Absence of a legal and technical framework has become a big problem for Indian law enforcement agencies which are struggling to investigate growing use of cryptocurrency to fund smuggling of narcotics, gold, terrorism and financial frauds.
Sources said these issues have been flagged by the Union Home Ministry with the Finance Ministry with special thruston the urgent need to equip agencies with regulatory framework and technical support to probe suspected movement of tainted crypto money. The problem is that cryptocurrency — built on blockchain technology — is difficult to track because the exchanges are not in India, explained sources in the Home Ministry. Cryptocurrency is anonymous, untraceable and moves faster than normal online transfer of money which makes it convenient for criminals.
The Finance Ministry is readying a consultation paper on cryptocurrency, which the agencies fervently hope would lead to a framework for the regulation of e-money. Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, too, is pending.
BusinessLine spoke to officials across different law enforcement agencies including Directorate of Revenue Intelligence, Narcotics Control Bureau, Enforcement Directorate, Delhi police and intelligence agencies. All expressed their helplessness in tracking down cryptocurrencies mode of illegal payments for criminal activities. They also lack the technical know-how to handle such complex probe, admitted officials.
The DRI had arrested a Chinese national and two others and seized 21 kg gold in November 2019. During interrogation, sleuths learnt that part of the smuggled money was wired through crypto. But, said a senior DRI officer who handled the operation, they could not do anything because of unavailability of enabling regulatory/technical infrastructure.
NCB deputy director-general Gyaneshwar Singh said the agency had unravelled darknet drug cartel in February. "In that, we came across that the gang was using crypto wallets, apart from other online platforms, for acceptance of money to deliver drug through the darknet," he stated.
A DCP level officer of Delhi police stated that for around last six months, terrorists have also started using cryptos for terror funding. "We may call it a e-version of hawala. Cryptos are sent from one wallet to another where it's withdrawn and converted into currency and paid to the recipient," the senior police officer told the newspaper.
In some cases, the police and other law enforcement agencies are able to detect and seize crypto coins if they manage to get 'private key' or password of the wallet used to channel the cash. And at that time, the wallet should have cash since if the money moves on to another then its virtually impossible to retrieve due to absence of required laws, said ED sources. The ED and Gujarat police, added sources, have managed to transfer coins to another account and confiscated the account to show it as proceeds of crime. Also, there are instances of sleuths blocking wallets held by culprits after changing their passwords.
Minister of State for Finance Pankaj Choudhary told Lok Sabha in April that the NCB and CBIC have unearthed ₹2.2 crore payments through cryptocurrency in eleven narcotics cases.