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NEW DELHI: Security agencies have flagged a sophisticated “crypto hawala” network allegedly being used to bypass the country’s financial safeguards to funnel untraceable foreign funds into Jammu and Kashmir, raising concerns that the money is being used to finance terror activities in the Union territory, officials said on Sunday.The development has put the security establishment on high alert. Officials warned that these shadow funds are aimed at reviving separatist elements and reigniting “anti-national propaganda” in the region—activities that had been largely curtailed following sustained crackdowns by police and central agencies.How does the network workAccording to officials, this digital version mirrors the traditional “hawala” system, in which money is sent through non-banking channels. The “crypto hawala” network operates entirely off the grid, using the anonymity of unregulated cryptocurrency to erase the financial trail and inject cash into the domestic economy.An investigation by the Jammu and Kashmir Police, in coordination with central security agencies, has found that handlers based in countries including China, Malaysia, Myanmar and Cambodia were directing individuals in the Union Territory to create private cryptocurrency wallets. These wallets were often set up using Virtual Private Networks (VPNs) to evade detection and typically did not require Know Your Customer (KYC) or identity verification.Jammu and Kashmir Police has suspended the use of VPN services in the Valley, amid growing indications that such tools were being used to facilitate crypto wallet registrations. VPN is seen as a handy tool for terrorists as well as separatists to avoid detection.Officials further said that the foreign handlers transfer cryptocurrency directly into these private wallets, placing the funds under local control without routing them through any regulated financial institution. The wallet holders then travel to major cities such as Delhi or Mumbai, where they meet unregulated peer-to-peer (P2P) traders and convert the cryptocurrency into cash at negotiated rates.This process effectively “breaks the financial trail,” allowing foreign funds to enter the local economy as untraceable cash, they added.How ‘mule accounts’ hold keyThe network hinges on the use of “mule” or “parking” accounts that layer transactions to obscure the money trail. To keep the system running, syndicates have instituted a structured commission mechanism under which such account holders earn between 0.8 and 1.8 per cent per transaction.These accounts typically belong to ordinary individuals drawn in by the promise of commissions and reassured that their role is low-risk, limited to temporarily parking funds. In reality, full control of the accounts—including net banking usernames and passwords—is handed over to the operators.A single operator is usually given access to multiple mule accounts at a time, often ranging from 10 to 30 accounts.The emergence of “crypto hawala” is being viewed as a new challenge linked to off-exchange trading. By operating in the “grey market,” such networks are able to bypass anti-money laundering regulations that apply to registered financial entities.(With PTI inputs)
