India’s Financial Intelligence Unit (FIU) has clamped down on anonymous cryptocurrencies. The agency issued a directive to all local exchanges and trading platforms demanding an immediate cessation of dealings with assets that allow financial trails to be hidden. The regulator views such instruments as a primary vehicle for money laundering.
The new rules, which came into force two weeks ago, leave platforms no choice: they must completely eliminate the possibility of depositing and withdrawing so-called privacy coins.
“Virtual assets designed to obfuscate the origin of funds or conceal their owners no longer fit into the risk management framework,” the FIU emphasized.
Unlike Bitcoin or Ethereum, where the blockchain is transparent and fund movements can be tracked, anonymous coins like Monero (XMR), Zcash (ZEC), and Dash use advanced cryptography. Stealth address technology generates unique details for each operation, making it impossible to identify the recipient.
Crypto Legal founder Purushottam Anand notes that the global trend has shifted. Previously, such tokens were considered symbols of financial freedom, but now regulators worldwide are squeezing them out of the legal landscape. According to the lawyer, given the impossibility of tracking, the FIU directive was an expected step.
For now, users can still buy privacy coins for rupees on some platforms or swap them for other assets. However, the net is tightening: many platforms have already restricted withdrawals. If exchanges fully comply with the order, legal trading of these instruments in India will effectively grind to a halt.
Hunt for Mixers and Non-Custodial Wallets
The regulator is also concerned about the use of mixers — services that blend cryptocurrency from different users to break the transaction chain. Funds from blacklisted wallets and those under US sanctions often pass through such tools.
Non-custodial wallets, where private keys are stored by the user rather than the exchange, have also come under fire. Platforms are mandated to collect data on transfers to such addresses and even consider introducing transaction limits for them to mitigate risks.
“Controlling flows outside centralized exchanges is almost impossible. Once coins move to personal wallets, the trail is lost. Current measures are an attempt to find a balance between the right to invest and the fight against illegal turnover,” states Sudhakar Lakshmanaraja, founder of the educational project Digital South Trust.
Problems With Withdrawing Profits into Fiat
The tough policy has also rippled through the banking sector. Indian banks are unsure how to handle incoming money from cryptocurrency sales on foreign platforms. Some institutions have already sought clarification from the FEDAI association after receiving transfers from the US Treasury — assets in Indian investors’ accounts there were forcibly liquidated.
Banks are reluctant to credit such funds. The issue is that many users initially moved capital abroad to buy crypto, bypassing established limits and rules.
Harshal Bhuta, a partner at the firm P. R. Bhuta & Co, explains: when money from offshore crypto sales returns to an Indian bank, enhanced KYC checks are triggered. The Foreign Exchange Management Act (FEMA) lacks clear rules for such operations. Therefore, large or poorly verified transfers risk being frozen as suspicious, and information about them will be passed to intelligence agencies.
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