conduits for layered transactions, enabling illicit proceeds to be routed across multiple accounts and converted into pseudonymous digital assets.” Criminal groups exploit such loopholes for both domestic laundering and cross-border transfers, intensifying pressure on financial intelligence units worldwide to intervene before misuse destabilizes payment systems. Officials stress that the crackdown is “not just about investor protection but about addressing a systemic risk to the financial system’s integrity.”

The targeting of 25 offshore exchanges underscores the structural weaknesses within the global crypto ecosystem. Platforms such as Bitmex, Poloniex, Paxful, and CEX.IO have long faced scrutiny elsewhere, and their inclusion in India’s enforcement action points to recurring patterns of regulatory avoidance. The systemic gap arises when platforms provide services in a market without being subject to its reporting framework. In such cases, they can facilitate the layering of illicit funds, particularly when transactions involve mixers or privacy coins. Weak onboarding checks further enable customers to bypass strict know-your-customer requirements.

By contrast, the 50 exchanges registered with FIU India operate under stringent obligations. These firms must file suspicious transaction reports, preserve client data, and comply with AML requirements. Offshore providers, however, undercut that ecosystem by fostering a parallel shadow market where illegal funds can be injected and withdrawn with ease. India’s enforcement under Section 13 of the PMLA signals readiness to escalate penalties beyond warnings. Authorities are also invoking provisions of the Information Technology Act to restrict website and app access, deploying what they describe as a “two-pronged approach: compliance enforcement and digital takedown of illegal access points.” This strategy reflects the view that effective financial crime prevention must tackle both monetary and technological vectors.

While official messaging often highlights investor protection, the AML perspective suggests that the true priority lies in curbing illicit finance. Unregulated platforms expose investors to fraud and hacks, but regulators caution that “when exchanges do not file transaction reports, regulators cannot distinguish between legitimate and suspicious flows.” This blind spot leaves the system unable to detect trade-based laundering, ransomware proceeds, or terror financing. Offshore platforms can also serve as vectors for smurfing, where funds are split into smaller trades, or for layering schemes designed to mask fund origins.

Some critics argue that shutting down offshore providers risks driving users toward even more opaque venues such as decentralized exchanges or peer-to-peer trading. Yet regulators insist that the visibility offered by registered platforms is preferable to the opacity of offshore firms. The message is clear: “if a platform wants to serve Indian clients, it must submit to the country’s AML laws.” India’s posture echoes similar moves abroad, with U.S. authorities charging non-compliant crypto businesses and Europe introducing its Markets in Crypto-Assets regulation to bring exchanges into the compliance perimeter. India now positions itself firmly within this trend, making clear that “no jurisdiction can afford to tolerate crypto blind spots.”

The case carries broader lessons for global AML enforcement. Authorities argue that voluntary compliance is insufficient when firms deliberately base themselves offshore to avoid scrutiny. Legal tools that blend financial legislation with digital enforcement are essential, as “blocking access to non-compliant apps ensures that platforms cannot simply bypass financial regulation through technological loopholes.” Offshore providers are often the preferred layering channels for organized crime, and without corrective measures, AML frameworks remain undermined.

India’s crackdown also reflects the evolving role of financial intelligence units, which are no longer just data collectors but enforcement bodies empowered to sanction and block. Regulators warn that illicit actors exploit delays between monitoring and enforcement, and that “by rapidly escalating notices into access restrictions, India is reducing the window of opportunity for money launderers to exploit offshore providers.” Global AML strategies, they suggest, must evolve toward coordinated takedowns where intelligence is shared and regulators apply synchronized pressure. India’s latest actions could serve as a precedent for joint regional crackdowns, particularly across Asia where crypto adoption is high and regulatory arbitrage is common.

Ultimately, the crackdown on 25 offshore exchanges reflects a tightening net around unregulated crypto activity. While some investors may view these platforms as convenient alternatives, regulators argue that “offshore entities that ignore registration requirements are not just failing to comply, they are actively creating a safe haven for illicit funds.” The broader message is that governments will not allow regulatory gaps to become pipelines for laundering. As India strengthens its anti-money laundering regime, the pressure on both domestic and foreign crypto players is only expected to intensify. For compliance officers, the case is a stark reminder that oversight must adapt to rapidly shifting digital realities. For illicit actors, the signal is unmistakable: the space for regulatory evasion is shrinking fast.

By fLEXI tEAM