NEW DELHI—India’s cryptocurrency landscape is facing a severe regulatory storm. According to a high-level government report seen by media on Monday, January 19, 2026, suspicious transactions among Indian VDA (Virtual Digital Asset) users have skyrocketed.
From just 1,343 reported instances in the 2023-24 financial year, the number has surged to 11,720 in the first eight months of the current fiscal year—a staggering 773% increase. This explosion in dubious activity highlights the growing challenge for authorities as they struggle to monitor a market that now includes 34 million users holding assets worth ₹24,800 crore.
1. The Youth Factor & The Offshore Flight
The report underscores a concerning demographic trend: 82% of the individuals involved in these flagged transactions are aged between 20 and 40.
- Offshore Risk: Nearly 41% of Indian crypto investors are using offshore platforms. These exchanges operate beyond the immediate reach of Indian law enforcement, making it difficult to track money laundering or verify the source of funds.
- Stablecoin Dominance: Tether (USDT) remains the weapon of choice for illicit activity, featuring in 76% of all suspicious transaction reports (STRs). Bitcoin accounted for only 6%.
2. The Cambodia Connection: Cybercrime & Trafficking
The Financial Intelligence Unit (FIU) has flagged a specific, chilling case study involving Cambodia.
- The Pattern: 34 customers were identified using Cambodian mobile numbers to access Indian crypto accounts. They would fund accounts with USDT, immediately liquidate them into rupees, and withdraw the cash.
- The Links: These transactions are suspected to be the proceeds of cybercrimes and human trafficking. Many of these users were linked to Huione Pay, a Cambodian service recently severed from the U.S. financial system due to its role in laundering billions for transnational criminal organizations.
3. Geographic Hotspots of Suspicious Activity
The surge is not uniform across India. The FIU’s regional analysis shows specific states leading the “red flag” count:
| State | Share of Suspicious Reports |
| Rajasthan | 18% (National Leader) |
| Uttar Pradesh | 11% |
| Maharashtra | 7% |
| West Bengal | 7% |
| Madhya Pradesh | 6% |
4. The “Red Flags”: What Triggers an Investigation?
Registered platforms are now mandated to report any activity that seems “unusually complex” or lacks “economic purpose.” Key triggers include:
- Dormant Account Spikes: Sudden, high-volume activity in long-unused accounts.
- Structuring: Keeping transactions just below the reporting threshold (e.g., ₹9.9 lakh to avoid the ₹10 lakh flag).
- Circular Trading: Creating artificial losses to evade the 30% crypto tax.
- Unverifiable Source: Inability to explain where the initial capital originated.
5. Government Action & The Tax Gap
The Indian government has already begun a crackdown:
- Penalties: ₹29 crore in fines have been levied against non-compliant entities.
- Bans: 63 websites have been blocked for failing to register with the FIU or follow PMLA (Prevention of Money Laundering Act) guidelines.
- Budget 2026 Concerns: With the Union Budget approaching, the Central Board of Direct Taxes (CBDT) has expressed concern that decentralized finance (DeFi) tools and private wallets are making it “virtually impossible” to recover taxes on billions of rupees in hidden income.