India's Financial Intelligence Unit (FIU-IND) is building a Virtual Asset Lab dedicated to identifying offshore crypto exchanges that serve Indian users without local registration. Official data show more than 85 non-compliant website links linked to offshore platforms have already been blocked for failing to follow the country's compliance rules.
Why Offshore Platforms Are in the Crosshairs
The Indian government says many offshore virtual asset service providers (oVASPs) continue to serve Indian traders without registering with local authorities. Some are registered in one country but operate in several others, often without a physical office where users live. This makes it difficult for regulators to monitor their activities or enforce anti-money laundering (AML) rules.
The new lab will combine data analysis, blockchain tracing and open-source intelligence tools to automatically spot suspicious websites or mobile apps. The project involves cooperation between FIU-IND and the Home Ministry, along with a multi-agency taskforce that shares case studies, tracks trends, and speeds up responses to suspicious activity.
Payment Channels Become a Regulatory Entry Point
Investigations show several offshore exchanges still attract Indian users via local payment methods — allowing deposits through UPI or bank cards, while routing withdrawals through intermediaries. Since the main company is based abroad, authorities often struggle to identify who controls user funds and data.
Recently, 52 offshore crypto service providers received notices for operating in India without FIU registration. Under Indian law, any digital asset service offering products to Indian users must register with FIU-IND, even if operated from another country.
Tax Rules Pushed Traders Offshore
After India introduced a 30% tax on crypto gains and a 1% tax deducted at source (TDS) in 2022, many traders moved their activity to foreign platforms with fewer restrictions. Regulators believe this shift increased risks for investors and made monitoring harder. The Virtual Asset Lab aims to detect platforms that try to bypass AML checks, KYC verification, travel rule requirements, and taxation.
Meanwhile, India's crypto regulatory framework continues to evolve. The FIU recently clarified that there is no official order forcing exchanges to delist privacy coins like Monero or Zcash. However, exchanges must closely monitor high-risk transactions, especially those involving anonymity tools or mixing services. Suspicious activity is tracked through Suspicious Transaction Reports (STRs) submitted by exchanges and other reporting entities, helping authorities detect unusual wallet movements and possible financial crimes.
By setting up the Virtual Asset Lab, India is building a tech-driven oversight loop — combining automated monitoring, inter-agency collaboration, and bank-exchange coordination — to curb the unchecked expansion of offshore crypto platforms.