The global virtual digital asset (VDA) market is expanding rapidly, but regulation is struggling to keep pace. Issues like unclear laws, heavy taxation, and weak compliance frameworks continue to create gaps. A March 2026 report by the Financial Action Task Force (FATF) highlights one of the biggest emerging risks: offshore Virtual Asset Service Providers, or oVASPs.
These are crypto platforms registered in one country but operating mainly in others, often without proper licenses, consumer safeguards, or anti-money laundering controls.
What Are Offshore VASPs and Why Do They Matter?
Offshore VASPs operate across borders while staying largely outside the control of local regulators. According to FATF, this creates serious weaknesses in the global financial system, making these platforms vulnerable to misuse for money laundering, terrorist financing, and fraud.
Unlike regulated platforms that follow KYC norms and report suspicious activity, many offshore players avoid these responsibilities. Their operations are usually spread across multiple countries, making enforcement complicated and slow.
How These Platforms Avoid Regulation
FATF identifies two types of offshore VASPs: those that are unclear about regulations and those that deliberately avoid them. The second group is the bigger concern.
These platforms often use complex company structures to hide ownership, onboard users through local agents, and even encourage VPN usage to hide user locations. In some cases, they appoint compliance officers who exist only on paper, or provide misleading information to regulators.
This allows them to operate in tightly regulated markets without actually following the rules.
India’s Challenge with Offshore Crypto Platforms
India is a strong example of how offshore platforms can bypass local rules. Despite regulations requiring platforms to have a physical presence in the country, many offshore operators continue to serve Indian users.
They often allow sign-ups with weak or no KYC, accept UPI payments, and process withdrawals into Indian bank accounts through intermediaries. This gives them a cost advantage over compliant platforms and attracts more users.
At the same time, India has taken steps to respond. These include better detection systems, stricter enforcement of physical presence rules, and improved coordination between agencies. The country is also working on a Virtual Asset Lab to strengthen monitoring using advanced analytics.
What FATF Wants Countries to Do
FATF is calling for a coordinated global response. It recommends that countries actively track offshore platforms, enforce local licensing requirements, and improve cooperation between jurisdictions.
It also highlights the role of the private sector. Banks and regulated crypto platforms are expected to limit their exposure to unlicensed offshore entities. Both the country where a platform is registered and the country where it operates must share information and act quickly when risks are identified.
The Bigger Picture
Offshore crypto platforms exist in the gaps between countries and regulations. Closing these gaps will require global cooperation, stronger enforcement, and more accountability from platforms themselves.
The message is clear: the days of operating in regulatory grey zones are coming under pressure. For the crypto industry to grow responsibly and gain wider trust, transparency and compliance will no longer be optional.
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