India has launched an in-depth investigation into two major cryptocurrency exchanges Binance and WazirX, over concerns tied to cross-border crypto transfers, national security risks, and gaps in regulation. The probe, led by the Financial Intelligence Unit (FIU-IND) and Enforcement Directorate (ED), reflects growing scrutiny of how digital assets may be misused for illegal funding and terrorism, particularly in sensitive border areas like Jammu and Kashmir.

With both platforms already facing regulatory and security challenges, this investigation adds to the pressure on global and local exchanges to comply with India’s anti-money laundering (AML) regime. The spotlight also brings into focus the risks of unregulated crypto flows between India and Pakistan, a region already marked by high geopolitical tension.

Cross-Border Crypto Transfers Spark National Security Concerns

The FIU-IND’s investigation was triggered by unusual wallet-to-wallet transactions, some of which were reportedly linked to accounts originating from Pakistan. The transfers were observed flowing to recipients in sensitive areas of India, including Jammu and Kashmir, a region long associated with separatist activity and cross-border militancy.

While no direct criminal activity has yet been confirmed, officials are alarmed by the opacity of private crypto wallets, especially those operating outside of regulated exchanges. These wallets, unlike accounts held on compliant platforms, do not require Know Your Customer (KYC) verification and are difficult to monitor.

This raises fears about the use of cryptocurrencies for illicit financing, particularly in regions already under close watch due to their strategic and security sensitivities. According to authorities, some transactions may be intended to fund radical groups or facilitate money laundering, leveraging the pseudo-anonymity that decentralised digital assets offer.

Binance and WazirX: A Troubled History with Indian Regulators

Both Binance and WazirX have faced heightened scrutiny in India for years. Binance, the world’s largest cryptocurrency exchange by volume, re-entered the Indian market in 2024 after paying a hefty fine of ₹18.9 crore ($189 million) for past violations. The platform also registered with the FIU-IND, signalling a willingness to align with Indian compliance frameworks.

Yet, questions remain. Several bank accounts linked to Binance’s Indian operations have since been frozen by the ED amid concerns about untracked cross-border wallet activity.

WazirX’s position is even more precarious. Once Binance’s Indian affiliate (though both companies now dispute ownership ties), WazirX has been in hot water multiple times. In July 2024, the exchange was hacked by North Korea’s Lazarus Group, which stole approximately $235 million, highlighting glaring security vulnerabilities. Even more troubling, a Singapore court filing accused the platform of facilitating TRX (Tron) token transfers allegedly linked to ISIS financing.

These incidents have severely dented the credibility of both platforms and attracted the attention of Indian enforcement agencies, who now see them as critical checkpoints in the battle against crypto-enabled crime.

Regulatory Divergence: India vs Pakistan

The probe comes amid starkly different regulatory environments in India and Pakistan, further complicating cross-border crypto surveillance.

India has adopted a cautious yet progressively structured approach. Since March 2023, all exchanges operating in India must register with FIU-IND, conduct complete KYC, maintain transaction records, and report suspicious activities. In addition, India imposes a 30% tax on crypto gains and a 1% Tax Deducted at Source (TDS) on transactions.

The 2025 Union Budget further tightened tax reporting requirements for digital asset holders. While India does not recognise cryptocurrencies as legal tender, it is aligning its reporting standards with the OECD’s Crypto-Asset Reporting Framework (CARF) to improve global transparency.

Pakistan, on the other hand, is attempting to position itself as a crypto-friendly jurisdiction. In March 2025, the country launched the Pakistan Crypto Council, and in July, it introduced the Virtual Assets Ordinance, establishing the Pakistan Virtual Assets Regulatory Authority (PVARA). This new body is responsible for licensing and regulating virtual asset service providers and aligning Pakistani crypto policy with FATF standards.

While Pakistan’s approach is geared towards attracting foreign investment and modernising its financial system, the contrast in regulation with India raises red flags. Loopholes created by these regulatory mismatches can be exploited for illicit cross-border transfers, especially in politically sensitive zones.

Crypto and Kashmir: A Dangerous Mix

What makes the situation particularly volatile is the focus on Jammu and Kashmir, a region with a long history of conflict, separatism, and insurgency. Indian authorities, including the State Investigation Agency (SIA), have conducted raids in Jammu, Doda, and Kupwara, targeting individuals suspected of using cryptocurrencies to fund militancy and radicalisation.

These developments have lent urgency to the probe into Binance and WazirX. As crypto becomes more integrated into global finance, it’s also becoming a tool for those seeking to evade state surveillance. The use of Telegram bots, mule accounts, and e-commerce platforms to enable crypto-based scams and illegal transfers is rising. India’s regulators now see unmonitored crypto flows as a national security threat.

The Financial Action Task Force (FATF) has repeatedly warned that terrorist groups are increasingly turning to decentralised financial tools to fund their operations. Past terrorist incidents like the Pulwama attack (2019) and Gorakhnath Temple attack (2022) have prompted India to strengthen its focus on financial intelligence and blockchain surveillance.

Global Context: A Shift Toward Stringent Oversight

India’s crypto investigation fits into a broader global crackdown on illicit digital finance. The US Department of Justice has recently disrupted several crypto-linked terrorist funding networks, including operations tied to Hamas, ISIS, and al-Qaida.

Legislators in the US have also introduced bills like the GENIUS Act, Anti-CBDC Act, and CLARITY Act, all aimed at creating more regulatory clarity while protecting privacy and financial freedom.

Meanwhile, the European Union’s Anti-Money Laundering Authority (AMLA) now mandates region-wide licensing for crypto businesses and has strengthened customer verification norms.

These global trends reflect a shared recognition: as decentralised finance grows, so do its vulnerabilities. Balancing financial innovation with national security and economic integrity is no longer optional.

A Pivotal Moment for Crypto in India

India’s investigation into Binance and WazirX underscores a pivotal moment for crypto regulation in the country. The case is not just about compliance, it’s about safeguarding national security, enforcing financial transparency, and ensuring that digital assets are not misused by hostile actors.

As India aligns with global norms while managing local risks, exchanges operating in the country must prepare for stricter enforcement, greater scrutiny, and zero tolerance for lapses. Whether this leads to a more secure digital economy or stifles innovation will depend on how carefully policymakers strike the balance.