'Regulation of Virtual Digital Assets is a test case for India's ability to enforce cross-border digital accountability.' Comment.

Virtual Digital Assets (VDAs) are borderless, pseudonymous and hosted offshore, yet traded by Indian users — making them the sharpest test of whether Indian law can bind entities with no physical presence here. India's response, routing VDA service providers (VDA SPs) through the PMLA, 2002, shows real regulatory reach, but enforcement remains only partially effective.

Evidence of enforcement capability

• Activity-based jurisdiction: since March 2023, any VDA SP serving Indian users — offshore or onshore — must register with FIU-IND as a reporting entity, irrespective of physical presence [1]. Covered activities include VDA-fiat exchange, transfer, and safekeeping/administration [1].
• Graduated action: show-cause notices to 9 offshore VDA SPs (including Binance, Kraken) in December 2023 [2]; notices to 25 offshore VDA SPs under Section 13, PMLA [1]; and fresh notices to 15 more VDA SPs in September 2026 [3].
• Monetary teeth: a penalty of ₹9.27 crore on Bybit Fintech Ltd for violating PMLA record-keeping and reporting obligations [4].
• Access control: FIU-IND, as nodal officer under the IT Act, 2000, orders takedown of non-compliant apps/URLs — converting an unenforceable penalty into a usable sanction [3].

Limits of the model

• Coercion rests largely on blocking, not adjudication; entities beyond Indian process can simply reroute users through mirrors or VPNs.
• Compliance gap: only about 50 VDA SPs are registered, against a far larger universe serving Indian users — repeated rounds of notices indicate deterrence is incomplete [1].
• Enforcement depends on inter-agency coordination (FIU-IND, MeitY, ISPs), and AML regulation runs on a separate track from VDA taxation, leaving a fragmented framework.

The VDA experience shows India can assert jurisdiction over digital activity rather than digital presence — a genuine advance — but conversion of notices into sustained compliance is still evolving. Strengthening FATF-aligned cooperation, mutual legal assistance and a consolidated VDA statute would turn episodic blocking into durable accountability, extending the rule of law credibly into cross-border digital space.