Why India Commenced Investigations into Binance and WazirX
The Indian financial crime-fighting division, the FIU-IND, is currently scrutinizing Binance, a major international cryptocurrency exchange, alongside WazirX, an Indian-based exchange. The core concern revolves around potential gaps in the system when it comes to digital currency transactions that cross international borders.
This probe is fueled by apprehensions regarding loosely regulated digital wallet activities that have been traced back to accounts originating from Pakistan. Authorities are particularly focused on transactions occurring near strategically important regions like Jammu and Kashmir. It’s feared that these transfers might be channels for illicit funding or activities such as money laundering. The investigation also encompasses funds transferred from India to digital addresses situated in other countries.
While a definitive criminal connection is yet to be established, the opaqueness inherent in cryptocurrency wallets has prompted the FIU-IND and the Enforcement Directorate (ED) to diligently monitor blockchain operations. The inquiry was initiated because of unusual patterns detected in cryptocurrency dealings, specifically concerning direct wallet-to-wallet transfers.
These kinds of transactions, frequently conducted through non-public addresses not linked to conventional exchanges, present challenges in tracking and typically circumvent established reporting protocols. Heightened concerns about the financing of terrorist activities and separatist movements within the Kashmir region of India have intensified the gravity of this investigation.
Geopolitical considerations have further heightened the urgency of the investigation. Officials have observed a surge in cryptocurrency-related activities between accounts linked to Pakistan and recipients located in sensitive border regions like Jammu and Kashmir. The region’s volatility and historical involvement in illicit financial activities render these transactions a matter of significant national security.
Interesting Fact: The sudden passing of Gerald Cotten, the CEO of QuadrigaCX, a cryptocurrency exchange, while in India in 2019, resulted in the inaccessibility of $190 million in customer funds. Later, investigations revealed that Cotten operated Quadriga as a fraudulent scheme, akin to a Ponzi setup, utilizing customer deposits for personal trading ventures and extravagant expenditures. This occurred despite his claims that the funds were securely stored in offline digital storage devices, known as cold wallets.
Binance and WazirX: Previous Regulatory and Security Challenges in India
Binance and WazirX are experiencing escalating regulatory pressure as Indian authorities reinforce their supervision of cryptocurrency exchanges, addressing concerns regarding potential money laundering and the financing of unlawful operations via international digital asset transfers.
Binance, recognized as the globe’s largest cryptocurrency exchange, made a comeback into the Indian marketplace following the resolution of specific compliance deficiencies. In June of 2024, the company settled a penalty of approximately INR 18.9 crores, equivalent to $189 million as of July 21, 2024, to rectify previous infringements and secured registration with the FIU-IND by August of 2024. Nonetheless, the ED has placed a freeze on certain bank accounts linked to Binance’s Indian operations as part of an active investigation into cross-border wallet transactions.
WazirX, which has been linked to Binance in the past, is heavily used for cross-border money transfers in India. The exchange was breached by a group known as the Lazarus Group in July 2024, resulting in the theft of around $235 million, exposing security vulnerabilities and deficiencies in their customer verification protocols (KYC). A formal declaration submitted in a Singapore court suggests that WazirX indirectly facilitated TRX (Tron) token transfers with suspected ties to ISIS funding.
Both exchanges are under close scrutiny as Indian regulators strive to ensure that cryptocurrency activities do not undermine financial stability or national security.
The Evolution of Crypto Regulation in India and Pakistan
India and Pakistan have pursued distinct yet increasingly well-defined approaches to crypto regulation. India has adopted a measured strategy, focusing on taxation and measures against money laundering within a framework that doesn’t officially recognize crypto as a legitimate form of currency. Pakistan has been progressing towards legitimizing crypto trading and establishing a regulatory body to attract international investment and modernize its financial infrastructure.
In March of 2025, Pakistan formally established the Pakistan Crypto Council, naming Bilal Bin Saqib as the council’s leader, while Changpeng Zhao, a co-founder of Binance, will serve as its strategic advisor.
On July 8, 2025, Pakistan launched the Virtual Assets Ordinance, effectively establishing the Pakistan Virtual Assets Regulatory Authority (PVARA) to manage licensing and oversight. PVARA will operate as an independent regulatory institution, tasked with the responsibilities of licensing, monitoring, and supervising providers of virtual asset services. Furthermore, PVARA will ensure compliance with international benchmarks, particularly those stipulated by the Financial Action Task Force (FATF).
India, after initially prohibiting banks from facilitating cryptocurrency transactions in 2018, witnessed the reversal of this ban by the Supreme Court in 2020. Since March of 2023, cryptocurrency exchanges operating in India are mandated to register with the FIU-IND, adhere to AML guidelines, perform comprehensive KYC procedures, maintain meticulous records, and report any suspicious activities. Profits derived from cryptocurrency transactions are subjected to a 30% tax rate, along with a 1% tax deducted at the source (TDS), and the budget for 2025 introduced stringent tax disclosure obligations.
While a comprehensive legislative framework for cryptocurrencies is still under development, India is aligning with global benchmarks, such as the Crypto-Asset Reporting Framework (CARF), to reinforce transparency and regulatory control.
Interesting Fact: In April 2021, Turkey’s Thodex unexpectedly suspended trading and withdrawals. CEO Faruk Fatih Özer absconded to Albania carrying a hard drive containing $2 billion in cryptocurrency. He later received an astounding 11,196-year prison sentence for fraud and related offenses.
Risks Associated with Cross-Border Transactions Between India and Pakistan
Cryptocurrency transfers occurring across the borders of India and Pakistan involve substantial hazards due to regulatory discrepancies, geopolitical complexities, and the inherent lack of transparency in cryptocurrency wallets. These contributing factors raise critical concerns regarding potential unlawful financing and overall financial instability:
- Regulatory Disparities: Divergent regulatory frameworks produce vulnerabilities that may be exploited to facilitate illicit transactions. India’s embrace of the international Crypto-Asset Reporting Framework (CARF) highlights efforts intended to enhance tax compliance and fiscal oversight.
- Anonymity-Related Risks: Authorities caution that unregulated private wallets could be utilized to finance terrorist activities. Regulatory bodies now demand that Suspicious Transaction Reports be filed for transactions involving cryptocurrency mixing services, privacy-enhancing tools, and stablecoins, although certain analysts contend that excessive regulatory actions could stifle innovation.
- India-Pakistan Tensions: Persistent jurisdictional disputes have amplified the scrutiny applied to crypto transactions, especially within the Jammu and Kashmir region, where apprehensions related to the financing of terrorism are notably high. Jammu and Kashmir’s State Investigation Agency (SIA) has executed coordinated operations in Jammu, Doda, and Kupwara, targeting a network suspected of utilizing cryptocurrency to support cross-border militancy and promote radical ideologies.
- Escalating Cybercrime: Reports have emerged about cross-border cryptocurrency-related scams, fraudulent accounts, and banking bots utilizing Telegram, leading to heightened vigilance pertaining to crypto transactions. The Financial Action Task Force (FATF) has issued warnings that terrorists are increasingly exploiting e-commerce platforms, messaging apps, and cryptocurrencies to fund extremist campaigns, referencing terrorist attacks in Pulwama (2019) and at the Gorakhnath Temple (2022).
Interesting Fact: By 2021, instances of exchange founders suddenly disappearing with investor funds, a phenomenon known as “rug pulls”, accounted for a significant 37% of overall crypto-scam revenue, up dramatically from just 1% the previous year. Thodex was the most prominent example within this category during the same timeframe.
Global Trend in Crypto Oversight
As governments worldwide intensify their crypto regulations, India and Pakistan are adapting to a new era of transparency and accountability within digital financial ecosystems.
India’s investigation targeting Binance and WazirX mirrors broader global initiatives. The US Department of Justice has dismantled three cryptocurrency-enabled terrorist financing operations involving groups such as Hamas, al-Qassam Brigades, al-Qaida, and ISIS, seizing significant quantities of digital currency.
Conversely, the US Congress has advanced the GENIUS Act, Anti-CBDC Act, and the CLARITY Act with the aim of providing increased regulatory clarity. The EU’s AMLA also recognizes the potential utilization of cryptocurrency for money laundering and enforces licensing measures throughout the region.
The actions taken by investigating agencies in India reflect a global trend. Governments are seeking to strike a balance between fostering innovation, preserving financial integrity, and preventing illicit money flows to combat illegal and anti-national activities.