Global best practices suggest India must close compliance gaps before risks spiral
20th July 2025 , New Delhi
The Government of India has taken huge strides to monitor the crypto-sector in the past few years. At each milestone along this journey, the Indian government has pursued key objectives, which range from mandatory reports for the crypto-players under the Prevention of Money Laundering Act to many changes in the Income Tax Act. But many offshore platforms have managed to remain completely out of the net of compliance, mischievously claiming non-applicability as they are outside India and because they have no physical establishment in India. This has started to pose significant enforcement challenges. At the same time, increasing numbers of offshore crypto-platforms are servicing a large active base in India, fully outside the ambit of Indian law; thus, creating a two-tiered marketplace: a compliant legitimate market with domestic actors that are subject to extensive anti-money laundering and KYC duty, and a ‘shadow’ market, where foreign actors operate without consequence exposing each Indian user and the overall economy, to an unacceptable level of risk.
This is not just an issue of firms competing on a fair playing field; it’s an issue of national financial integrity and consumer safety. The ability of these platforms to operate without any legal or physical presence in the country entirely takes away the barriers of capital flight, tax evasion, and fraud.
These offshore entities target Indian consumers but do not require registration with the Indian authorities nor operate physically in India. Without registration, Indian regulators cannot take enforcement action against their members. While compliant Indian platforms must worry about compliances and rightly so, these entities can essentially operate with impunity.
As iterated above, not only do many of these offshore crypto platforms lack a physical office in India, but they also operate without employing a single individual in the country, further evading accountability and undermining domestic job creation. This is unprecedented but not something that India has not faced before. The Government has already taken decisive steps in other digital sectors to address similar concerns. For instance, global social media platforms were required to appoint local grievance redressal officers under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. This move was aimed at ensuring user protection, faster dispute resolution, and regulatory compliance. Likewise, industries dealing with sensitive data or financial services, such as digital payments, telecom, and broadcasting, are mandated by law to establish a physical presence and adhere to domestic oversight. Given that crypto platforms handle both money and data, it is imperative they be held to at least the same standard of accountability. Without such mandates, India risks enabling a parallel economy that thrives on regulatory arbitrage and compromises national interests.
Moving ahead, we need an explicit and vigorous legislative mandate. The strongest approach is to mandate that any crypto platform servicing Indian users must register a legal entity and physical presence in India. There are already some examples of enforcing this in various ways. The other major world economies, from the European Union to Japan, require the same for virtual asset providers in their own jurisdictions.
India must act now to guarantee that their digital financial future is constructed on accountability and sovereign oversight, and not give the impression that these intended provisions can be evaded. Sidestepping of such provisions not only limit government revenues, but also expose Indians to innumerable financial risks well beyond their financial appetite.
