Non-compliant crypto platforms continue to operate despite PMLA Enforcement: A looming regulatory and national security concern
New Delhi, 27 June 2025
Two years have passed since the Ministry of Finance declared Virtual Digital Assets (VDA) service providers, including crypto exchanges, custodians, and others, to be reporting entities under the Prevention of Money Laundering Act (PMLA) in March 2023. It was a landmark regulatory decision intended to bring crypto assets into the AML (anti-money laundering) and CFT (counter-terrorist financing) architecture in India. This new obligation worked toward aligning India with the FATF recommendations, but the regulatory net has many holes. Many overseas crypto platforms serving Indian citizens remain outside of the formal compliance environment.
Many Indian exchanges responded immediately when the Ministry of Finance issued its March 2023 notification. They undertook a costly and complex process to treat their platforms as FIU-IND reporting entities, implemented end-to-end KYC training processes, trained their staff to file suspicious transaction reports (STR), and created processes that were aligned with the PMLA. These organizations now have enhanced KYC requirements, due diligence processes and data sharing with FIU-India.
In contrast to these Indian exchanges, there now exists a parallel crypto economy powered by offshore platforms, offering informal peer-to-peer (P2P) trading and obscure processes not aligned with the law of the land. These platforms are mobilizing Telegram communities, deploying and onboarding influencers, and actively marketing to Indian users (often in native languages), providing no legal responsibility under Indian law.
The presence of crypto offshore platforms has created significant inequality, causing compliant players to face inherent operational frictions, costs, and reputational overheads, against a backdrop of burgeoning non-compliant players that exploit users by selling a promise of ease-of-use and anonymity. The consequence is that the compliant players have faced an exodus of users. This is a serious situation that does not just represent a commercial issue, but one of financial and national security risk.
The continued operation of non-compliant platforms also represents several challenges to Indian enforcement agencies. Offshore non-compliant crypto platforms present significant potential risks for capital flight, tax evasion, and possible terror financing. Additionally, users of these platforms are left open to scams, phishing attacks, and losses with no legal protections or grievances avenues. All of this is escalated by cybersecurity challenges and lack of regulation, creating further national and consumer protection security issues.
The government did issue show-cause notices in response to violations of PMLA guidelines to some offshore platforms that operate in India. However, such players can find technical means to work around the blocking of their URLs and removal of their apps from app stores, thereby limiting the utility of such enforcement actions.
The perception that compliance is penalised while evasion is rewarded discourages long-term institutional investment and deters innovation. It also affects India’s credibility in international forums, especially ahead of the FATF mutual evaluation scheduled for 2026.
India must address this policy blind spot with urgency. To curb the operations of non-compliant crypto platforms, the government must enforce geo-blocking, and payment gateway monitoring. An inter-ministerial task force should oversee coordinated enforcement, while public advisories raise user awareness. FATF’s Travel Rule must be implemented to ensure cross-border transaction traceability.
The future of India’s crypto industry hinges not only on progressive regulation but also on effective enforcement. India cannot afford to be a dual-market economy—one that rewards regulatory discipline and another that thrives in the shadows. The time to close this gap is now.
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