Author: Ms. Somya Gupta, Vivekananda Institute of Professional Studies affiliated to GGSIPU
To the Point
Cryptocurrency has shifted from a niche experiment to a mainstream asset class, but its anonymity, borderless nature, and susceptibility to misuse have created a serious legal dilemma. India’s decision to bring Virtual Digital Assets (VDAs) within the scope of the Prevention of Money Laundering Act, 2002 (PMLA) in 2023 was a watershed moment. By doing so, India has recognized the laundering potential of crypto and mandated compliance obligations for exchanges, custodians, and wallet service providers.
The courts are now shaping how these provisions play out in practice. Their decisions highlight three recurring themes:
Predicate Offences – whether foreign or domestic crimes can trigger PMLA jurisdiction.
Cross-Border Enforcement – international cooperation and evidentiary requirements.
Procedural Safeguards – how seizure, attachment, and prosecution must comply with statutory and constitutional protections.
Use of Legal Jargon
Predicate Offence: An underlying crime listed in the Schedule to PMLA, without which prosecution for money laundering cannot be sustained.
Proceeds of Crime (PoC): Property derived directly or indirectly from criminal activity related to a predicate offence, as per Section 2(1)(u) PMLA.
Reporting Entities (REs): Persons or businesses notified under Section 2(1)(wa) PMLA (post-2023, includes crypto exchanges, custodians, and wallet services).
Attachment: Provisional order by the ED under Section 5 PMLA preventing dissipation of PoC.
Adjudicating Authority: The quasi-judicial body that confirms or rejects ED’s provisional attachment under Section 8.
Mutual Legal Assistance (MLA): Mechanism under which India can cooperate with foreign authorities for cross-border investigations and evidence collection.
The Proof
Regulatory Landscape: Crypto under PMLA- The March 2023 notification was a turning point, as it formally brought virtual digital assets (VDAs), including crypto currencies, within the ambit of the PMLA. By doing so, the government equated crypto intermediaries—such as exchanges and wallet providers—with traditional financial institutions like banks, NBFCs, and payment service providers for the purposes of anti–money laundering (AML) regulation. This meant that the compliance architecture traditionally applied to regulated financial entities now extends to crypto businesses as well.
The obligations are not superficial. They include stringent Know Your Customer (KYC) checks, requiring exchanges and custodians to verify the identity of every customer before allowing them to buy, sell, or transfer digital assets. Entities must also maintain detailed transaction records for a minimum of five years, creating a verifiable audit trail. Additionally, they are mandated to file Suspicious Transaction Reports (STRs) with the Financial Intelligence Unit – India (FIU-IND) whenever unusual or high-risk activity is detected.
Another crucial element is cross-traceability. Reporting entities are expected to track and link both fiat-to-crypto transactions and intra-crypto transfers, ensuring that funds cannot simply be laundered by shifting between wallets or tokens without detection.
The Enforcement Directorate (ED) has already demonstrated the teeth of this framework. Crypto assets worth several thousand crores have been attached and seized in money laundering cases, indicating that these powers are being actively and aggressively enforced, not merely kept on paper. The notification thus cements India’s stance: cryptocurrency may be innovative and decentralized, but it will not operate outside the boundaries of AML oversight.
Legal Challenges in Enforcement
Anonymity and Cross-Border Transactions: Cryptocurrency’s pseudonymous and borderless nature makes tracing the flow of funds difficult. Varying regulations across countries further slow cross-border investigations and complicate legal cooperation.
Technical Complexity and Forensics: Transactions can move instantly across multiple wallets, often using privacy coins or dark web tools, making it hard for authorities to establish a clear monetary trail, even in large ED investigations.
Regulatory Overreach and Market Impact: The broad scope of PMLA compliance could impose burdens on non-custodial developers and blockchain infrastructure providers, potentially stifling innovation while increasing surveillance of genuine market activity.
Predicate Offences and Extra-Territorial Reach: PMLA now covers foreign offences if proceeds enter India, raising questions about jurisdiction and the evidentiary proof of foreign laws, which courts require as expert evidence.
Enforcement Trends: The ED has seized cryptocurrency worth thousands of crores, showing strong regulatory action. Courts have upheld asset attachment, wallet freezes, and arrests, balancing AML enforcement with due process rights.
Abstract
India’s extension of PMLA to VDAs has not only closed a regulatory gap but also triggered a wave of enforcement actions. Courts have taken a pragmatic yet cautious stance:
They recognize that cryptocurrency can be laundered like any other asset.
They affirm jurisdiction over cross-border offences if the proceeds touch Indian soil.
Yet, they insist on procedural rigour: foreign law must be proved like fact; seizures must respect statutory safeguards; and overbroad applications risk violating due process.
The resulting jurisprudence illustrates a balance between regulatory vigilance and constitutional caution.
Case Laws
1. Adnan Nisar v. Directorate of Enforcement (Delhi HC, 2024–25)
A Kansas resident reported theft of crypto worth over USD 527,000. Funds were traced to Indian accounts through ED action triggered by an MLA request from U.S. authorities.
Issue: Could a foreign cybercrime be treated as a predicate offence under PMLA?
Held: Yes, if the offence corresponds to a scheduled offence under Indian law (here, fraud under IPC/IT Act) and the proceeds enter India, PMLA applies.
The court clarified extra-territorial jurisdiction of PMLA. However, it stressed that foreign laws must be proved through expert evidence. Bail was granted due to lack of prima facie nexus. Reinforces Section 3’s wide sweep but tempers it with evidentiary safeguards.
2. BitConnect Crypto Scam (Ahmedabad, 2025)
Facts: A massive Ponzi-like crypto scheme (BitConnect) promised extraordinary returns via a trading bot. ED uncovered siphoning of investor funds and seized crypto worth ₹1,646 crore, the largest seizure in India so far. Originated from FIRs in Gujarat. ED worked closely with U.S. agencies since the scheme had global reach. Demonstrates PMLA’s adaptability to complex, transnational crypto frauds and India’s growing participation in cross-border AML enforcement.
3. Vijay Madanlal Choudhary v. Union of India (SC, 2022)
Issue: Whether PMLA applies when the predicate offence is outside India.
Held: As long as the predicate offence is in the Schedule and the proceeds reach India, PMLA jurisdiction is attracted. This judgment provides doctrinal support for applying PMLA to foreign-origin crypto crimes like Adnan Nisar.
4. Delhi HC (2025) – Procedural Safeguards in Crypto Seizures
Issue: Retention and freezing of crypto assets under PMLA.
Held: While ED has wide powers, Sections 17 and 18 require recording of reasons, judicial confirmation, and adherence to timelines. Prevents arbitrary deprivation of property rights and enforces constitutional due process.
Conclusion
India has taken a decisive step in recognizing cryptocurrency as “property” under the Prevention of Money Laundering Act (PMLA), thereby subjecting it to the same stringent anti-money laundering (AML) scrutiny that applies to traditional fiat assets. Judicial interpretation has reinforced this approach by affirming that PMLA’s jurisdiction is broad enough to cover even cross-border crimes, that crypto can legitimately be classified as “proceeds of crime” (PoC) where linked to a scheduled offence, and that due process must be preserved through requirements such as proof of foreign law, judicial oversight of seizures, and proportionality in enforcement. Yet, significant challenges remain. The pseudonymous nature of cryptocurrency transactions makes tracing and attribution of funds inherently difficult, while the absence of a uniform global regulatory regime hampers effective mutual legal assistance (MLA) and slows cross-border evidence gathering. Domestically, the expansive compliance obligations imposed under PMLA could create a chilling effect on legitimate technological innovation, particularly if they are extended indiscriminately to developers of non-custodial platforms or open-source blockchain infrastructure. Against this backdrop, the judiciary has attempted to strike a balance, recognizing the state’s legitimate interest in curbing laundering risks while also safeguarding civil liberties and preventing overreach. The evolving jurisprudence suggests an effort to ensure that cryptocurrency in India is neither allowed to operate as a lawless frontier nor stifled into irrelevance by disproportionate regulation.
FAQs
Q1. Can cryptocurrency be treated as “property” under PMLA?
Yes. Indian courts have clarified that cryptocurrency falls within the definition of “property” under Section 2(1)(v) of the PMLA. This means it can be seized, attached, and treated as “proceeds of crime” (PoC) if linked to a scheduled offence.
Q2. Does PMLA apply to foreign crimes involving crypto?
Yes. If the conduct abroad amounts to an offence that would be a scheduled offence under Indian law, and the proceeds are traced into India, PMLA applies. The Delhi High Court in Adnan Nisar and the Supreme Court in Vijay Madanlal Choudhary confirmed this broad jurisdiction.
Q3. What safeguards exist against ED’s arbitrary seizure of crypto?
Sections 17 and 18 of PMLA require the Enforcement Directorate to record reasons, place the seizure before an Adjudicating Authority, and ensure judicial oversight. The Delhi High Court (2025) stressed that procedural compliance is crucial, especially with volatile assets like crypto.
Q4. Who are “Reporting Entities” in crypto?
Currently, exchanges, custodial wallet providers, and similar intermediaries are considered reporting entities under PMLA, obligated to follow KYC and AML norms. Whether non-custodial platforms and developers fall under this net remains unresolved.
Q5. What is India’s largest crypto-linked money laundering case?
The BitConnect scam (2025), where the ED seized cryptocurrency worth around ₹1,646 crore. The case involved cross-border cooperation with U.S. authorities and highlighted the scale of crypto-enabled fraud.
Q6. Does mere possession of crypto attract PMLA?
No. Holding or trading crypto by itself is not an offence under PMLA. Liability arises only if the crypto is derived from, or used in connection with, a scheduled offence and thereby qualifies as “proceeds of crime.”
