The Income Tax Department has intensified investigations into a suspected crypto-hawala racket, where cryptocurrencies are being used as a conduit for illegal cross-border fund transfers. Dubai has emerged as a key operational hub in this new-age version of hawala, a traditional informal money-moving system long under scrutiny.
According to sources within the department, the modus operandi involves converting unaccounted cash into crypto assets within India and transferring them to wallets operated abroad, particularly in the UAE. These are then liquidated into foreign currencies and rerouted to beneficiaries, completely bypassing formal banking channels and regulatory oversight.
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Shell Firms, Freelancers & Tax Evasion Techniques
The racket reportedly uses shell companies, freelancers, and crypto wallets with lax Know-Your-Customer (KYC) norms to mask the identity of beneficiaries. Investigators have noted that certain Indian traders and small-time exporters may be using this model to evade capital controls and income tax, shifting their profits out of the country undetected.
A senior official involved in the probe stated, “The scale of these transfers is significant. Several wallets linked to Dubai-based operators have shown large volume movements in a short period.”
Multiple raids and notices have been issued in recent weeks, and authorities are now coordinating with global crypto exchanges and forensic blockchain experts to trace the on-chain flow of funds.
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Regulatory Push and Global Cooperation Needed
This revelation has reignited the debate around crypto regulations in India, especially regarding the need for cross-border oversight and compliance. Although India mandates a 1% TDS on crypto transfers and has tightened taxation on virtual digital assets (VDAs), the use of offshore wallets continues to pose challenges.
Dubai’s flexible crypto laws and its growing appeal as a fintech hub are making it a preferred base for those seeking anonymity and ease of conversion. Experts believe a stronger bilateral enforcement mechanism and robust KYC protocols across borders are essential to curb such laundering networks.
About the Author – Anirudh Mittal is a B.Sc. LL.B. (Hons.) student at National Forensic Sciences University, Gandhinagar, with a keen interest in corporate law and tech-driven legal change.