Why is India investigating Binance and WazirX over crypto loopholes? – Crypto News

Why did India launch an investigation into Binance and WazirX?

India’s Financial Intelligence Unit (FIU-IND) is investigating the global cryptocurrency exchange Binance and the Indian exchange WazirX, focusing on potential loopholes in cross-border digital asset transfers.

The investigation is driven by concerns about unregulated wallet transactions linked to accounts from Pakistan. Authorities are particularly worried about activities near sensitive areas like Jammu and Kashmir, where such transfers could be used for illegal funding or money laundering. They are also investigating the funds sent from India to addresses located outside the country.

Although no direct criminal connection has been found yet, a lack of transparency in crypto wallets has led the FIU-IND and the Enforcement Directorate (ED) to monitor blockchain activities. The investigation began due to unusual cryptocurrency transactions, particularly wallet-to-wallet transfers. 

These transfers, often made through private addresses not linked to regulated exchanges, are hard to track and do not follow standard reporting rules. Concerns regarding funding of terrorism and separatist activities in the Indian region of Kashmir have given the investigation a more urgent tone. 

The investigation has become more urgent due to geopolitical concerns. Authorities noticed increased crypto activity between accounts connected to Pakistan and recipients in sensitive border areas like Jammu and Kashmir. These transactions raise significant national security concerns because of the region’s instability and history of illegal financial activities.

Did you know? In 2019, Gerald Cotten, CEO of QuadrigaCX crypto exchange, died in India, locking access to $190 million in customer funds. Investigators later revealed Cotten had run Quadriga as a Ponzi-style fraud, using customer funds for personal trading and luxury spending, after claiming they were securely stored in cold wallets.

Binance and WazirX: Past regulatory and security issues in India

Binance and WazirX are facing increased regulatory scrutiny as India strengthens its oversight of cryptocurrency exchanges, thanks to concerns about potential money laundering and the financing of illegal activities through cross-border digital asset transfers.

Binance, the world’s largest crypto exchange, returned to the Indian market after resolving compliance issues. In June 2024, it paid a fine of about INR 18.9 crores (worth $189 million on July 21, 2024) for past violations and registered with the FIU-IND in August 2024. However, the ED has frozen some bank accounts linked to Binance’s Indian operations as part of an ongoing investigation into cross-border wallet transactions.

WazirX has been previously associated with Binance and is widely used for cross-border remittances in India. The exchange was hacked by the Lazarus Group in July 2024, which stole around $235 million, highlighting weaknesses in its security and Know Your Customer (KYC) measures. A 72-page affidavit filed in a Singapore court claims WazirX indirectly supported TRX (Tron) token transfers allegedly connected to ISIS financing. 

Both exchanges have been in the spotlight as Indian authorities work to ensure cryptocurrency activities do not threaten financial integrity or national security.

How crypto regulation evolved in India and Pakistan

India and Pakistan have taken divergent yet increasingly structured paths toward crypto regulation. India has adopted a cautious approach, focusing on taxation and Anti-Money Laundering (AML) measures within a framework that doesn’t recognize crypto as legal tender. Pakistan has moved toward legalizing crypto trading and establishing a regulatory authority to attract foreign investment and modernize its financial system.

In March 2025, Pakistan established the Pakistan Crypto Council, with Bilal Bin Saqib appointed as the council chief, while Binance co-founder Changpeng Zhao will serve as its strategic adviser.

On July 8, 2025, Pakistan introduced the Virtual Assets Ordinance, creating the Pakistan Virtual Assets Regulatory Authority (PVARA) to handle licensing and oversight. The PVARA will function as an autonomous regulatory body. Its responsibilities will include licensing, monitoring, and overseeing providers of virtual asset services. Additionally, PVARA will ensure adherence to international standards, particularly those outlined by the Financial Action Task Force (FATF).

India, after initially banning banks from supporting cryptocurrency in 2018, saw the Supreme Court lift the ban in 2020. Since March 2023, crypto exchanges in India must register with the FIU-IND, follow AML rules, conduct complete KYC checks, maintain records and report suspicious activities. Cryptocurrency profits are taxed at 30% with a 1% tax deducted at source (TDS), and the 2025 budget introduced stricter tax disclosure requirements. 

Although a comprehensive crypto law is still pending, India is aligning with global standards, such as the Crypto-Asset Reporting Framework (CARF), to enhance transparency and oversight.

Did you know? In April 2021, Turkey’s Thodex abruptly halted trading and withdrawals. CEO Faruk Fatih Özer fled to Albania carrying a hard drive with $2 billion in crypto. He later received an astonishing 11,196‑year prison sentence for fraud and other crimes.

Risks of cross-border transactions between India and Pakistan

Cross-border cryptocurrency transfers between India and Pakistan pose significant risks due to differing regulations, geopolitical tensions and the lack of transparency in crypto wallets. These factors raise concerns about illegal financing and financial instability:

• Regulatory differences: Varying regulatory approaches create gaps that can be exploited for illicit transactions. India’s adoption of the global Crypto-Asset Reporting Framework (CARF) reflects efforts to improve tax compliance and financial oversight.
• Anonymity risks: Experts warn that unregulated private wallets can be used for terrorism financing. Regulators now require Suspicious Transaction Reports for crypto mixers, privacy tools and stablecoins, though some argue excessive regulation could hinder innovation.
• India-Pakistan tensions: Ongoing jurisdictional disputes increase scrutiny of crypto transactions, especially in Jammu and Kashmir, where fears of terrorism funding are high. Jammu and Kashmir’s State Investigation Agency (SIA) conducted coordinated raids in Jammu, Doda, and Kupwara, targeting a suspected network using cryptocurrency to fund cross-border militancy and radicalization efforts.
• Rising cybercrime: Cross-border cyber scams involving cryptocurrencies, mule accounts, and Telegram-based banking bots have been reported, leading to enhanced vigilance on crypto transactions. The Financial Action Task Force (FATF) warned that terrorists increasingly exploit e‑commerce platforms, messaging apps and cryptocurrencies to finance extremist activities, citing terrorist attacks in Pulwama (2019) and Gorakhnath Temple (2022).

Did you know? By 2021, rug pulls, when exchange founders suddenly abscond with investor funds, accounted for a staggering 37% of all crypto‑scam revenue (up from just 1% the year before). Thodex topped that category during the same period.

Global trend in crypto oversight

As governments around the world tighten crypto regulations, India and Pakistan are adapting to a new era of transparency and accountability in digital finance ecosystems.

India’s probe into Binance and WazirX mirrors wider initiatives. The US Department of Justice disrupted three crypto‑enabled terrorist financing operations involving groups like Hamas, al‑Qassam Brigades, al‑Qaida, and ISIS, seizing significant amounts of digital currency. 

On the other hand, the US Congress has advanced the GENIUS, Anti-CBDC, and the CLARITY Acts to ensure regulatory clarity. The EU’s AMLA also recognizes the possibility of using crypto for money laundering and enforces region-wide licensing measures.

The efforts of investigating agencies in India reflect a global trend. States are seeking to balance innovation with financial integrity and counter illicit flows of money to curb illegal and anti-national activities.