India's Enforcement Directorate has conducted search operations at the premises of two of the country's most prominent cryptocurrency exchanges — CoinDCX and Delta Exchange — as part of an investigation into alleged offshore trade routing that may have breached India's stringent foreign exchange laws. At the heart of the case is a striking allegation: that the two platforms systematically channelled Indian users' trading activity to offshore exchanges, including Binance and Bybit, using a shell entity incorporated in Costa Rica as the conduit.
The raids mark one of the most significant regulatory interventions into India's domestic cryptocurrency industry in recent memory, and they carry implications that extend well beyond the two exchanges named. For an industry that has spent years attempting to cultivate legitimacy under a complex and evolving regulatory framework, the involvement of the Enforcement Directorate — India's foremost financial crimes and foreign exchange enforcement body — signals that authorities are prepared to pursue structural compliance failures with the full weight of law.
The core allegation, as understood from the ED's position, is that CoinDCX and Delta Exchange did not simply allow users to trade independently on foreign platforms. Rather, the two exchanges allegedly constructed or participated in an arrangement whereby Indian users' orders were routed through a Costa Rican shell entity before landing on major offshore venues including Binance and Bybit. This structure, if proven, would represent a deliberate architectural decision to obscure cross-border capital flows — not a passive failure of oversight, but an active evasion mechanism. Shell entities in low-scrutiny jurisdictions like Costa Rica have long been recognised by financial intelligence agencies as instruments for regulatory arbitrage, and the ED's framing of this case reflects that understanding.
The legal exposure for both exchanges could be considerable. India's Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA) together give the ED broad powers to investigate, attach assets, and prosecute entities found to have facilitated unauthorised cross-border financial flows. Routing domestic trades to unregistered foreign exchanges without proper disclosure or regulatory clearance would likely fall within the ambit of both statutes. The use of a corporate intermediary in a third country adds a layer of potential structuring liability that prosecutors typically treat as an aggravating factor.
CoinDCX, founded in 2018, grew into one of India's largest retail cryptocurrency platforms and attracted significant venture capital backing over successive funding rounds, positioning itself as a compliance-forward exchange that embraced registration requirements under India's Financial Intelligence Unit (FIU) framework. Delta Exchange, known primarily for its cryptocurrency derivatives products, similarly operates within the Indian market and has catered to more sophisticated traders. Both exchanges have publicly navigated the difficult terrain of India's 30 percent crypto tax regime and the 1 percent Tax Deducted at Source (TDS) requirement introduced in 2022 — policies that many in the industry acknowledged drove volumes offshore. That regulatory context is not incidental: it is precisely the kind of environment in which the temptation to route trades externally, whether for user retention or competitive reasons, would be most acute.
The involvement of Binance and Bybit as the destination exchanges adds another dimension to the story. Binance has faced regulatory scrutiny across multiple jurisdictions over the past several years, and India itself blocked Bybit and several other offshore exchanges in January 2024 for operating without FIU registration. If the ED's allegations are substantiated, the implication would be that CoinDCX and Delta Exchange were routing Indian user flows to platforms that Indian regulators had deemed non-compliant — a posture that would be extraordinarily difficult to defend on legal or reputational grounds.
It is worth noting that search operations by the Enforcement Directorate do not constitute a finding of guilt. Indian law treats ED searches as an investigative tool, and both exchanges will have the opportunity to contest any subsequent show-cause notices, asset attachment orders, or prosecutorial actions through established legal channels. Neither company has yet issued a comprehensive public response to the specific allegations as framed by the ED. The industry will watch carefully to see whether the evidence gathered in these searches is sufficient to sustain formal charges under FEMA or PMLA.
What This Means for India's Crypto Sector
The ED's action against CoinDCX and Delta Exchange arrives at a pivotal moment for Indian crypto regulation. The country has enacted registration requirements, imposed aggressive tax measures, and signalled a desire to bring digital asset activity within the formal financial perimeter. What these raids suggest is that authorities are now moving from framework-building to active enforcement — and that exchanges which found workarounds to retain volume by routing trades offshore face serious legal consequences. For the broader industry, the message is unambiguous: structural compliance is not optional, and the architecture of a platform's trading infrastructure will receive the same scrutiny as its front-end disclosures. Exchanges operating in India, domestic and foreign alike, would be well advised to audit their order-routing arrangements with urgency.
Written by the editorial team — independent journalism powered by Codego Press.