Indian Agencies Warn of Crypto Hawala Network Operating in J&K

India’s security agencies are confronting a new and far more elusive threat — one that does not cross borders with guns or couriers, but slips quietly through encrypted wallets and anonymous digital trails.

Investigators have uncovered what they describe as a “crypto hawala” network, a shadow financial system using unregulated cryptocurrency to funnel foreign funds into Jammu and Kashmir. The money, officials say, is being used to quietly revive terror-linked activities and separatist ecosystems that had been significantly weakened over the past few years.

Unlike older terror funding methods that depended on cash couriers or organised hawala networks, this new system leaves almost nothing behind for investigators to follow. There are no bank entries, no remittance records, and no paperwork — just encrypted digital transfers that vanish into anonymity.

Senior officials say this shift marks a dangerous evolution in how extremist networks now operate.

A digital upgrade to an old system

Hawala, for decades, has been the preferred underground banking system for moving money across borders. What has changed now is the medium.

In place of old-style couriers or coded phone calls, handlers based in countries such as China, Malaysia, Myanmar and Cambodia are now moving money straight into India through cryptocurrency. These wallets are created using VPNs, false identities and platforms that do not insist on any formal verification, making the transfers almost impossible to trace.

Once the money lands in these wallets, it is no longer connected to any regulated financial channel. From there, it is quietly converted into cash through peer-to-peer traders in cities like Delhi and Mumbai — outside the reach of banks, auditors, or regulators.

The result is a clean break in the money trail. To investigators, this is the most worrying aspect of the operation.

Why Jammu and Kashmir is back in focus

Officials believe the renewed flow of funds is not coincidental. Over the past few years, sustained crackdowns by security agencies had choked traditional terror-financing routes in Jammu and Kashmir. Properties were seized, NGOs scrutinized, and hawala operators dismantled.

But extremist networks adapt quickly.

With conventional channels blocked, funding has shifted to crypto — not to finance large-scale attacks, but to quietly sustain logistics, recruitment, propaganda, and underground networks. The objective, agencies say, is to slowly rebuild influence rather than stage headline-grabbing violence.

“It’s about keeping the ecosystem alive,” a senior officer involved in the probe said. “You don’t need big attacks if you can keep ideology, money, and recruitment flowing.”

The invisible role of mule accounts

At the heart of the operation are what investigators call “mule accounts” — ordinary individuals whose bank accounts or crypto wallets are used to move money without their full understanding of the consequences.

These individuals are often promised small commissions and told they are participating in legitimate transactions. In reality, they surrender full access to their accounts, allowing handlers to move funds across multiple layers, making detection nearly impossible.

Often, one person handles several accounts at the same time, moving money in small chunks so it doesn’t raise alarms while still shifting large sums overall. This layered method, along with the lack of transparency in crypto transactions, makes it very hard for agencies to trace where the money is going.

Why crypto has become the weapon of choice

Cryptocurrency was designed to eliminate intermediaries. That same feature now makes it attractive to terror networks.

The money moves quickly, crosses borders without restriction, and once sent, cannot be reversed. Wallets can be set up in minutes, VPNs hide locations, and once crypto is exchanged for cash through informal traders, the trail all but vanishes.

For agencies used to tracking bank records and financial institutions, this represents a fundamental shift in the nature of financial crime.

“It’s no longer about following the money,” an official said. “It’s about finding it before it vanishes.”

A new front in counter-terrorism

What worries security planners most is not just the technology, but the timing.

The rise of crypto hawala comes at a moment when traditional terror infrastructure has weakened. The fear is that digital money could quietly rebuild what was dismantled — without attracting immediate attention.

While India’s Financial Intelligence Unit has tightened oversight of registered crypto exchanges, the grey market remains a blind spot. And as long as unregulated wallets and P2P trading exist, enforcement agencies are playing catch-up.

This, officials admit, is no longer just a law-and-order issue. It is a national security challenge unfolding in cyberspace.

The bigger picture

The emergence of crypto hawala underscores a harsh reality: terrorism has adapted to the digital age faster than regulation has.

Where once money moved in suitcases, it now moves in code. Where once borders mattered, now only internet access does.

And as long as financial anonymity exists, extremist networks will continue to exploit it.

For India’s security agencies, the message is clear — the next battlefield is not just on the ground in Kashmir, but inside encrypted wallets scattered across the world.

Also Read: India’s ED Raids Target Crypto Links in Multi-State Drug Case

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