The Directorate of Revenue Intelligence (DRI) has issued a stark warning about the escalating use of digital currencies like USDT in smuggling operations and money laundering schemes. In its latest annual report, Smuggling in India 2024-2025, released on Thursday, the agency detailed how traditional smuggling networks are increasingly merging with digital financial systems, creating new challenges for enforcement.
The New Digital Hawala: Cryptocurrencies in Illicit Trade
The DRI report states that the adoption of cryptocurrency for smuggling activities has seen a significant jump in recent years. It notes that stablecoins, particularly USDT (Tether), are now frequently replacing the older, informal hawala networks for settling payments. These digital assets offer traffickers several advantages: faster and anonymous settlements, minimal regulatory oversight, and often weak Anti-Money Laundering (AML) compliance.
The decentralized and pseudonymous nature of cryptocurrencies provides criminals with innovative methods to move funds across borders and hide illegal profits. The report specifically connects this trend to the narcotics trade, where the dark web and online platforms, combined with crypto payments, create a secure and hard-to-trace environment for cross-border drug sales.
Case Study: Gold Smuggling and Crypto Transfers
A concrete example of this convergence was uncovered by the DRI in July 2024. The agency busted a transnational syndicate smuggling 108 kg of foreign-origin gold across the India-China border using porters and mules. Once the gold was sold in Delhi via jewellers and forex dealers, the massive proceeds, exceeding ₹108 crore, were sent back to China. The transfer methods? A combination of the traditional hawala system and USDT crypto wallets, effectively bypassing formal financial scrutiny.
The Path Forward: Regulation, Tools, and Global Cooperation
While cryptocurrencies pose a threat, the DRI also points to a potential solution embedded in the technology itself. The traceability of blockchain transactions offers law enforcement a powerful tool for intelligence gathering and financial investigations when paired with advanced analytics. The DRI has already taken steps by applying blockchain analytics to track crypto transactions in its probes.
However, the report emphasizes that this is not enough. To effectively curb the misuse of digital assets, a multi-pronged approach is essential. The DRI calls for:
- Stronger regulatory frameworks specifically designed for the digital asset space.
- Enhanced Anti-Money Laundering (AML) compliance requirements for crypto exchanges and service providers.
- Development and deployment of advanced forensic tools to keep pace with technological evolution.
- Robust global cooperation among law enforcement and regulatory bodies to tackle this borderless challenge.
The report also cautions about the rise of complex commercial fraud alongside India's economic growth, including customs duty evasion through undervaluation and misuse of export incentives. In FY 2024-25 alone, DRI registered 542 import fraud cases involving ₹2,606 crore in evaded duty and 63 export fraud cases involving ₹123 crore in fraudulent claims.
