After a lengthy investigation, they decided to release me, but not without continuous accusations and allegations of fraud. I ended up paying them a bribe to remove my name from the suspect list. While they did let me go, they didn’t take me very seriously and kept insinuating that I was involved in fraudulent activities.
In the end, the person who was providing me with cash was sent to jail after the court proceedings. Unfortunately, I also lost the USDT I had exchanged through him, as it was involved in the fraudulent scheme.
My best guess is the money he is circulating was involved in
Hawala, it's very fortunate that you managed to get yourself away from the suspect list because most often the names will be added to the potential suspect follow up by long court processing.
These are some rare cases especially when dealing in lakhs and FYI these can't be avoided even if we use escrows or whatever measures that only ensure the guarantee of pay not the source of funding. I will still recommend you the paxful for doing p2p trades where there are some trusted trades with huge volume under their profile so next time when you want to buy or sell crypto make sure the person is KYCed and doing trades regularly and don't forget to read the feedback left by their trade partners.
I suggest you to stop dealing with fiat and that's the only way you can ever get out of this situation, convert fiat to crypto in lumpsum and just keep it as crypto so you can use the anonymous and decentralized exchanges for trading and move your profits in crypto itself to your wallet and keep holding.