Indian cryptocurrency exchanges are starting to feel the heat of a government crackdown after the Indian Government announced an investigation looking into money laundering and terrorist financing. Federal authorities have sent strong messages to these exchanges. They need to ramp up scrutiny over transactions with those located in Jammu & Kashmir and neighboring regions. Exchanges have been scrambling to tighten their due diligence procedures in the wake of the past year’s market debacles. To combat that fear, they are limiting free withdrawals and reviewing customer data more aggressively. We’re focused on making sure cryptocurrencies aren’t used to facilitate illegal activity, including ransomware. Our work protects America by keeping us ahead of evolving regulatory guidelines and helps defend national security.
Enhanced Monitoring and Due Diligence
After recent calls from the government crypto exchanges have increased their scrutiny. Specifically they are interested in transactions related to citizens of Jammu & Kashmir and bordering regions. Exchanges are required to conduct know-your-customer measures exchanges at a new level of enhanced due diligence. This covers things like verifying identities of beneficiaries and knowing the purpose of withdrawals to private wallets. These regulatory measures function to foster a trading environment that is transparent and secure. Moreover, they create significant barriers for malicious actors to take advantage of the system.
"As per the instructions, exchanges for the time being would focus more on crypto trades by persons in the border locations and report them to FIU, than the regular STR trades." - a person requesting anonymity due to the confidential nature of the communication.
This increased scrutiny has a specific purpose — deterring money laundering, terrorist financing, and proliferation financing. It’s just the latest move in a wider crackdown focusing on the use of crypto exchanges.
Potential Loopholes and Countermeasures
Indian cryptocurrency exchanges are facing immense pressure to comply with regulations and track transactions. This doesn’t mean that we shouldn’t be wary of loopholes that could undermine the proposal’s intent. One of these emerging concerns is the use of privacy coins and the ability to evade tracking methods.
"For instance, privacy coins like Monero or Zcash, which have greater privacy and anonymity, can be misused. Though these coins are not listed on Indian bourses, theoretically, a person can purchase a common and universally accepted crypto like USDT, transfer to its wallet with an exchange outside India, and then swap them for privacy coins before making payments. Such transactions would not leave a trail that Indian law enforcement agencies can track easily." - an industry person.
Exchanges in the market are very cognizant of these risks. They’re heavily investing in new, sophisticated tracking technologies and collaborating with law enforcement authorities to identify and cut off illegal activity.
Government Oversight and Industry Collaboration
Specifically, the government released an order to scrutinize transactions related to Jammu & Kashmir. This illustrates the importance of regulatory oversight in the cryptocurrency space. Through close cooperation with exchanges and the introduction of stricter monitoring requirements, authorities want to prevent money laundering and terrorist financing. Crypto Bourses have, however, demonstrated their commitment to working within and alongside government regulation and are already working to improve their monitoring capacity. We want the government to work hand-in-hand with the cryptocurrency industry to ensure our financial system remains secure. This relationship is key for guarding our national security.
