New Crypto Helps Hawala
This grey zone cutting across borders
has brought anonymity and ramped up efficiency to hawala’s trust-based network
of faceless individuals operating outside the formal banking system.
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Crypto has added multiple new layers of anonymity
and efficiency to the traditional hawala system. Old
hawala was trust-based and operated outside the formal banking sector; now,
with cryptocurrencies, transactions can cut across borders and use infinitely
more layers and jurisdictions, protected by blockchain pseudonymity.
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Cases illustrate the scale and modes of crime using
crypto-hawala: Crime proceeds (1.3 crore rupees) were sent from
Ghaziabad to Dubai; a Delhi businessman moved over 4,000 crores using fake
invoices and shell companies; and over 1,000 crores in cyber fraud left India
via crypto wallets in a single year.
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Crypto-hawala is popular in sectors such as real
estate, betting, gold, forex, and general remittance. Terror,
narcotics, fintech fraud, and black money/FEMA violations are common targets
for this system.
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Main methods include:
o
Shell bank accounts.
o
Over-the-Counter (OTC) and Peer-to-Peer (P2P)
transfers.
o
Self-custody wallets (not hosted on exchanges,
controlled by private keys, enabling greater anonymity).
o
Non-compliant/rogue exchanges unavailable to local
regulators.
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Specialized mixers/tumblers and bridge/swap wallets
further obscure money trails by pooling crypto from different users and
transferring across blockchains.
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UPI QR codes are used to rapidly move money through
‘mule’ accounts, designed to be short-lived to evade banking
oversight.
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Stolen or laundered funds are often paid out in
stablecoins (e.g., USDT), received abroad, and quickly exchanged for local cash
or deposited in overseas bank accounts via crypto ATMs or OTC desks.
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Risk exists for participants: Deals
can fail, resulting in losses or scams; victims rarely approach authorities for
fear of prosecution.
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Global enforcement is increasing: Indian
authorities have cracked some cases using international cooperation and legal
frameworks, but the scale remains hard to estimate.
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Financial Intelligence Unit (FIU)-India has
publicly called out offshore exchanges for violating anti-money laundering
laws. Some exchanges have exited India, but others continue offering secrecy.
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Summary point: Crypto’s unregulated “grey
zone” and sophisticated technology give a potent new dimension to hawala,
enabling covert, cross-border finance that challenges regulatory oversight and
enables large-scale financial crime.
A
Ghaziabad trader channelled crime proceeds of Rs 1.3 crore to a Dubai-based wallet
in 2024.
Investigators
charged a Delhi businessman with moving over Rs 4,000 crore internationally through
fabricated invoices and shell companies.
Agencies
recorded more than Rs 1,000 crore of cyber fraud proceeds exiting India through
crypto wallets this year alone.
These
are all hawala deals but now riding on virtual assets through digital routes. When
it comes to dirty money flows, old hawala has embraced the new crypto. Key to this
are two factors: technology and crypto’s grey zone of regulation.
This
grey zone cutting across borders has brought anonymity and ramped up efficiency
to hawala’s trust-based network of faceless individuals operating outside the formal
banking system.
“The
blindfold is now multi-layered,” said a senior compliance officer with a leading
Indian crypto platform. “A traditional hawala deal is usually between two jurisdictions
and does not involve more than four layers (between the sender and the receiver).
With crypto in the play, one can add potentially infinite layers and jurisdictions
to fund flow which in any case is protected by the inherent pseudonymity of blockchain
transactions.”
The
emergent hybrid system of crypto-hawala is attracting covert financial transactions
that regulators are scrambling to crack.
“This
has particularly caught on in sectors such as real estate, betting — both cricket
and non-cricket, gold, and forex trading. It is also used for general remittance.
While terror or narcotics funding and fintech frauds are key red flags, the rest
is about black money and FEMA violations,” said a private recovery consultant who
helps retrieve funds in an “informal capacity” when such a deal goes wrong.
Off
the books and hidden by design, money flows through hawala to and from India are
hard to estimate.
During
2023-24, the RBI reported $118.7 billion as the total remittance to India and an
outflow of $31.73 billion under the Liberalised Remittance Scheme (LRS). Various
assessments have put funds moving through hawala between 20-40 per cent of India’s
total remittance.
A
substantial chunk of these informal transactions, sources said, is now taking the
crypto route through a bewildering combination of shell bank accounts, Over-The-Counter
(OTC) or Peer-To-Peer (P2P) transfers, self-custody wallets and non-compliant/rogue
exchanges.
Unlike
going through a formal platform compliant with anti-money laundering rules, an OTC
or P2P transaction typically involves only two individuals and stays under the enforcement
radar.
Self-custody
wallets are not hosted by any crypto exchange. The owners control such a wallet
themselves with a private key. This ensures anonymity as long as the wallet does
not deal with a regular crypto platform where any transaction with a self-custody
wallet invites enhanced KYC diligence.
To
further obscure the maze, there are specialised products called “tumbler” or “mixer”
wallets used to pool and mix crypto coins from multiple users before moving equivalent
amounts to new wallets to further obscure sources of funds. Often, “bridge” and
“swap” methods are used to switch assets between different blockchains, say, Bitcoin
and Solana, to obfuscate funds trails.
All
this translates into multiple options to conduct crypto-hawala transactions. In
its simplest form, the process requires remitters to organise their funds, say in
India, usually in multiple dummy accounts, and transfer to a shell bank account
belonging to an unknown person.
Apparently,
quick response (QR) codes on Unified Payments Interface (UPI) is the most popular
mode.
According
to a bank official who has assisted multiple investigative agencies in probing money
laundering, such mule accounts are often maintained for a short period because banks
are increasingly vigilant about structured transfers — smurfing — under Rs 50,000,
frequent pooling of funds, or repeated deposits followed by immediate digital transfer
outward.
Next,
the remitters receive USDT or stablecoin at a pre-negotiated rate in their crypto
wallets abroad — say, in Dubai. Once in the wallet, USDTs can be exchanged immediately
in Dirhams to a bank account through any crypto ATM in Dubai or in cash at an obliging
OTC desk.
The
cash withdrawal option is better suited for non-custody wallet users dealing in
smaller remittances. At this stage, the hawaladars (brokers) settle their margins
in local cash to complete the transaction cycle.
The
hawala money trail does not have to stop at Dubai, or wherever it is delivered as
USDT to a wallet. “It can keep travelling virtually anywhere, through one or more
rogue, non-compliant crypto platforms, to be encashed at a preferred time and location.
Many exchanges available to Indian users are not registered with the FIU (Financial
Intelligence Unit),” said the compliance officer.
Only
last month, FIU-India issued notices to 25 offshore Virtual Digital Asset (VDA)
service providers for violating provisions of the Prevention of Money Laundering
Act (PMLA), 2002. The list includes platforms such as Huione
(Cambodia), BC.game (Curacao),
LBank, BingX (both British virgin Islands), BitMex, Probit
Global (both Seychelles), PrimeXBT (St Lucia), LCX (Liechtenstein)
and BTSE (Lithuania).
“While
a few foreign exchanges, such as (Seychelles-registered) OKX, have exited the Indian
market and others (Binance and Coinbase) have registered with the FIU, users still
have multiple secrecy options available,” said the compliance officer.
However,
deals can go wrong, leaving the victims with few options other than relying on private
experts for techno-legal help. Such victims, said the recovery consultant, are typically
high-net-worth individuals who avoid approaching law enforcement agencies for “obvious
reasons” and rely on private negotiators for techno-legal help.
“Hawala
is based on trust and new players can be dodgy. One broker melted into thin air
after receiving rupee deposits. In another case, USDTs vanished from the wallet
before realisation. But going to the cops would attract charges under the PMLA,”
the recovery consultant said.
Sources
in the Enforcement Directorate said that they have cracked quite a few hawala cases
involving crypto. The agency obtained information from the UAE through FIU-IND via
Ottawa-based EGMONT Group of FIUs, besides relying on the Common Reporting Standard
system that allows countries to automatically exchange financial and tax information.