Report highlights steps taken to mitigate risks posed by offshore Virtual Asset Service Providers

A recent Financial Action Task Force (FATF) report highlighted instances where India has taken action against offshore Virtual Asset Service Providers (oVASPs) to counter money laundering and terrorist financing threats.

March 2026 report on ‘Understanding and Mitigating the Risks of Offshore Virtual Asset Service Providers‘ He discussed India’s regulatory framework, enforcement actions and detection tools. It also highlighted India’s ongoing efforts to establish a “Virtual Asset Lab” to ensure continuous detection of unregistered and high-risk platforms using analytics, open source intelligence and automated web surveillance.

The report states that India’s Financial Intelligence Unit (FIU) utilizes Suspicious Activity Reports (STRs) from local VASPs. One notable example cited concerns “scam compounds.”

Registered Indian VASPs detected unusual deposit patterns from offshore wallets and filed STRs. Financial Intelligence Unit analysis revealed that oVASPs were used to convert illicit proceeds into Virtual Assets (VAs) and then routed as real money into local accounts through registered Indian VASPs.

NIA, CBI and ED are investigating offshore fraud settlements along the Myanmar-Thailand border, in Cambodia and Laos, where illegally trafficked Indian citizens are coerced into committing cyber crimes.

“In another case, the Financial Intelligence Unit found an oVASP using the identity of a Caribbean-based online gambling platform and exploiting AML (anti-money laundering) blind spots to move value across borders. Access to the platform was blocked in India,” he said.

Listing the measures taken by India, the report stated that the Financial Intelligence Unit has established a special Working Group, comprising local VASPs and other stakeholders such as banks, payment aggregators and gateways, to formulate red flag indicators and develop strategies to detect and address the operations of oVASPs serving Indian users.

The Financial Intelligence Unit has made it mandatory for Principal Officers (POs) of VASPs to be based in India. The PO is the main contact with regulatory agencies. The officer must have legal responsibility for monitoring transactions and ensuring compliance with STRs and the Prevention of Money Laundering Act.

The PO must have full access to customer information, company systems, and personnel, be senior enough to make independent decisions, work full-time in an AML/CFT/CPF role exclusively for that VASP, and be a person other than the designated manager. The Financial Intelligence Unit interviews POs and designated directors to determine compliance with the rules before allowing VASPs to register.

The FATF report also highlighted that the Union Ministry of Home Affairs has launched a dedicated Sahyog portal to promote collaboration between social media intermediaries and competent authorities. It automates and facilitates the sending of takedown notices to social media platforms, web hosts, internal service providers when any content is deemed illegal or used to commit illegal acts.

“FIU India has leveraged this platform to direct brokers to remove website content. 85 URLs related to unregistered, non-compliant oVASPs have been removed so far,” he said.

In the field of multi-agency coordination, the Revenue Department of the Ministry of Finance established a Virtual Assets Communication Subgroup in July 2023. The group, which includes law enforcement, intelligence agencies and regulators, meets regularly to identify emerging risks and create strategies. The report stated that it encourages inter-institutional sharing of trends, typologies and case studies.

oVASPs that do not have a local office but serve domestic users are required to register in India. The report noted that such organizations have bypassed the country’s regulatory framework and their effectiveness currently depends largely on local financial/payment institutions and local VASPs.

The report stated that analysis shows that after India implements the virtual assets tax regime in 2022, a significant portion of trade traffic moves from India to offshore unregistered VASPs. A large number of Indian customers have moved to such establishments that do not comply with Indian laws. They encourage the use of VPNs or shell companies to bypass local regulations.