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In a move that further raises concerns over the functioning of crypto-currency exchanges, the Enforcement Directorate has issued a show-cause notice to one of the largest domestic crypto-exchange, WazirX, and its Directors Nischal Shetty and Sameer Hanuman Mhatre for alleged violation of the Foreign Exchange Management Act on transactions involving crypto-currencies worth ₹2,790 crore.
WazirX was bought out by Chinese crypto-currency firm Binance in 2019.
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In a statement on Friday, the ED said it has initiated a probe on the basis of its ongoing money-laundering investigation into Chinese-owned illegal betting applications. In September, the agency had searched 15 locations in Delhi, Gurugram, Mumbai and Pune and busted a worth ₹1,268-crore online betting racket involving Chinese companies. In December, the ED said a large amount of money was inexplicably transferred using crypto-currency.
On Friday, the ED said the investigations had revealed some Chinese nationals had laundered proceeds of crime amounting to about ₹57 crore, by converting Indian rupee deposits into crypto-currency Tether and then transferring it to Binance (the exchange is registered in Cayman Islands) Wallets on instructions from abroad.
Range of transactions
“WazirX allows wide range of transactions with crypto-currencies, including exchange into Indian rupees and vice-versa; exchange of crypto-currencies; and even transfer/receipt of crypto-currency held in its pool accounts to wallets of other exchanges which could be held by foreigners in foreign locations,” the ED said.
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WazirX does not collect documents, in clear violation of the mandatory Anti-Money Laundering (AML) and Combating of Financing of Terrorism (CFT) norms and FEMA guidelines, it said.
In the period under investigation, users of WazirX have, through its pool account, received crypto-currency worth ₹880 crore from Binance accounts and moved out crypto-currency worth ₹1,400 crore to Binance accounts.
No audit trail
The main concern for the investigative agency is that none of these transactions is available on blockchain for any audit/investigation. Also, It was found that WazirX customers could transfer 'valuable' crypto-currencies to any person irrespective of his/her location and nationality without any documentation, making it a safe haven for those looking to launder money or for other illegitimate activities.
Nischal Shetty, CEO and Founder, WazirX, however, said the company is yet to receive any show-cause notice from the ED.
“WazirX is in compliance with all applicable laws. We go beyond our legal obligations by following Know Your Customer (KYC) and AML processes and have always provided information to law enforcement authorities. We are able to trace all users on our platform with official identity information. Should we receive a formal communication or notice from the ED, we will fully cooperate in the investigation,” he said in a statement. The cryptocurrency exchange also tried to ease investor concerns. “Your funds are absolutely safe,” it said in a tweet. While last week, the RBI said it has major concerns around crypto-currencies, most crypto exchanges in the country say the concerns are unfounded as all transactions are based on proper AML and KYC processes.
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