Online Money Games Linked to Terror Financing, Centre Tells Supreme Court

In a significant disclosure before the Supreme Court of India, the Union government has defended its decision to ban online money gaming platforms, citing direct links to terror financing, money laundering and tax evasion. The Centre filed a detailed affidavit on Tuesday, providing the Court with what it described as sensitive financial intelligence outlining how unregulated gaming networks are enabling illicit cross-border financial flows.

The affidavit comes in response to a series of petitions challenging the Promotion and Regulation of Online Gaming Act, a law that has received presidential assent but is yet to be formally notified. Petitioners have argued that the legislation is excessive and infringes upon digital business freedoms. The government, however, has stressed that national security risks outweigh commercial concerns.

Government Flags Financial Fraud and National Security Threats

In its affidavit, the Centre asserted that the rapid expansion of real-money games and online wagering platforms has created an ecosystem ridden with financial irregularities. Officials highlighted that the platforms disproportionately impact youth, low-income users and psychologically vulnerable individuals, often leading to addiction, financial loss and data exploitation.

More critically, the government said the unregulated sector has become a breeding ground for illegal financial activity, with transactions frequently used to disguise the movement of funds by crime syndicates. According to the affidavit, patterns of large-value digital payments tied to gambling wallets have been detected in multiple states, forming a parallel financial channel outside formal banking scrutiny.

“Left unchecked, online money gaming is not only a threat to social stability but also a direct threat to public order and national security,” the affidavit states, underscoring the need for strong regulatory oversight.

Sealed-Cover Intelligence Reveals Money Laundering Networks

To support its claims, the Centre submitted classified financial intelligence to the Supreme Court in a sealed cover, citing the sensitivity of ongoing investigations. The submissions include Suspicious Transaction Reports (STRs) and Cross Border Wire Transfer Reports (CBWTRs) received by enforcement agencies over the last several years.

These reports, according to officials, reveal that a sizeable number of online gaming companies are registered in small island nations known for lax corporate regulation and secrecy-friendly financial laws. These offshore entities allegedly open or operate user accounts in Indian banks under proxy names, allowing them to move funds without proper KYC verification.

Funds collected from Indian users are then allegedly remitted abroad under falsified descriptions such as “software fees,” “licensing charges” or “advertising contracts.” The government maintains that this pattern fits the profile of classic money laundering and terror financing networks — where seemingly legitimate payments mask illicit transfers.

Tax Evasion and Cross-Border Abuse of Gaming Wallets

Beyond security concerns, the government also flagged serious tax evasion enabled by unregulated gaming firms. Many entities allegedly underreport revenues, route payments through low-tax jurisdictions, or use influencer-based “commission structures” to reduce taxable income.

Authorities say online gaming wallets have evolved into digital “gateways,” allowing users to deposit high-value amounts, withdraw winnings as “gift vouchers,” or transfer credits through peer-to-peer networks without oversight. Such flexibility, they argue, has made these wallets ideal tools for hawala-style money movement.

The affidavit notes that several enforcement cases have recorded instances where wallets were used as fronts for drug trade proceeds, extortion money, and cross-border illegal betting operations tied to international networks.

Why the Government Says Regulation Is Urgent

The Centre argues that without a dedicated law, India faces a regulatory vacuum at a time when online gaming is expanding rapidly among younger demographics. According to the affidavit, both state police forces and central agencies have repeatedly flagged the emergence of high-velocity transactions that are difficult to monitor under existing IT or criminal laws.

The government says the new law aims to:

• Safeguard youth from addiction and financial exploitation
• Disrupt channels used for laundering illegal proceeds
• Prevent digital wallets from becoming terror financing conduits
• Ensure transparent KYC compliance and traceability of funds
• Bring offshore gaming entities under a unified regulatory framework

The affidavit emphasises that the objective is not just regulation but prevention of national security threats emerging from digital financial misuse.

Legal Challenge Continues; Supreme Court to Hear Matter

Petitioners challenging the legislation maintain that the Act imposes excessive restrictions on legitimate gaming businesses and conflates skill-based games with illegal gambling. They argue that the government is selectively using enforcement data and that broader industry consultation is required.

The Supreme Court is expected to examine both sides’ arguments, including the sealed financial intelligence provided by the government. A final hearing date is awaited, but the Court has indicated that national security concerns will be weighed carefully.

Until the law is notified, enforcement actions continue under existing statutes, including the Prevention of Money Laundering Act and IT Act provisions.

Shunyatax Global Editorial Note

At Shunyatax Global, we analyse how digital platforms, financial systems and national security intersect. The Centre’s affidavit on online money games adds a crucial layer to ongoing debates about digital governance and financial oversight.

For more in-depth analysis of cybercrime enforcement, fintech regulation and digital-economy risks, visit Shunyatax Global Services