Police and revenue officials have twice interviewed Ugyen Thinley Dorje, the 17th Karmapa, and his aides about the source of the $1.35 million in a range of foreign currencies found at the Gyuto Tantric Monastery last weekend.
Representatives of the Karmapa - seen as one of the Dalai Lama's potential successors - say the money was part of donations his followers offer when they visit the monastery to seek his blessings. The amount of cash, however, concerned police, who thought the sums were too large to be merely from donations.
The raids are unprecedented and particularly surprising since the Karmapa is revered by Tibetans and Buddhists across India. India has gone to great lengths to provide asylum to the Dalai Lama and other Buddhist leaders who have fled Tibet.
Hundreds of Tibetan monks and nuns in their traditional maroon robes were joined in their march by ordinary Tibetans carrying Buddhist flags and portraits of the Karmapa. Softly chanting slogans, they walked solemnly through the streets of the northern Indian town of Dharmsala, carrying signs that read, "Karmapa is innocent. Let truth prevail."
The Karmapa addressed his supporters, and told them not to worry.
"All these troubles will be solved in due course in accordance with legal procedures," he said.
The 24-year-old Karmapa a member of a different religious order from the Dalai Lama but it is widely thought he will succeed the 75-year-old leader.
The probe has put the Kermapa on the defensive and left his aides scrambling to protest his innocence of any wrongdoing.
Aides of the Karmapa tried Wednesday to distance the young spiritual leader from the monetary and administrative functions of his office.
"The office manages all the worldly affairs of His Holiness the Karmapa, including handling the donations and administering the finances," Karma Topden, a spokesman, said in a statement.
Indian media had initially carried reports that the Karmapa could be a Chinese agent sent to India to become a leader of exiled Tibetan Buddhists who have made their home there. Around $130,000 of the money found at the monastery was in Chinese yuan.
The Karmapa escaped from Tibet in 2000 - as the Dalai Lama did decades earlier. Since then, he has been living in the monastery in Sidhbari, just outside of Dharmsala.
China's government reviles the Dalai Lama, accusing him of pushing for independence for Tibet and sowing trouble there. A boy named by the Dalai Lama as the second-highest Tibetan spiritual leader, or the Panchen Lama, disappeared in 1995, shortly afterward and China selected another boy.
Topden said the Chinese currency seized by police included notes ranging from 1 yuan to larger denominations, "proving that they have come from multiple individual sources."
Dharmsala has been the headquarters of the self-declared Tibetan government-in-exile since the Dalai Lama fled the Himalayan region in 1959.