Countering Terror Financing through Digital Platforms: Emerging Challenges for India's Legal Framework
The intersection of digital innovation and national security has brought renewed attention to the capacity of India's anti terror financing laws to address emerging forms of financial crime.
INTRODUCTION
The rapid growth of digital platforms, reflected in India’s record of approximately 222 billion digital transactions during FY 2024-25, 1 has transformed financial transactions and created new opportunities for economic inclusion and innovation. However, these technologies have also enabled terrorist organisations to raise, transfer and conceal funds through cryptocurrencies2 , crowdfunding websites3 , social media platforms4 and online payment systems5 . While India has developed a robust anti money laundering and counter terror financing regime through the Prevention of Money Laundering Act, 2002 (PMLA) 6 and the Unlawful Activities (Prevention) Act, 1967 (UAPA) 7 emerging digital methods of financing challenge the effectiveness of existing legal mechanisms. The intersection of digital innovation and national security has brought renewed attention to the capacity of India's anti terror financing laws to address emerging forms of financial crime. 8
BACKGROUND
Terrorist financing refers to the collection, movement or provision of funds intended to support terrorist activities, organisations or individuals. 9 Unlike money laundering, which involves disguising the illicit origin of funds to make them appear legitimate, 10 terrorist financing focuses on the intended use of funds for supporting terrorist acts, regardless of whether the funds originate from lawful or unlawful sources, the key concern lies in their intended use for facilitating acts of terrorism. In recent years, rapid technological advancements have transformed the methods through which funds can be raised and transferred, enabling terrorist networks to exploit digital platforms that offer speed, accessibility and, in some cases, anonymity. Digital platforms have emerged as significant channels for the financing of terrorism. Cryptocurrencies and other virtual assets allow cross-border transactions with limited traceability, 11 while crowdfunding websites and social media platforms can be used to solicit donations from a wide audience. 12 13
Online payment gateways, fintech wallets, gaming platforms, digital tokens 14 and encrypted peer-to-peer transfer systems further expand the avenues through which funds may be collected, transferred and concealed from regulatory scrutiny. India's legal response to terror financing is primarily governed by the Unlawful Activities (Prevention) Act, 1967 (UAPA) 15, the Prevention of Money Laundering Act, 2002 (PMLA) 16 17 and the Information Technology Act, 2000 (IT Act) . Sections 17 and 40 of the Unlawful Activities (Prevention) Act, 1967 (UAPA) criminalise the raising of funds for terrorist activities and organisations, while the Prevention of Money Laundering Act, 2002 (PMLA) empowers authorities to investigate, attach and confiscate assets linked to financial crimes. These measures are supported by the Financial Intelligence Unit–India (FIU-IND) 18, which monitors suspicious financial transactions and are further shaped by international standards prescribed by the Financial Action Task Force (FATF) 19 on combating money laundering and terrorist financing.
Research Issues
1. Whether India's existing legal framework is capable of effectively investigating and regulating digital platforms operating beyond its territorial jurisdiction?
2. Whether enhanced anti money laundering and counter terror financing measures can be implemented without disproportionately affecting fundamental rights such as privacy, freedom of association, and legitimate charitable activities?
3. Whether comparative international practices relating to virtual asset regulation and AML/CFT compliance provide useful lessons for addressing digital terror financing?
Important Case Laws
1. Vijay Madanlal Choudhary v. Union of India (2022) 20
The Supreme Court upheld the constitutional validity of several key provisions of the Prevention of Money Laundering Act, 2002, emphasising the grave threat posed by money laundering and related financial crimes to the nation's economic stability and security. The Court recognised the need for stringent enforcement mechanisms to combat sophisticated financial offences. The judgment is particularly relevant in the context of digital terror financing, as it reinforces the investigative and enforcement powers of authorities to trace, attach and confiscate funds that may be channelled through emerging digital platforms and financial technologies.
People's Union for Civil Liberties v. Union of India (1997) 21
The Supreme Court acknowledged that telephone interception and surveillance constitute a serious intrusion into an individual's right to privacy and therefore must be subject to adequate procedural safeguards. The Court held that unrestricted surveillance powers could lead to arbitrary state action and directed the establishment of oversight mechanisms for interception orders. The judgment remains significant in the context of digital terror financing, as it underscores that surveillance and monitoring measures adopted to detect suspicious financial activities must adhere to constitutional guarantees, principles of proportionality and due process requirements.
3. Internet and Mobile Association of India v. RBI (2020) 22
The Supreme Court applied the doctrine of proportionality, which requires that restrictions imposed by the State must be suitable, necessary and balanced in relation to the objective sought to be achieved, 23 while examining the Reserve Bank of India's circular restricting banking services to entities dealing in cryptocurrencies. The Court held that the blanket restriction was disproportionate in the absence of sufficient evidence demonstrating actual harm caused by virtual currencies to the banking system. The judgment is particularly relevant to digital terror financing as it highlights the challenge of regulating virtual assets and mitigating associated risks without imposing excessive restrictions that could hinder technological innovation and legitimate economic activity.
Analysis
Despite India's increasingly robust anti terror financing framework, 24 several legal and regulatory challenges continue to undermine its effectiveness in the digital era. One significant concern is the absence of a comprehensive legislative framework specifically governing cryptocurrencies and other virtual assets in the context of terrorist financing. While certain reporting and taxation requirements have been introduced, the regulatory landscape remains fragmented and lacks clear mechanisms for monitoring illicit digital transactions. 25 Additionally, the Prevention of Money Laundering Act, 2002 (PMLA) was primarily designed to regulate traditional banking institutions and identifiable financial intermediaries through mechanisms such as customer due diligence, record keeping obligations and suspicious transaction reporting requirements under Section 12 and 2(1)(wa). 26 Consequently, its application to decentralised technologies and emerging fintech ecosystems remains limited. Decentralised finance platforms frequently operate without regulated intermediaries, while terrorist financiers may exploit anonymous wallets, privacy enhancing technologies, mixers, cross-chain transfers and decentralised exchanges to obscure transaction trails and conceal beneficial ownership. These gaps highlight the need for a dedicated virtual asset regulatory framework, enhanced beneficial ownership requirements and technology driven transaction monitoring mechanisms.
Another major challenge arises from the transnational nature of digital platforms, as terrorist organisations can utilise foreign based websites, payment systems and virtual asset networks that often fall beyond India's effective jurisdiction. Although the Information Technology Act, 2000 (IT Act) provides a framework for regulating online intermediaries and facilitating access to digital information, 27 its effectiveness remains limited when dealing with platforms and service providers operating outside India's territorial boundaries. This creates significant obstacles in tracing transactions, obtaining evidence and securing cooperation from foreign entities, thereby complicating investigation and enforcement efforts. While India possesses certain legal mechanisms to address these concerns, including the extra-territorial provisions Of the Unlawful Activities (Prevention) Act, 1967 28 and the Prevention of Money Laundering Act, 2002 29 their practical effectiveness often depends upon international cooperation. Investigations involving foreign platforms frequently require assistance through Mutual Assistance Treaties (MLATs) 30 ,Financial Action Task Force (FATF) information sharing frameworks 31 and Interpol cooperation mechanisms.32 However, differences in domestic laws, delays obtaining evidence and the absence of uniform regulation of virtual assets across jurisdictions continue to limit the effectiveness of cross-border enforcement efforts.
Furthermore, the expansion of surveillance and monitoring measures to detect suspicious transactions raises concerns regarding the right to privacy and data protection, particularly in light of constitutional safeguards recognised by the Supreme Court. The pursuit of compliance with international standards prescribed by the Financial Action Task Force (FATF) also requires a careful balance between national security and civil liberties. In Justice K.S. Puttaswamy (Retd.) v. Union of India, the Supreme Court emphasised that restrictions upon fundamental rights must satisfy the tests of legality, necessity and proportionality. 33
Under the doctrine of proportionality, State action must pursue a legitimate objective, employ measures that are necessary to achieve that objective and adopt the least restrictive alternative available. Consequently, anti money laundering and counter terror financing measures should not impose excessive burdens that disproportionately interfere with individual rights. Broad counter terror financing powers may inadvertently affect legitimate charitable organisations, non-governmental organisations and individuals, giving rise to concerns regarding regulatory overreach and the potential misuse of enforcement mechanisms. 34 Excessive monitoring, freezing of funds or prolonged investigations may disrupt legitimate humanitarian and social welfare activities even in the absence of proven links to terrorism. Effective judicial oversight and procedural safeguards are therefore essential to ensure that enhanced security measures remain consistent with privacy, freedom of association and other constitutional protections while continuing to serve legitimate national security objectives.
Comparative Analysis
a. India and the United Kingdom
A comparison between India and the United Kingdom reveals notable differences in their approaches to combating terror financing through digital platforms. The United Kingdom has developed a comprehensive legal framework through the Terrorism Act 2000 35 and the Proceeds of Crime Act 2002 36 , which provides extensive powers to investigate, freeze and confiscate assets linked to terrorism. In addition, the UK has adopted stringent regulations for crypto asset service providers and employs a national risk assessment model to identify and respond to emerging financial threats.
This risk-based approach enables regulators to continuously monitor developments in
digital finance and implement targeted measures against potential misuse by terrorist
organisations. In contrast, India's framework is primarily based on the PMLA, 2002
and the UAPA, 1967, which provide a strong legal foundation but offer limited
specialised regulation for virtual assets and decentralised finance. Consequently, India
may draw valuable lessons from the UK by introducing dedicated digital asset
supervision, enhancing public private intelligence sharing and adopting technology
driven transaction monitoring mechanisms to strengthen its counter terror financing
efforts.
b. India and the European Union
The European Union has taken significant steps towards regulating digital financial ecosystems through the Markets in Crypto Assets Regulation (MiCA) 37 and a comprehensive anti money laundering package targeting virtual assets. These measures establish clear compliance obligations for crypto asset service providers, enhance transparency in digital transactions and integrate virtual assets into the broader AML/CFT framework. Such a specialised regulatory structure allows authorities to address the risks associated with emerging technologies while maintaining consistent oversight across member states. By comparison, India's approach to digital assets remains largely dependent on existing anti money laundering laws and reporting requirements under the PMLA. Although recent regulatory measures have increased scrutiny of virtual asset transactions, the absence of a dedicated legal framework continues to create challenges in monitoring and enforcement. The European Union's model demonstrates the benefits of a specialised and technology focused regulatory regime. 38 Drawing from this approach, India could consider establishing a dedicated Digital Asset Compliance Framework integrated with existing AML/CFT obligations to improve oversight and address the evolving challenges of digital terror financing.
CONCLUSION
The emergence of digital platforms has fundamentally altered the nature of terrorist financing, making traditional enforcement tools increasingly inadequate. Although India possesses a comprehensive legal framework through the Unlawful Activities (Prevention) Act, 1967, the Prevention of Money Laundering Act, 2002 and FATF compliant AML/CFT mechanisms, significant challenges remain in regulating cryptocurrencies, cross-border digital transactions and emerging fintech ecosystems. The absence of a comprehensive legislative framework for virtual assets, difficulties in cross-border investigation and enforcement and concerns relating to privacy and civil liberties continue to undermine the effectiveness of the existing framework. Future reforms should focus on technology neutral legislation, stronger international cooperation, specialised regulation of virtual asset service providers and safeguards that preserve constitutional freedoms while effectively countering evolving terror financing threats. Such a balanced approach is essential for ensuring both national security and digital innovation in the twenty-first century.
1 Reserve Bank of India, Annual Report 2024–25, Chapter III (Payments and Settlement Systems)2 Finance Act, No. 6 of 2022, § 2, inserting Income-tax Act, No. 43 of 1961, § 2(47A), India Code
3 Financial Action Task Force, Crowdfunding for Terrorism Financing (2023)
4 Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, r. 2(1)(w),
Gazette of India (2021)
5 Payment and Settlement Systems Act, No. 51 of 2007, § 2(1)(i), India Code (2007)
6 Prevention of Money Laundering Act, No. 15 of 2003, India Code (2003)
7 Unlawful Activities (Prevention) Act, No. 37 of 1967, India Code (1967)
8 Financial Action Task Force, India: Mutual Evaluation Report (2024)
9 Unlawful Activities (Prevention) Act, No. 37 of 1967, §§ 17, 40, India Code (1967)
10 Prevention of Money Laundering Act, No. 15 of 2003, § 3, India Code (2003)
11 Financial Action Task Force, Virtual Assets: Red Flag Indicators of Money Laundering and Terrorist
Financing (2020)12 Financial Action Task Force, Crowdfunding for Terrorism Financing (2023)
13 Payment and Settlement Systems Act, No. 51 of 2007, § 2(1)(i), India Code (2007)
14 Finance Act, No. 6 of 2022, § 2, inserting Income-tax Act, No. 43 of 1961, § 2(47A), India Code
15 Unlawful Activities (Prevention) Act, No. 37 of 1967, India Code (1967)
16 Prevention of Money Laundering Act, No. 15 of 2003, India Code (2003)
17 Information Technology Act, No. 21 of 2000, India Code (2000)
18 Financial Intelligence Unit–India, Annual Report 2025-26
19 Financial Action Task Force, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (FATF Recommendations)
20 Vijay Madanlal Choudhary & Ors. v. Union of India & Ors., (2022) 10 SCC 24
21 People's Union for Civil Liberties v. Union of India, (1997) 1 SCC 301
22 Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274
23 Justice K.S. Puttaswamy (Retd.) v. Union of India, (2017) 10 SCC 1
24 Financial Action Task Force, India: Mutual Evaluation Report 2024
25 Financial Action Task Force, Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing (2020)
26 Prevention of Money Laundering Act, No. 15 of 2003, §§ 2(1)(wa), 12, India Code (2003)
27 Information Technology Act, No. 21 of 2000, §§ 69A, 79, India Code (2000)
28 Unlawful Activities (Prevention) Act, No. 37 of 1967, § 1(2) read with §§ 17, 40, India Code (1967)
29 Prevention of Money Laundering Act, No. 15 of 2003, §§ 56–60, India Code (2003)
30 Ministry of Home Affairs, Mutual Legal Assistance in Criminal Matters Guidelines 2019
31 Financial Action Task Force, The FATF Recommendations (International Cooperation Recommendations 36–40)
32 INTERPOL, Financial Crime and Anti-Corruption Centre (IFCACC), Operational Support Framework
33 Justice K.S. Puttaswamy (Retd.) v. Union of India, (2017) 10 SCC 134 Vijay Madanlal Choudhary v. Union of India, (2022) 10 SCC 24
35 Terrorism Act 2000, c. 11 (UK)
36 Proceeds of Crime Act 2002, c. 29 (UK)
37 Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-Assets (MiCA)38 Id