Non-Compliant Crypto Platforms Flourish Despite PMLA Enforcement: A Growing Threat to India’s Regulatory and National Security Framework

Two years after being brought under the PMLA, many offshore crypto players remain outside the compliance net—posing serious risks of capital flight, scams, and terror financing

26 June 2025, New Delhi

It has been over two years since the Ministry of Finance took a historic step by bringing Virtual Digital Asset (VDA) service providers—including crypto exchanges, custodians, and wallet operators—under the ambit of the Prevention of Money Laundering Act (PMLA) in March 2023. This move was designed to align India’s regulatory landscape with global anti-money laundering and counter-terrorist financing (AML/CFT) standards, as recommended by the Financial Action Task Force (FATF).

While several Indian crypto exchanges swiftly adapted, registering as reporting entities with the Financial Intelligence Unit – India (FIU-IND) and implementing stringent KYC norms, due diligence protocols, and suspicious transaction reporting mechanisms, a shadow economy has continued to grow in parallel.

Offshore Platforms Operating with Impunity

Numerous offshore platforms, still catering aggressively to Indian users, have managed to bypass Indian regulations entirely. These platforms operate through Telegram channels, deploy regional language influencers, and offer peer-to-peer (P2P) trading models with complete anonymity—without falling under India’s legal jurisdiction. As a result, they remain non-compliant with the PMLA, undermining the enforcement of AML/CFT standards in India.

This lack of oversight is not merely a regulatory lapse—it has created an uneven playing field, where compliant Indian exchanges bear the operational and reputational costs of upholding the law, while non-compliant actors lure users with ease-of-access and anonymity. The fallout has been severe: a significant user migration from regulated platforms to riskier offshore services.

A Threat Beyond Commerce: National Security at Stake

The unchecked rise of these non-compliant platforms presents grave national security concerns. From capital flight and tax evasion to potential terror financing and phishing scams, the risks are manifold. Moreover, Indian users of such platforms are left exposed—without access to legal remedies or consumer protection in case of fraud or technical failure.

Enforcement agencies face difficulties in cracking down on these operators, who often circumvent bans by shifting URLs, using mirror sites, or reappearing on app stores under different names. Although the government has issued show-cause notices to several entities, the lack of effective enforcement tools renders such actions limited in impact.

The Compliance Disincentive

The current situation sends a troubling message: those who comply face penalties, while those who don’t continue unchecked. This perception not only discourages legitimate innovation but also deters institutional investment in India’s digital asset ecosystem. With the FATF mutual evaluation scheduled for 2026, India’s global reputation is also at stake.

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Policy Recommendations and the Road Ahead

To close this regulatory gap, urgent intervention is required. The government must:

• Implement geo-blocking and strengthen payment gateway surveillance
• Set up an inter-ministerial task force for coordinated enforcement
• Launch user awareness campaigns to warn about risks of unregulated platforms
• Enforce FATF’s Travel Rule to ensure cross-border transaction traceability

India cannot afford to run a dual-market crypto ecosystem—one governed by law and another thriving in regulatory shadows. For the industry to grow with integrity and attract global credibility, effective enforcement must walk hand-in-hand with progressive regulation. The time to act decisively is now.

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