- India’s FIU-IND is investigating Binance over cross-border crypto transfers, citing risks of terror financing and money laundering.
- Regulatory gaps between India and Pakistan heighten the dangers of unregulated wallet activity in sensitive regions like Jammu and Kashmir.
- The probe reflects a global trend of tightening crypto oversight, with Binance once again at the center of compliance battles.
Binance Under India’s Microscope
India’s cryptocurrency landscape has been undergoing a transformation marked by tighter regulations, growing adoption, and heightened government vigilance. At the center of the latest storm is Binance, the world’s largest crypto exchange, which has come under investigation by India’s Financial Intelligence Unit (FIU-IND).
Authorities are scrutinizing Binance for potential loopholes in cross-border digital asset transfers, raising alarms over national security concerns, especially transactions linked to accounts in Pakistan and recipients in sensitive regions such as Jammu and Kashmir. While no direct criminal connections have been proven yet, the opaque nature of unregulated wallets has turned this into a matter of urgent state interest.
This probe into Binance highlights the wider challenges of regulating digital assets in geopolitically tense regions, where crypto’s promise of borderless finance collides with its risks of misuse.
Why India Launched the Binance Investigation
The FIU-IND and Enforcement Directorate (ED) began investigating after detecting unusual wallet-to-wallet transfers. These transactions, often routed through private addresses outside regulated exchanges, bypass reporting requirements and complicate efforts to track suspicious flows.
Key Concerns Driving the Probe:
- Cross-border risks: Transactions traced from Indian accounts to wallets outside the country.
- Terror financing fears: Links to Pakistan-based accounts, particularly near conflict-prone areas like Jammu and Kashmir.
- Transparency gaps: Lack of regulatory oversight in wallet transactions outside exchange systems.
“The absence of clear reporting in private crypto wallets creates blind spots that can be exploited for illegal financing,” said a senior FIU-IND official.
This investigation aligns with India’s broader push to tighten compliance and transparency standards following previous episodes of fraud, hacks, and regulatory lapses in the crypto sector.
Regulatory and Security Pressures on Crypto Exchanges in India
Binance is not alone in facing scrutiny. India has ramped up oversight on all exchanges operating within its jurisdiction.
- Binance’s compliance record: The exchange re-entered the Indian market in August 2024 after paying a fine of INR 18.9 crores (approx. $189M) and registering with FIU-IND. Yet, bank accounts tied to its Indian operations remain frozen under investigation.
- WazirX controversy: Following a 2024 hack, Indian intelligence agencies interrogated WazirX executives. While blockchain analysis suggested North Korea’s Lazarus Group was behind the attack, conflicting claims between Binance and WazirX over ownership created additional uncertainty.
India’s Legal Ambiguity
In April 2025, the Supreme Court dismissed a petition by hack victims, telling them to approach regulators instead. This highlighted India’s regulatory vacuum—crypto exchanges must comply with AML and taxation rules, but a comprehensive law remains pending.
India vs Pakistan: Divergent Paths in Crypto Regulation
India and Pakistan are moving in opposite yet structured directions on crypto governance.
| Country | Regulatory Approach | Key Developments |
|---|---|---|
| India | Cautious, AML-driven, high taxation | 30% tax on profits, 1% TDS, FIU-IND registration since 2023, pending comprehensive crypto law |
| Pakistan | Pro-adoption, investment-driven | Pakistan Crypto Council (Mar 2025), Virtual Assets Ordinance (Jul 2025), creation of Pakistan Virtual Assets Regulatory Authority (PVARA) |
India views crypto through a national security lens, while Pakistan sees it as a tool to attract foreign investment and modernize finance. Binance finds itself navigating both jurisdictions—supporting Pakistan’s push for regulation while being probed by India’s FIU.
Cross-Border Risks Between India and Pakistan
The investigation into Binance cannot be separated from broader India-Pakistan tensions. Cross-border crypto flows present multiple risks:
1. Regulatory Mismatches
Different frameworks create gaps that bad actors exploit. India follows the Crypto-Asset Reporting Framework (CARF) for global tax compliance, while Pakistan’s PVARA aims to boost adoption.
2. Anonymity Loopholes
Private wallets and mixers enable transactions without oversight. India now mandates Suspicious Transaction Reports (STRs) for crypto privacy tools, but enforcement remains patchy.
3. Terror Financing Concerns
Crypto transfers tied to Jammu and Kashmir are of particular concern. The State Investigation Agency (SIA) conducted raids in regions like Jammu, Doda, and Kupwara in 2024, uncovering suspected networks funding militancy through crypto.
4. Cybercrime and Terror Links
Groups such as the Lazarus Group highlight the cybersecurity risks tied to cross-border crypto activity. FATF has also warned about terrorists exploiting e-commerce, messaging apps, and digital assets, citing India’s own tragedies like the Pulwama (2019) and Gorakhnath Temple (2022) attacks.
Global Context: Binance as a Symbol of Wider Regulatory Crackdowns
India’s probe into Binance mirrors global crackdowns:
- United States: The Department of Justice disrupted three crypto-enabled terrorist financing operations involving Hamas, ISIS, and al-Qaeda.
- Europe: The EU’s AMLA enforces strict region-wide licensing requirements for crypto exchanges.
- Turkey: The Thodex collapse in 2021, where its CEO fled with $2B in crypto, underscored risks of unregulated exchanges.
- Canada: The QuadrigaCX scandal in 2019 revealed how lax oversight allowed a Ponzi-style fraud to wipe out $190M in customer funds.
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Binance, already facing regulatory heat in multiple jurisdictions, remains a focal point because of its global scale and history of compliance disputes.
Historical Lessons: Crypto Scandals as Warnings
Past scandals illustrate the consequences of regulatory loopholes:
- QuadrigaCX (2019): $190M lost after the founder’s death in India revealed hidden fraud.
- Thodex (2021): $2B vanished in Turkey; CEO sentenced to 11,196 years.
- Rug Pull Epidemic (2021): 37% of all crypto-scam revenue came from rug pulls, up from 1% the year before.
India’s regulators appear determined not to repeat such mistakes, especially in light of geopolitical sensitivities with Pakistan.
What Binance Means for India’s Crypto Future
India’s investigation into Binance represents more than a compliance issue—it is a test of balancing innovation with national security. By targeting loopholes in cross-border transfers and unregulated wallets, India is signaling its intent to align with global AML standards while safeguarding against terrorism financing and cybercrime.
Binance’s compliance struggles serve as a cautionary tale for exchanges seeking access to India’s massive market. For India, the path ahead involves drafting a comprehensive crypto law that goes beyond taxation and KYC, providing clarity for innovation while closing avenues for abuse.
The outcome of this probe could redefine not only Binance’s future in India but also the regional dynamics of crypto regulation between India and Pakistan.