Common Pitfalls in Crypto: 7 Actions That Can Lead to Legal & Financial Trouble
4 min readFeb 19, 2024

Read carefully to avoid unintended legal and financial entanglements. Here are some critical points to keep in mind:

1️⃣Unintended Trouble: Unverified Apps/ P2P Trades

If a buyer/seller , sends or receives money/crypto from a Person/Platform involved in scams or illegal activities. The cyber police might suspect his involvement in the scam .

Frequently encountered scenario on

A verified user buys cryptocurrency on

He then spots an arbitrage chance on an unauthorized app or P2P marketplace. After selling the cryptocurrency for a higher price, he might have received tainted INR into their bank account due to the unauthorized Peers’/Platforms’ association with unlawful activities. Unaware of the source, depositing this INR back on Onramp for a transaction triggers suspicion, resulting in temporary fund holds or account flagging or legal action by the Compliance & enforcement agencies until extended due diligence is passed.

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2️⃣ Proxy Sign-in/Proxy Trading: Trading on behalf of others (may be your parents, spouse, siblings or friends) using their accounts or engaging in proxy trading is a recipe for trouble.

Engaging in proxy activities may result in account flagging and raise suspicion. During verification processes, the proxy individual may fail to provide satisfactory answers regarding the transactions, leading to potential account blocks.

Always trade using your own verified accounts and avoid acting as a proxy for others.

Also ensure that on one device, only one Person signs in: the KYC-verified one and no one else.

3️⃣ Money Muling: A money mule is someone who receives and moves money that came from victims of fraud. Some money mules know they are assisting with criminal activity, but others are unaware that their actions are helping fraudsters.

If someone you don’t know sends you money and asks you to forward or transfer the money, you could be fueling fraud by serving as a money mule

4️⃣ Inaccurate Details/Document Tampering: Ensure the accuracy and truthfulness of all your details and documents to prevent legal consequences. Inaccurate details or document tampering involves intentionally altering or falsifying information on a document.

Fake KYCs, tampered, or counterfeit documents could attract the attention of compliance authorities, leading to financial and legal trouble.

5️⃣ Benami Accounts: A benami account in cryptocurrency refers to an account opened in the name of someone else but operated by the person who opened the account. These transactions can be used for illegal activities such as money laundering, terrorism financing, and tax evasion.

Often the name lenders or Registered Account holders are economically weak & unaware of trading concepts & the actual Owner of the funds lure them with some commission to operate account on their names.

6️⃣Vital: Name Mismatch Impacting Transaction

Attempting to send or receive funds from/to a bank account/UPI that is not added and verified on, or from a bank account with a name mismatch, may lead to prolonged processing times for your transaction until verification is completed. Please note that this process could take approximately 15 to 20 days.

7️⃣ Tax Evasion:

Remember, ignorance is not an excuse when it comes to legal matters. Engaging in tax evasion tactics such as avoiding Tax Deducted at Source (TDS) by using offshore exchanges or non-compliant platforms or transferring crypto overseas can result in legal repercussions and raise concerns about money laundering. Failure to report substantial crypto income to tax authorities may attract scrutiny despite not directly receiving income tax.

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In the crypto game, it’s crucial to play by the rules, declare your income, and steer clear of shady transactions. Engaging in any unlawful acts could land you in big trouble — never assume you can slip under the radar!

When any kind of unlawful activity, whether intentional or unintentional, is detected by crypto platforms, they initiate thorough due diligence on users, including document verification, reviewing bank statements, and investigating the source and destination of funds.

If a user is unable to prove their innocence or if the platform uncovers further traces of suspicious or fraudulent activities, or if the user attempts to tamper with documents during the process, the crypto platform is obligated to report the suspicious transaction and user to the FIU.

FIU and enforcement agencies collaborate closely with crypto platforms to trace transactions, identify users evading taxes, engaging in money laundering, or committing any other unlawful acts.

This may not only result in your funds being placed on hold or your account being flagged but also lead to significant financial and legal repercussions.

To ensure higher safety, Ensure that all three aspects are free of any discrepancies

  • Source of Funds (Crypto or Fiat / Buyer or Seller / Crypto wallet or Bank Account)
  • Crypto Platform (Intentions behind usage)
  • Destination of Funds (Crypto or Fiat / Buyer & Seller / Crypto wallet or Bank Account)



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