Bitcoins Money Can Be Used For Hawala Transactions And Funding Terror Operations: Enforcement Directorate

Bitcoins Money Can Be Used For Hawala Transactions And Funding Terror Operations Enforcement DirectorateBitcoins received much attention in the last quarter of 2013. So much was the entrepreneurial excitement and regulatory scrutiny that Bitcoins was also covered by the Cyber Law Trends and Developments of India 2013 (PDF) by Perry4Law and Perry4Law’s Techno Legal Base (PTLB).

The legality of Bitcoins in India was always in doubts. However, in order to earn money, many people and companies were dealing in Bitcoins in India with great disregard to the cyber law due diligence requirements and in active violation of the Internet intermediary liability rules framed under the Information Technology Act, 2000. Realising the gravity of the situation, the RBI cautioned users of virtual currencies against various risks. These include legal risks as well.

Bitcoin users in India are vulnerable to legal actions of diverse nature and many Bitcoin websites in India can be prosecuted in due course of time. The Income Tax Overseas Units (ITOUs) of India have been established in foreign countries to curb black money. With the present corporate environment of India fast changing, taking Indian laws for granted by the Bitcoin websites is not a good strategy.

Meanwhile, the Enforcement Directorate (ED) searched two Bitcoins websites and their offices. In the present non compliance environment, more such searches and arrests are anticipated. As per TOI, the sources in the ED have revealed that money exchanged through Bitcoins can be used for hawala transactions and, in some cases, to fund terror operations. However, Bitcoin trader Nilam Doctor, who has been declared absconding by ED officials, denies that the virtual currency is illegal.

As many as 411 customer accounts and details involving transactions running into lakhs of rupees were recovered during the raid on the office of The racket was being run by a software professional named, Mahendra Gupta.

The sources said that most of Gupta’s customers are from outside Gujarat. “We are doing a background check on each and every customer, particularly those involved in transactions worth more than Rs 10 lakh,” said an ED official. This first-ever raid on Bitcoin traders which began on late Thursday evening ended on Friday morning.

“Any individual can have several wallet addresses in which money can be stored virtually as Bitcoins and used for transactions. It’s a complex chain and very difficult to detect. The ramifications of this unmonitored trading can be huge,” said a senior official. The arrested traders will be charged under section 3 of the Foreign Exchange Management Act (FEMA).

Mahendra Gupta had developed software for a Bitcoin trading platform for an Australian company and accepted payments in Bitcoins. He later developed a replica of the same platform and began trading in India. During the raid, 13 Bitcoins worth Rs 6 lakh were recovered from Gupta’s possession.

The owner of the other Bitcoin website’s office that was raided,, was declared absconding by ED officials. “According to our information, Nilam Doctor is in Mauritius,” said the ED official. Doctor is an alumni of LD Engineering College (1983 batch) and B K School of Management (1985). He operates two companies in Mauritius and US which too trade in Bitcoins. Commenting on the report published on the TOI website, Doctor has stated: “Hawala and money-laundering are done in cash and not in Bitcoins. They are open on ‘blockchain’ for the government to check.”

Hyderabad-based and Bangalore based Bitcoin trading websites are also under scanner. All the four website owners had held a national conference on Bitcoins in Bangalore on December 14 and 15 to popularize the concept of Bitcoins.

The Enforcement Directorate (ED) must use e-discovery and cyber forensics methods to detect possible legal violations by Bitcoin websites. Till digital evidence provides valuable insight about the nature and manner of commission of crimes under Indian laws, if any, nothing can be claimed in a concrete manner.

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