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

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

The March 2026 report on ‘Understanding and Mitigating the Risks of Off-shore Virtual Asset Service Providers’ has discussed India’s regulatory perimeter, enforcement actions, and detection tools. It has also noted India’s ongoing efforts to set up a “Virtual Asset Lab” to enable continuous detection of unregistered and high-risk platforms using analytics, open-source intelligence, and automated web surveillance.

The report states that the Indian Financial Intelligence Unit (FIU) has been leveraging Suspicious Activity Reports (STRs) from domestic VASPs. A prominent instance quoted pertains to “scam compounds”.

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

The NIA, CBI, and the ED are probing offshore scam compounds along the Myanmar-Thailand border, in Cambodia, and Laos, where illegally trafficked Indian citizens were forced to commit cybercrimes.

“In another case the FIU found an oVASP using the cover of an online gambling platform, based in the Caribbean, and leveraging AML (anti-money laundering) blind spots to move value across borders. Access to the platform was blocked in India,” it said.

Listing the measures taken by India, the report said that the FIU has set up a dedicated Working Group with local VASPs and other stakeholders, such as banks, payment aggregators, and gateways, to formulate red flag indicators and develop strategies to detect and address operations of oVASPs serving Indian users.

The FIU has made it mandatory for Principal Officers (POs) of VASPs to be based in India. A PO is the main liaison with regulatory bodies. The officer must hold legal responsibility for transaction monitoring, STRs and ensuring Prevention of Money Laundering Act compliance.

The PO must have full access to customer information, company systems, and staff, be senior enough to make independent decisions, work full-time only for that particular VASP in an AML/CFT/CPF role, and be a person other than the designated director. The FIU interviews POs and designated directors to determine if the rules have been followed, before allowing VASPs to register.

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

“FIU India has leveraged this platform to direct intermediaries to take down website content. So far 85 URLs pertaining to unregistered non-compliant oVASPs have been taken down,” it said.

On multi-agency coordination front, the Department of Revenue under the Finance Ministry established a Virtual Assets Contact Sub-Group in July 2023. Comprising law enforcement agencies, intelligence agencies, and regulators, the group meets regularly to identify emerging risks and formulate strategies. It encourages inter-agency sharing of trends, typologies, and case studies, said the report.

The oVASPs which do not have a local office but serve domestic users are required to register in India. The report stated that such entities circumvent the country’s regulatory framework, and that its effectiveness currently depends heavily on domestic financial/payment institutions and local VASPs.

The report said analyses indicate that after India introduced virtual assets tax regime in 2022, a significant proportion of trading traffic moved from Indian to offshore unregistered VASPs. A large number of Indian clients moved to such entities which do not comply with Indian laws. They encourage the use of VPNs or shell companies to circumvent domestic regulations.