The past year or so has seen decentralised cryptocurrency slowly becoming part of the mainstream narrative. On the seamy side, the digital currency has also provided an avenue for online criminal activities involving tax evasion and other kinds of serious frauds.

In the past six months, between April-September 2021, the top three cryptocurrency exchanges – WazirX, CoinSwitch Kuber and CoinDCX – have blocked over two lakh accounts citing malicious activities.

Malicious activities

CoinSwitch Kuber alone has suspended 180,000 accounts in the past six months, while it is currently monitoring the daily activities of around 200,000 accounts that can possibly be malicious, Sharan Nair, CBO, CoinSwitch Kuber, told BusinessLine .

WazirX has blocked 14,469 accounts after receiving requests from Indian and foreign law enforcement agencies. Foreign law enforcement agencies raised 38 requests. These came from countries including the US, UK, France, Austria, Switzerland and Germany. But over 90 per cent of the accounts were blocked after complaints from other users and the company’s internal tracking mechanism.

Nischal Shetty, Founder, WazirX, told BusinessLine, “ WazirX is part of Blockchain and Crypto assets Council (BACC) along with other crypto exchanges. Our exchange is able to trace all users on the platform with official identity information. We already have a robust KYC and AML enabled policy that we follow to self-regulate in the absence of regulatory guidelines. All the necessary information to track malicious activities that are “facilitated” by blockchains are publicly available.”

He added, “Additionally, WazirX has collaborated with TRM Labs, a cryptocurrency compliance platform, for transaction monitoring and investigation, wallet screening and risk management. It has helped bolster the security of the platform and scale compliance initiatives."

Notice to WazirX

WazirX was recently issued a show-cause notice by Enforcement Directorate for alleged violation of the Foreign Exchange Management Act on transactions involving crypto-currencies worth ₹2,790 crore. The ED then said it has initiated a probe on the basis of its ongoing money-laundering investigation into Chinese-owned illegal betting applications.

According to Nair, the pandora’s box opens when one is able to send cryptocurrency outside the exchange. “The biggest problem the regulators have is with people buying bitcoins on one platform and sending it to unknown addresses. Nobody is able to track who these addresses belong to and what is the intent of these addresses. Even the crypto exchanges won’t be able to track it,” Nair said.

To curb this issue, CoinSwitch Kuber doesn’t let its users withdraw or move their funds in cryptocurrency. To withdraw their money, they have to first sell the crypto asset on the exchange and get their money deposited directly into their bank accounts in INR.

Lack of regulation

Policy experts said that though the exchanges are themselves blocking suspicious accounts, the real issue is the lack of regulation.

“The crypto world is largely unregulated. While the Reserve Bank of India has already expressed its reservation in allowing cryptocurrency, the government is yet to announce its stance on the issue,” said an industry expert.

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